Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
September 25, 2020
| ☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Not Applicable incorporation or organization)
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 ☒ No ☐Large accelerated filer ☒ Accelerated filer ☐ ☐ (Do not check if smaller reporting company) Smaller reporting company ☐ Emerging growth company ☐
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| (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 25, 2020 | June 26, 2020 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 189,201 | $ | 225,430 | ||||
Short-term restricted cash | 7,402 | 7,402 | ||||||
Short-term investments | 307,238 | 262,693 | ||||||
Trade accounts receivable, net of allowance for doubtful accounts of $186 and $336 , respectively | 289,162 | 272,665 | ||||||
Contract assets | 11,757 | 13,256 | ||||||
Inventories | 339,429 | 309,786 | ||||||
Other receivable | 24,310 | 24,310 | ||||||
Prepaid expenses | 4,095 | 5,399 | ||||||
Other current assets | 7,827 | 14,508 | ||||||
Total current assets | 1,180,421 | 1,135,449 | ||||||
Non-current assets | ||||||||
Property, plant and equipment, net | 227,623 | 228,274 | ||||||
Intangibles, net | 4,147 | 4,312 | ||||||
Operating right-of-use | 7,228 | 8,068 | ||||||
Deferred tax assets | 5,766 | 5,675 | ||||||
Other non-current assets | 221 | 202 | ||||||
Total non-current assets | 244,985 | 246,531 | ||||||
Total Assets | $ | 1,425,406 | $ | 1,381,980 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities | ||||||||
Long-term borrowings, current portion, net | $ | 12,156 | $ | 12,156 | ||||
Trade accounts payable | 284,173 | 251,603 | ||||||
Fixed assets payable | 9,616 | 15,127 | ||||||
Contract liabilities | 966 | 1,556 | ||||||
Operating lease liabilities, current portion | 2,098 | 1,979 | ||||||
Income tax payable | 2,940 | 2,242 | ||||||
Accrued payroll, bonus and related expenses | 18,881 | 19,265 | ||||||
Accrued expenses | 10,077 | 8,979 | ||||||
Other payables | 14,542 | 21,514 | ||||||
Total current liabilities | 355,449 | 334,421 | ||||||
Non-current liabilities | ||||||||
Long-term borrowings, non-current portion, net | 36,475 | 39,514 | ||||||
Deferred tax liability | 4,927 | 4,729 | ||||||
Operating lease liability, non-current portion | 4,906 | 5,873 | ||||||
Severance liabilities | 17,609 | 17,379 | ||||||
Other non-current liabilities | 5,337 | 5,655 | ||||||
Total non-current liabilities | 69,254 | 73,150 | ||||||
Total Liabilities | 424,703 | 407,571 | ||||||
Commitments and contingencies (Note 1 7 ) | ||||||||
Shareholders’ equity | ||||||||
Preferred shares (5,000,000 shares authorized, $0.01 par value; 0 shares issued and outstanding as of September 25,2020 and June 26, 2020) | — | — | ||||||
Ordinary shares (500,000,000 shares authorized, $0.01 par value; 38,680,659 shares and 38,471,967 shares issued at September 25, 2020 and June 26, 2020, respectively; and 36,936,556 shares and 36,727,864 shares outstanding at September 25, 2020 and June 26, 2020, respectively) | 387 | 385 | ||||||
Additional paid-in capital | 171,715 | 175,610 | ||||||
Less: Treasury shares (1,744,103 shares and 1,744,103 shares as of | (68,501 | ) | (68,501 | ) | ||||
Accumulated other comprehensive loss | (3,904 | ) | (1,147 | ) | ||||
Retained earnings | 901,006 | 868,062 | ||||||
Total Shareholders’ Equity | 1,000,703 | 974,409 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 1,425,406 | $ | 1,381,980 | ||||
| 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 25, 2020 | September 27, 2019 | ||||||
Revenues | $ | 436,639 | $ | 399,296 | ||||
Cost of revenues | (386,159 | ) | (353,309 | ) | ||||
Gross profit | 50,480 | 45,987 | ||||||
Selling, general and administrative expenses | (16,863 | ) | (16,000 | ) | ||||
Operating income | 33,617 | 29,987 | ||||||
Interest income | 1,104 | 2,098 | ||||||
Interest expense | (251 | ) | (2,393 | ) | ||||
Foreign exchange gain (loss), net | 128 | (1,953 | ) | |||||
Other income (expense), net | 121 | 377 | ||||||
Income before income taxes | 34,719 | 28,116 | ||||||
Income tax expense | (1,668 | ) | (2,159 | ) | ||||
Net income | 33,051 | 25,957 | ||||||
Other comprehensive income (loss), net of tax: | ||||||||
Change in net unrealized gain (loss) on available-for-sale | (325 | ) | 35 | |||||
Change in net unrealized gain (loss) on derivative instruments | (3,208 | ) | 39 | |||||
Change in net retirement benefits plan – prior service cost | 173 | 83 | ||||||
Change in foreign currency translation adjustment | 603 | (369 | ) | |||||
Total other comprehensive income (loss), net of tax | (2,757 | ) | (212 | ) | ||||
Net comprehensive income | $ | 30,294 | $ | 25,745 | ||||
Earnings per share | ||||||||
Basic | $ | 0.90 | $ | 0.70 | ||||
Diluted | $ | 0.88 | $ | 0.69 | ||||
Weighted-average number of ordinary shares outstanding | ||||||||
Basic | 36,818 | 36,913 | ||||||
Diluted | 37,383 | 37,529 | ||||||
| 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 | ||||
Ordinary Share | Additional Paid-in Capital | Treasury Shares | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | Total | |||||||||||||||||||||||
(in thousands of U.S. dollars, except share data) | Shares | Amount | ||||||||||||||||||||||||||
Balances at June 26, 2020 | 38,471,967 | 385 | 175,610 | (68,501 | ) | (1,147 | ) | 868,062 | 974,409 | |||||||||||||||||||
Net income | — | — | — | — | — | 33,051 | 33,051 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | (2,757 | ) | — | (2,757 | ) | |||||||||||||||||||
Cumulative effect adjustment from adoption of ASC 326 | — | — | — | — | — | (107 | ) | (107 | ) | |||||||||||||||||||
Share-based compensation | — | — | 6,027 | — | — | — | 6,027 | |||||||||||||||||||||
Issuance of ordinary shares | 208,692 | 2 | (2 | ) | — | — | — | — | ||||||||||||||||||||
Tax withholdings related to net share settlement of restricted share units | — | — | (9,920 | ) | — | — | — | (9,920 | ) | |||||||||||||||||||
Balances at September 25, 2020 | 38,680,659 | 387 | 171,715 | (68,501 | ) | (3,904 | ) | 901,006 | 1,000,703 | |||||||||||||||||||
Ordinary Share | Additional Paid-in Capital | Treasury Shares | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | Total | |||||||||||||||||||||||
(in thousands of U.S. dollars, except share data) | Shares | Amount | ||||||||||||||||||||||||||
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 | ) | — | — | — | 0 | ||||||||||||||||||||
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 | |||||||||||||||||||
UNAUDITED
(unaudited)
Three Months Ended | ||||||||
(in thousands of U.S. dollars) | September 25, 2020 | September 27, 2019 | ||||||
Cash flows from operating activities | ||||||||
Net income for the period | $ | 33,051 | $ | 25,957 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Depreciation and amortization | 8,570 | 7,465 | ||||||
(Gain) loss on disposal of property, plant and equipment | (19 | ) | 8 | |||||
(Gain) loss from sales and maturities of available-for-sale | — | (67 | ) | |||||
Amortization of investment discount | 481 | 65 | ||||||
Amortization of deferred debt issuance costs | 8 | 2 | ||||||
(Reversal of) allowance for doubtful accounts | (257 | ) | (5 | ) | ||||
Unrealized (gain) loss on exchange rate and fair value of foreign currency forward contracts | (890 | ) | 1,479 | |||||
Unrealized loss (gain) on fair value of interest rate swaps | — | 1,671 | ||||||
Amortization of fair value at hedge inception of interest rate swaps | (359 | ) | — | |||||
Share-based compensation | 6,027 | 5,995 | ||||||
Deferred income tax | 56 | 705 | ||||||
Other non-cash expenses | 96 | 53 | ||||||
Changes in operating assets and liabilities | ||||||||
Trade accounts receivable | (16,497 | ) | (12,967 | ) | ||||
Contract assets | 1,499 | 827 | ||||||
Inventories | (29,643 | ) | (27,898 | ) | ||||
Other current assets and non-current assets | 7,812 | 4,225 | ||||||
Trade accounts payable | 33,546 | (5,263 | ) | |||||
Contract liabilities | (590 | ) | 27 | |||||
Income tax payable | 871 | 733 | ||||||
Severance liabilities | 745 | 811 | ||||||
Other current liabilities and non-current liabilities | (10,001 | ) | (1,176 | ) | ||||
Net cash provided by operating activities | 34,506 | 2,647 | ||||||
Cash flows from investing activities | ||||||||
Purchase of short-term investments | (79,103 | ) | (62,880 | ) | ||||
Proceeds from sales of short-term investments | — | 49,472 | ||||||
Proceeds from maturities of short-term investments | 33,750 | 31,673 | ||||||
Purchase of property, plant and equipment | (12,572 | ) | (6,343 | ) | ||||
Purchase of intangibles | (530 | ) | (246 | ) | ||||
Proceeds from disposal of property, plant and equipment | 21 | — | ||||||
Net cash (used in) provided by investing activities | (58,434 | ) | 11,676 | |||||
Cash flows from financing activities | ||||||||
Payment of debt issuance costs | — | (153 | ) | |||||
Proceeds from long-term borrowings | — | 60,938 | ||||||
Repayment of long-term borrowings | (3,047 | ) | (60,938 | ) | ||||
Repayment of finance lease liability | (100 | ) | (109 | ) | ||||
Withholding tax related to net share settlement of restricted share units | (9,920 | ) | (4,144 | ) | ||||
Net cash used in financing activities | (13,067 | ) | (4,406 | ) | ||||
Net (decrease) in cash, cash equivalents and restricted cashincrease | (36,995 | ) | 9,917 | |||||
Movement in cash, cash equivalents and restricted cash | ||||||||
Cash, cash equivalents and restricted cash at the beginning of period | 232,832 | 188,241 | ||||||
(Decrease) increase in cash, cash equivalents and restricted cash | (36,995 | ) | 9,917 | |||||
Effect of exchange rate on cash, cash equivalents and restricted cash | 766 | (41 | ) | |||||
Cash, cash equivalents and restricted cash at the end of period | $ | 196,603 | $ | 198,117 | ||||
Non-cash investing and financing activities | ||||||||
Construction, software and equipment-related payables | $ | 9,616 | $ | 9,816 | ||||
| (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 25, 2020 | As of September 27, 2019 | ||||||
Cash and cash equivalents | $ | 189,201 | $ | 168,535 | ||||
Restricted cash | 7,402 | 29,582 | ||||||
Cash, cash equivalents and restricted cash | $ | 196,603 | $ | 198,117 | ||||
(unaudited)
1. | Business and organization |
2. | Accounting policies |
26, 2020. COVID-19 December 29, 2017and six months ended December 29, 2017September 25, 2020 and December 30, 2016September 27, 2019 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, 201726, 2020 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 25, 2020 may not be indicative of results for the year ending June 29, 201825, 2021 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.differbe different from actual results, adjustments will be made in subsequent periods to reflect more current information. Additionally, the extent to which the evolving
25, 2021.
(i) | A derivative for which the fair value is a net liability is classified in total as a current liability. |
(ii) | A derivative for which the fair value is a net asset and the current portion is an asset is classified in total as a non-current asset. If the current portion is a liability, it is presented as a current liability. |
June 26, 2020 | ||||||||||||
(amount in thousands) | As previously reported | Reclassification | After reclassification | |||||||||
Consolidated Balance Sheet | ||||||||||||
Current assets | ||||||||||||
Other current assets | $ | 13,915 | $ | 593 | $ | 14,508 | ||||||
Current liabilities | ||||||||||||
Accrued expenses | $ | 12,104 | $ | (3,125 | ) | $ | 8,979 | |||||
Non-current liabilities | ||||||||||||
Other non-current liabilities | $ | 1,937 | $ | 3,718 | $ | 5,655 | ||||||
contract assets.
In September 2017,
3. | Revenues from contracts with customers |
In January 2017, the FASB issued ASU2017-04, “Intangibles – Goodwilloperates in three geographic regions: North America, Asia-Pacific and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This amendment modified the conceptEurope.
(amount in thousands, except percentages) | Three Months Ended September 25, 2020 | As a % of Total Revenues | ||||||
North America | $ | 207,402 | 47.5 | % | ||||
Asia-Pacific | 145,646 | 33.4 | ||||||
Europe | 83,591 | 19.1 | ||||||
| $ | 436,639 | 100.0 | % | |||||
(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 25, 2020 | As a % of Total Revenues | ||||||
Optical communications | $ | 343,917 | 78.8 | % | ||||
Lasers, sensors and other | 92,722 | 21.2 | ||||||
Total | $ | 436,639 | 100.0 | % | ||||
(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 | % | ||||
In January 2017, the FASB issued 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 the Company in relation to the disclosure 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 periodsclassified separately 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. The Company does not expect that the adoption of this update will have a material impact on its 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. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.
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 assets 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. 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 investments 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 Contracts with Customers (Topic 606), issued as a new Topic, Accounting Standards Codification.” The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update is effective for public companies, as amended by ASU2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application of this guidance is permitted, but not before the original date of December 15, 2016, which can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. Subsequently, in March 2016 and April 2016, the FASB issued ASU2016-08 and ASU2016-10, respectively, to clarify the implementation guidance on principle versus agent considerations and address the potential diversity in practice at initial application and cost; and the complexity of applying Topic 606, both at transition and on an ongoing basis related to identification of performance obligations and licensing arrangements; and ASU2016-12 and ASU2016-20 in May 2016 and December 2016, respectively, to improve certain aspects of Topic 606, with the same effective date as ASU2015-14. The Company will adopt this standard during its fiscal year ending June 28, 2019. In the current period, the Company is assessing the contracts with its customers to identify the impact to its consolidated financial statements. The process is still ongoing and the Company expects to make significant progress in the coming quarters.
New Accounting Pronouncements – adopted by the Company
In August 2017, the FASB issued ASU2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments also make certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. This ASU is the final version of Proposed Accounting Standards Update2016-310—Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which has been deleted. During the first six months of fiscal year 2017, the Company adopted this update with no impact to the unaudited condensed consolidated financial statements.
In November 2016,
(amount in thousands) | Contract Assets | |||
Beginning balance, June 26, 2020 | $ | 13,256 | ||
Revenue recognized | 17,444 | |||
Amounts collected or invoiced | (18,943 | ) | ||
Ending balance, September 25, 2020 | $ | 11,757 | ||
(amount in thousands) | Contract Liabilities | |||
Beginning balance, June 26, 2020 | $ | 1,556 | ||
Additions advance payment received during the period | 4,308 | |||
Revenue recognized | (4,898 | ) | ||
Ending balance, September 25, 2020 | $ | 966 | ||
4. | Earnings per ordinary share |
| 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 of December 29, 2017 and December 30, 2016, there were no anti-dilutive share options.
Three Months Ended | ||||||||
(amount in thousands except per share amounts) | September 25, 2020 | September 27, 2019 | ||||||
Net income attributable to shareholders | $ | 33,051 | $ | 25,957 | ||||
Weighted-average number of ordinary shares outstanding (thousands of shares) | 36,818 | 36,913 | ||||||
Incremental shares arising from the assumed vesting of restricted share units and performance share units (thousands of shares) | 565 | 616 | ||||||
Weighted-average number of ordinary shares for diluted earnings per ordinary share (thousands of shares) | 37,383 | 37,529 | ||||||
Basic earnings per ordinary share | $ | 0.90 | $ | 0.70 | ||||
Diluted earnings per ordinary share | $ | 0.88 | $ | 0.69 | ||||
Outstanding performance share units excluded from the computation of diluted earnings per ordinary share (thousands of shares) (1) | 61 | 50 | ||||||
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 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
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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|
|
|
|
|
|
| |||||||||
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 25, 2020 | ||||||||||||||||||||
Cash | $ | 175,550 | $ | — | $ | 175,550 | $ | — | $ | — | ||||||||||
Cash equivalents | 13,651 | — | 13,651 | — | — | |||||||||||||||
Liquidity funds | 41,151 | — | — | — | 41,151 | |||||||||||||||
Certificates of deposit and time deposits | 22,300 | — | — | — | 22,300 | |||||||||||||||
Corporate debt securities | 192,509 | 739 | — | 193,248 | — | |||||||||||||||
U.S. agency and U.S. treasury securities | 50,113 | 426 | — | 50,539 | — | |||||||||||||||
Total | $ | 495,274 | $ | 1,165 | $ | 189,201 | $ | 243,787 | $ | 63,451 | ||||||||||
As of June 26, 2020 | ||||||||||||||||||||
Cash | $ | 218,117 | $ | — | $ | 218,117 | $ | — | $ | — | ||||||||||
Cash equivalents | 7,313 | — | 7,313 | — | — | |||||||||||||||
Liquidity funds | 41,051 | — | — | — | 41,051 | |||||||||||||||
Certificates of deposit and time deposits | 11,800 | — | — | — | 11,800 | |||||||||||||||
Corporate debt securities | 159,220 | 948 | — | 160,168 | — | |||||||||||||||
U.S. agency and U.S. treasury securities | 49,130 | 544 | — | 49,674 | — | |||||||||||||||
Total | $ | 486,631 | $ | 1,492 | $ | 225,430 | $ | 209,842 | $ | 52,851 | ||||||||||
| (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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| |||||
During the six months ended December 29, 2017, the Company recognized a realized loss of $0.36 million from sales and maturities ofavailable-for-sale.
September 25, 2020 | June 26, 2020 | |||||||||||||||
(amount in thousands) | Carrying Cost | Fair Value | Carrying Cost | Fair Value | ||||||||||||
Due within one year | $ | 104,723 | $ | 104,756 | $ | 76,127 | $ | 76,196 | ||||||||
Due between one to five years | 137,899 | 139,031 | 132,223 | 133,646 | ||||||||||||
Total | $ | 242,622 | $ | 243,787 | $ | 208,350 | $ | 209,842 | ||||||||
As of December 29, 2017, cash, cash equivalents, and marketable securities included bank deposits of $40.0 million held in various financial institutions located in the United States in order to support the availability of the Facility Agreement (as defined in Note 11) and comply with covenants. As discussed in Note 11, under the terms and conditions of the Facility Agreement, the Company must maintain cash, cash equivalents and/or marketable securities in an aggregate amount not less than $40.0 million in unencumbered deposits, and/or securities in accounts located in the United States at all times during the term of the Facility Agreement. The Company must comply with this covenant from and after the effective date of the Facility Agreement.
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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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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Fair Value Measurements at Reporting Date Using | ||||||||||||||||
(amount in thousands) | Level 1 | Level 2 | Level 3 | Total | �� | |||||||||||
As of September 25, 2020 | ||||||||||||||||
Assets | ||||||||||||||||
Cash equivalents | $ | — | $ | 13,651 | $ | — | $ | 13,651 | ||||||||
Liquidity funds | — | 41,151 | — | 41,151 | ||||||||||||
Certificates of deposit and time deposits | — | 22,300 | — | 22,300 | ||||||||||||
Corporate debt securities | — | 193,248 | — | 193,248 | ||||||||||||
U.S. agency and U.S. treasury securities | — | 50,539 | — | 50,539 | ||||||||||||
Derivative assets | — | 694 | (1) | — | 694 | |||||||||||
Total | $ | — | $ | 321,583 | $ | — | $ | 321,583 | ||||||||
Liabilities | ||||||||||||||||
Derivative liabilities – current portion | $ | — | $ | 2,426 | $ | — | $ | 2,426 | ||||||||
Derivative liabilities – non-current portion | — | 3,305 | — | 3,305 | ||||||||||||
Total | $ | — | $ | 5,731 | (2) | $ | — | $ | 5,731 | |||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
(amount in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of June 26, 2020 | ||||||||||||||||
Assets | ||||||||||||||||
Cash equivalents | $ | — | $ | 7,313 | $ | — | $ | 7,313 | ||||||||
Liquidity funds | — | 41,051 | — | 41,051 | ||||||||||||
Certificates of deposit and time deposits | — | 11,800 | — | 11,800 | ||||||||||||
Corporate debt securities | — | 160,168 | — | 160,168 | ||||||||||||
U.S. agency and U.S. treasury securities | — | 49,674 | — | 49,674 | ||||||||||||
Derivative assets | — | 2,823 | (3) | — | 2,823 | |||||||||||
Total | $ | — | $ | 272,829 | $ | — | $ | 272,829 | ||||||||
Liabilities | ||||||||||||||||
Derivative liabilities – current portion | $ | — | $ | 2,148 | $ | — | $ | 2,148 | ||||||||
Derivative liabilities – non-current portion | — | 3,718 | — | 3,718 | ||||||||||||
Total | $ | — | $ | 5,866 | (4) | $ | — | $ | 5,866 | |||||||
| (1) | Foreign currency forward contracts with a notional amount of million and Canadian dollars |
| (2) | Two interest rate swap agreements with an aggregate notional amount of $125.1 million. |
| (3) | Foreign currency forward contracts with a notional amount of $125.0 million and Canadian dollars of 0.6 million, and option contract with a notional amount of $1.0 |
| (4) | Interest rate swap agreements with an aggregate notional amount of $125.1 million. |
Asstatements of December 29, 2017,operations and comprehensive income.
As
| (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 September 2017,
| (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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| |||||
On September 14, 2016, the Company acquired 100% shareholding in Fabrinet UK (formerly known as Exception EMS), a privately-held group located in Wiltshire, United Kingdom, for cash consideration of approximately $13.0 million, net of $0.5 million cash acquired. Fabrinet UK provides contract electronics manufacturing services to the global electronics industry with innovative solutions, adding value to the design, manufacture and testing of printed circuit board assemblies. Pursuant to the acquisition agreement, the Company has placed $3.4 million of cash, net ofCompany’s foreign currency translation adjustment, for deferred consideration in an escrow accountforward contracts and interest rate swaps which is under the Company’s control. However, the Company has contractually agreed to remit this deferred consideration to the sellers of Fabrinet UK, subject to the resolution of claims that the Company may make against the funds with respect to indemnification and other claims, within 24 months from the closing date of the transaction.
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 allocated to the assets acquired and the liabilities assumed based on their respective fair valueswere designated as cash flow hedges on the acquisition date. The Company has made certain estimates and assumptions in determining the allocation of the acquisition consideration.
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 condensed consolidated statements of operations and comprehensive income under other comprehensive income,income:
Three Months Ended | ||||||||||||
(amount in thousands) | Financial statements line item | September 25, 2020 | September 27, 2019 | |||||||||
Derivatives gain (loss) recognized in other comprehensive income: | ||||||||||||
Foreign currency forward contracts | Other comprehensive income | $ | (2,340 | ) | $ | — | ||||||
Interest rate swaps | Other comprehensive income | 357 | 39 | |||||||||
Total derivatives gain (loss) recognized in other comprehensive income | $ | (1,983 | ) | $ | 39 | |||||||
Derivatives loss ( gain) reclassified from accumulated other comprehensive income into earnings: | ||||||||||||
Foreign currency forward contracts | Cost of | $ | (2,057 | ) | $ | — | ||||||
Foreign currency forward contracts | SG&A | (87 | ) | — | ||||||||
Foreign currency forward contracts | Foreign | 1,278 | — | |||||||||
Interest rate swaps | Interest expense | (359 | ) | — | ||||||||
Total derivatives (gain) loss reclassified from accumulated other comprehensive income into earnings | $ | (1,225 | ) | $ | — | |||||||
Change in net unrealized gain (loss) on derivatives instruments | $ | (3,208 | ) | $ | — | |||||||
September 25, 2020 | June 26, 2020 | |||||||||||||||
(amount in thousands) | Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||
Foreign currency forward and option contracts | $ | 447 | $ | (134 | ) | $ | 9 | $ | (611 | ) | ||||||
Interest rate swaps | — | — | — | — | ||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||
Foreign currency forward contracts | 247 | (781 | ) | 2,814 | (83 | ) | ||||||||||
Interest rate swaps | — | (4,816 | ) | — | (5,172 | ) | ||||||||||
Derivatives, gross balances | 694 | (5,731 | ) | 2,823 | (5,866 | ) | ||||||||||
| (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 acquisitionfair value of Fabrinet UK, the Company assumed lease agreements for certain machine and equipment, which are accounted for as capital leases. As of December 29, 2017 and June 30, 2017, the Company included approximately $1.2 million and $1.9 million, respectively, of capital lease assets and $1.2 million and $1.4 million, respectively, of capital lease liabilityderivative financial instruments in the unaudited condensed consolidated balance sheets associated with these acquired lease agreements.
During the six months ended December 30, 2016,as follows:
Derivative Financial Instruments | Balance Sheet line item | |||
Fair Value of Derivative Assets | Other current assets | |||
Fair Value of Derivative Liabilities | Accrued expenses | |||
Fair Value of Derivative Liabilities | Other non-current liabilities | |||
7 . | Inventories |
(amount in thousands) | As of September 25, 2020 | As of June 26, 2020 | ||||||
Raw materials | $ | 153,511 | $ | 141,522 | ||||
Work in progress | 149,441 | 136,344 | ||||||
Finished goods | 21,619 | 17,950 | ||||||
Goods in transit | 14,858 | 13,970 | ||||||
Inventories | $ | 339,429 | $ | 309,786 | ||||
8 . | Other receivable |
9 . | Restricted cash |
10 . | Leases |
(amount in thousands) | As of September 25, 2020 | |||
2021 | $ | 1,786 | ||
2022 | 2,381 | |||
2023 | 2,265 | |||
2024 | 990 | |||
2025 | 19 | |||
Total undiscounted lease payments | 7,441 | |||
Less imputed interest | (437 | ) | ||
Total present value of lease liabilities | $ | 7,004 | (1) | |
(1) | Included current portion of operating lease liabilities for the period ended September 25, 2020 . |
As of September 25, 2020 | As of June 26, 2020 | |||||||
Weighted-average remaining lease term (in years) | 3.3 | 3.3 | ||||||
Weighted-average discount rate | 3.7 | % | 3.7 | % | ||||
Duringfinance leases for the sixthree months ended December 29, 2017, there were no transaction costs related to the acquisition.
Pro forma results of operations for the acquisition have not been presented as they were not material to the Company’s results of operations.
Identifiable intangibles
The acquired intangible assets include customer relationshipsSeptember 25, 2020 and backlog. The fair value of the identified intangible assets was determined based on the multi-period excess earnings method.
Customer relationships represent the fair value of future projected revenues that were derived from the sale of products to existing customers of the acquired company. The $4.4 million in fair value of customer relationships will be amortized over an estimated remaining useful life of ten years.
Backlog represents the fair value of sales orders backlog as of the valuation date. The $0.1 million in fair value of backlog will be amortized over the respective estimated remaining useful life of three years.
Goodwill
Goodwill arising from the acquisition is primarily attributable to the ability to expand future products and services and the assembled workforce. Goodwill is not deductible for tax purposes.
Three Months Ended | ||||||||
(amount in thousands) | September 25, 2020 | September 27, 2019 | ||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flows from operating leases | $ | 594 | $ | 458 | ||||
Financing cash flows from finance leases | $ | 100 | $ | 109 | ||||
ROU assets obtained in exchange for lease liabilities | $ | 7,228 | $ | 6,185 | ||||
11 . | 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 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total intangibles | $ | 10,743 | $ | (5,355 | ) | $ | 44 | $ | 5,432 | |||||||
|
|
|
|
|
|
|
| |||||||||
| (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 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total intangibles | $ | 10,436 | $ | (4,507 | ) | $ | (89 | ) | $ | 5,840 | ||||||
|
|
|
|
|
|
|
| |||||||||
(amount in thousands) | Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Adjustment | Net | ||||||||||||
As of September 25, 2020 | ||||||||||||||||
Software | $ | 8,486 | $ | (5,826 | ) | $ | — | $ | 2,660 | |||||||
Customer relationships | 4,373 | (2,825 | ) | (61 | ) | 1,487 | ||||||||||
Backlog | 119 | (119 | ) | — | — | |||||||||||
Total intangibles | $ | 12,978 | $ | (8,770 | ) | $ | (61 | ) | $ | 4,147 | ||||||
(amount in thousands) | Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Adjustment | Net | ||||||||||||
As o June 26, 2020f | ||||||||||||||||
Software | $ | 8,317 | $ | (5,577 | ) | $ | — | $ | 2,740 | |||||||
Customer relationships | 4,373 | (2,691 | ) | (110 | ) | 1,572 | ||||||||||
Backlog | 119 | (119 | ) | — | — | |||||||||||
Total intangibles | $ | 12,809 | $ | (8,387 | ) | $ | (110 | ) | $ | 4,312 | ||||||
| (years) | As of December 29, 2017 | As of June 30, 2017 | ||||||
Customer relationships | 6.5 | 6.9 | ||||||
Backlog | 1.3 | 1.6 | ||||||
was:
(years) | As of 2020 | As of 2020 | ||||||
Customer relationships | 4.4 | 4.6 | ||||||
| (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) | ||||
2021 (remaining nine months) | $ | 1,030 | ||
2022 | 1,129 | |||
2023 | 873 | |||
2024 | 642 | |||
2025 | 354 | |||
Thereafter | 119 | |||
Total | $ | 4,147 | ||
12 . | Borrowings |
The changes in the carrying amount of goodwill from the acquisition of Fabrinet UK were as follows:
| (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 24, 2016 | $ | — | ||
Addition in connection with business acquisition | 3,883 | |||
Foreign currency translation adjustment | (77 | ) | ||
|
| |||
Balance as of June 30, 2017 | $ | 3,806 | ||
|
| |||
Goodwill is not deductible for tax purposes. Goodwill will not be amortized but is reviewed annually for impairment or more frequently whenever changes or circumstances indicate the carrying amount of goodwill may not be recoverable.
| (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 25, 2020 | As of June 26, 2020 | |||||||||||||
Long-term borrowings, current portion, net: | |||||||||||||||||
Long-term borrowings, current portion | $ | 12,188 | $ | 12,188 | |||||||||||||
Less: Unamortized debt issuance costs – current portion | (32 | ) | (32 | ) | |||||||||||||
Long-term borrowings, current portion, net | $ | 12,156 | 12,156 | ||||||||||||||
Long-term borrowings, non-current portion, net: | |||||||||||||||||
Term loan borrowings: | |||||||||||||||||
3-month LIBOR +1.35% per annum (1) | Repayable in quarterly installments | June 2024 | $ | 48,750 | $ | 51,797 | |||||||||||
Less: Current portion | (12,188 | ) | (12,188 | ) | |||||||||||||
Less: Unamortized debt issuance costs – non-current portion | (87 | ) | (95 | ) | |||||||||||||
Long-term borrowings, non-current portion, net | $ | 36,475 | $ | 39,514 | |||||||||||||
(1) | We have entered into interest rate swaps that effectively fix a series of our future interest payments on our term loans. Refer to Note 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 25, 2020 | September 27, 2019 | ||||||
Opening balance | $ | 51,797 | $ | 60,938 | ||||
Borrowings during the period | — | 60,938 | ||||||
Repayments during the period | (3,047 | ) | (60,938 | ) | ||||
Closing balance | $ | 48,750 | $ | 60,938 | ||||
| (amount in thousands) | ||||
2018 (remaining six months) | $ | 6,800 | ||
2019 | 22,800 | |||
|
| |||
Total | $ | 29,600 | ||
|
| |||
(amount in thousands) | ||||
2021 (remaining nine mon ths) | $ | 9,140 | ||
2022 | 12,188 | |||
2023 | 15,234 | |||
202 4 | 12,188 | |||
Total | $ | 48,750 | ||
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 LIBOR rate plus a spread of 1.75%1.50% to 2.50%2.25%, or a base rate plus a spread of 0.75%0.50% to 1.50%, determined in accordance with1.25%. During the Facility Agreement in each case with such spread determined based on Fabrinet’s consolidated total leverage ratio for the preceding four fiscal quarter period. Interest is due and payable quarterly in arrears for loans bearing interest at the base rate and at the end of an interest period (or at each three-month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the LIBOR rate.
On July 24, 2017, months ended September 27, 2019
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 $40.0recorded $0.5 million of cash, cash equivalents, and marketable securities at financial institutions locatedinterest expense 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,this term loan.
13 . | Income taxes |
Undrawn available credit facilities classified by availability period of future borrowing as of December 29, 2017September
| (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, 2017,26, 2020, the liability for uncertain tax positions including accrued interest and penalties was $2.2 million and $2.0 million, respectively.$1.5 million. 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% and 6.7%, respectively, of net income. The decrease was primarily due to the fact that the Company had higher income not subject to tax during the six months ended December 29, 2017, 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 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. The impact of the TCJ Act for the Company was a reduction of the value of deferred tax assets (which represent future tax benefits) of its U.S. subsidiaries as a result of lowering the U.S. corporate income tax rate from 35% to 21%. This reduction of the value of deferred tax assets was fully offset by a reversal of the valuation allowance on the related deferred tax assets. Therefore, there is no impact to the unaudited condensed consolidated financial statements.
14 . | Share-based compensation |
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.
| Three Months Ended | Six Months Ended | |||||||||||||||
| (amount in thousands) | December 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | ||||||||||||
Share-based compensation expense by type of award: | ||||||||||||||||
Restricted share units | 4,586 | 7,633 | 9,433 | 12,453 | ||||||||||||
Performance share units | 872 | 964 | 2,945 | 1,755 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total share-based compensation expense | 5,458 | 8,597 | 12,378 | 14,208 | ||||||||||||
Tax effect on share-based compensation expense | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net effect on share-based compensation expense | $ | 5,458 | $ | 8,597 | $ | 12,378 | $ | 14,208 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Three Months Ended | ||||||||
(amount in thousands) | September 25, 2020 | September 27, 2019 | ||||||
Share-based compensation expense by type of award: | ||||||||
Restricted share units | $ | 5,249 | $ | 4,398 | ||||
Performance share units | 778 | 1,597 | ||||||
Total share-based compensation expense | 6,027 | 5,995 | ||||||
Tax effect on share-based compensation expense | — | — | ||||||
Net effect on share-based compensation expense | $ | 6,027 | $ | 5,995 | ||||
| Three Months ended | Six Months Ended | |||||||||||||||
| (amount in thousands) | December 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | ||||||||||||
Cost of revenue | $ | 1,812 | $ | 1,514 | $ | 3,713 | $ | 2,528 | ||||||||
Selling, general and administrative expense | 3,646 | 7,083 | 8,665 | 11,680 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total share-based compensation expense | $ | 5,458 | $ | 8,597 | $ | 12,378 | $ | 14,208 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Three Months Ended | ||||||||
(amount in thousands) | September 25, 2020 | September 27, 2019 | ||||||
Cost of revenue | $ | 1,825 | $ | 1,720 | ||||
Selling, general and administrative expense | 4,202 | 4,275 | ||||||
Total share-based compensation expense | $ | 6,027 | $ | 5,995 | ||||
September 27, 2019.
Fabrinet maintains
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 2010 Plan to increase 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. As of December 29, 2017, there were an aggregate of 34,057 share options outstanding, 1,163,994 restricted share units outstanding and 605,892 performance share units outstanding under the 2010 Plan. As of December 29, 2017, there were 2,547,960 ordinary shares available for future grant under the 2010 Plan.
On November 2, 2017, Fabrinet adopted the 2017 Inducement Plan with a reserve of 160,000 ordinary shares authorized for future issuance solely for the granting of inducement share options and equity awards to new employees. The 2017 Inducement Plan was adopted without shareholder approval in reliance on the “employment inducement exemption” provided under the New York Stock Exchange Listed Company Manual.
Share options
Share options have been granted
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.
Equity Incentive Plans.2010 Plan and the 2017 Inducement 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 26, 2020 | 797,757 | $ | 46.88 | |||||
Granted | 171,946 | $ | 70.05 | |||||
Issued | (268,728 | ) | $ | 43.84 | ||||
Forfeited | (7,199 | ) | $ | 50.40 | ||||
Balance as of September 25, 2020 | 693,776 | $ | 53.76 | |||||
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 26, 2020 | 440,140 | $ | 48.37 | |||||
Granted | 179,008 | $ | 70.05 | |||||
Issued | (82,185 | ) | $ | 48.02 | ||||
Forfeited | (115,645 | ) | $ | 48.02 | ||||
Balance as of September 25, 2020 | 421,318 | $ | 57.74 | |||||
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 | 0 | — | ||||||
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 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.
15 . | Shareholders’ equity |
sharessixthree months ended December 29, 2017,September 25, 2020, 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 194,174208,692 ordinary shares upon the vesting of restricted share units, net of shares withheld.stock Fabrinet’sFabrinetthe Company to repurchase up to $30.0 million worth of its issued and outstanding ordinary shares in the open market in accordance with applicable rules and regulations, at such timeregulations. In February 2018, May 2019 and such prices as management may decide.August 2020, the Company’s board of directors approved an increase of $30.0 million, $50.0 million and $58.5 million, respectively, to the original share repurchase authorization, bringing the aggregate authorization to $168.5 million. During the three and six months ended December 29, 2017, 315,973September 25, 2020, 0 shares were repurchased under the program, at an average price per share of $31.36, totaling $9.9 million and $9.9 million, respectively. All such repurchased shares are held as treasury stock. program.December 29, 2017, FabrinetSeptember$20.1$100.0 million worth of its ordinary shares under the share repurchase program. Shares repurchased under the share repurchase
16. | Accumulated other comprehensive income (loss) |
| (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 26, 2020 | $ | 1,490 | $ | 602 | (2,009 | ) | $ | (1,230 | ) | $ | (1,147 | ) | ||||||||
Other comprehensive income before reclassification adjustment | (325 | ) | (1,983 | ) | — | 603 | (1,705 | ) | ||||||||||||
Amounts reclassified out of AOCI to the unaudited condensed consolidated statements of operations and comprehensive income | — | (1,225 | ) | 173 | — | (1,052 | ) | |||||||||||||
Tax effects | — | — | — | — | — | |||||||||||||||
Other comprehensive income (loss) | $ | (325 | ) | $ | (3,208 | ) | 173 | $ | 603 | $ | (2,757 | ) | ||||||||
Balance as of September 25, 2020 | $ | 1,165 | $ | (2,606 | ) | (1,836 | ) | $ | (627 | ) | $ | (3,904 | ) | |||||||
(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 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 | ) | |||||||
17. | Commitments and contingencies |
support their operations. As of 2018 (remaining six months) 2019 2020 2021 2022 Thereafter Total minimum operating lease payments December 29, 2017September 25, 2020 and June 30, 2017,26, 2020, the Company had one outstanding standby letter of credit of 6.0 million Euros related to the Company’s support of a customer’s transfer of certain manufacturing operations from Berlin, Germany to the Company’s facilities in Thailand. As of September 25, 2020 and June 26, 2020, the standby letter of credit was backed by cash collateral of $7.4 million.banksa bank on behalf of Fabrinetour subsidiary in Thailand for electricity usage and other normal business amountingexpenses totaling to $1.5$1.6 million asand $1.6 million, respectively, and there were other bank guarantees given by a bank on behalf of both dates.Operating lease commitmentsThe Company leases a portion of its office, capital equipment, and certain land and buildings for its facilitiesour subsidiaries in the Cayman Islands, China New Jersey and the United Kingdom under operating lease arrangements that expire in various calendar years through 2023. Rental expense under these operating leases amountedU.K. to $0.9 million and $0.8 million for the six months ended December 29, 2017 and December 30, 2016, respectively.December 29, 2017, the future minimum lease payments due undernon-cancelable operating leases during each fiscal yearSeptember 25, 2020 and June 26, 2020, these bank guarantees were as follows:(amount in thousands) $ 815 1,164 945 543 430 466 $ 4,363 Capital lease commitmentsIn connection with the acquisition0t material.
On 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.
18 . | Business segments and geographic information |
Total revenues are attributed to a particular geographic area based on
| 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 | |||||||||
|
|
|
|
|
|
|
| |||||||||
region, see “Revenue by Geographic Area and End Market” in Note 3.
19 . | Subsequent events |
As part
In February 2018, Fabrinet’s boardcertain inventories. (See Note 8)
| 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 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
|
|
|
|
|
|
|
| |||||||||
region:
Three Months Ended | ||||||||
September 25, 2020 | September 27, 2019 | |||||||
North America | 47.5 | % | 50.3 | % | ||||
Asia-Pacific | 33.4 | 29.7 | ||||||
Europe | 19.1 | 20.0 | ||||||
| 100.0 | % | 100.0 | % | |||||
The excess or obsolete inventory is shipped to the customer and revenue is recognized upon shipment.
2020 SG&A expenses.
2020.
| 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 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 26,997 | 100.0 | $ | 24,590 | 100.0 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
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 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 50,335 | 100.0 | $ | 66,715 | 100.0 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
As of September 25, 2020 | As of June 26, 2020 | |||||||||||||||||||||||
(amount in thousands, except percentages) | Currency | $ | % | Currency | $ | % | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Thai baht | 484,800 | $ | 15,376 | 40.5 | 667,955 | $ | 21,617 | 41.8 | ||||||||||||||||
RMB | 99,204 | 14,563 | 38.4 | 158,060 | 22,402 | 43.3 | ||||||||||||||||||
GBP | 6,278 | 8,011 | 21.1 | 6,220 | 7,726 | 14.9 | ||||||||||||||||||
Total | $ | 37,950 | 100.0 | $ | 51,745 | 100.0 | ||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Thai baht | 1,921,377 | $ | 60,938 | 89.3 | 2,102,392 | $ | 68,039 | 89.5 | ||||||||||||||||
RMB | 34,332 | 5,040 | 7.4 | 42,586 | 6,036 | 8.0 | ||||||||||||||||||
GBP | 1,800 | 2,297 | 3.3 | 1,545 | 1,919 | 2.5 | ||||||||||||||||||
Total | $ | 68,275 | 100.0 | $ | 75,994 | 100.0 | ||||||||||||||||||
As of June 26, 2020, there was $126.0 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 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
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 | ) | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
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 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income before income taxes | 20,905 | 27,252 | 43,678 | 51,943 | ||||||||||||
Income tax expense | (1,592 | ) | (1,960 | ) | (3,332 | ) | (3,885 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | 19,313 | 25,292 | 40,346 | 48,058 | ||||||||||||
Other comprehensive income (loss), net of tax | (418 | ) | (2,256 | ) | 136 | (1,860 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net comprehensive income | $ | 18,895 | $ | 23,036 | $ | 40,482 | $ | 46,198 | ||||||||
|
|
|
|
|
|
|
| |||||||||
(amount in thousands) | Three Months Ended | |||||||
September 25, 2020 | September 27, 2019 | |||||||
Revenues | $ | 436,639 | $ | 399,296 | ||||
Cost of revenues | (386,159 | ) | (353,309 | ) | ||||
Gross profit | 50,480 | 45,987 | ||||||
Selling, general and administrative expenses | (16,863 | ) | (16,000 | ) | ||||
Operating income | 33,617 | 29,987 | ||||||
Interest income | 1,104 | 2,098 | ||||||
Interest expense | (251 | ) | (2,393 | ) | ||||
Foreign exchange gain (loss), net | 128 | (1,953 | ) | |||||
Other income (expense), net | 121 | 377 | ||||||
Income before income taxes | 34,719 | 28,116 | ||||||
Income tax expense | (1,668 | ) | (2,159 | ) | ||||
Net income | 33,051 | 25,957 | ||||||
Other comprehensive income (loss), net of tax | (2,757 | ) | (212 | ) | ||||
Net comprehensive income | $ | 30,294 | $ | 25,745 | ||||
| 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 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
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 | ) | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
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 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income before income taxes | 6.2 | 7.8 | 6.3 | 7.6 | ||||||||||||
Income tax expense | (0.5 | ) | (0.6 | ) | (0.5 | ) | (0.6 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
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 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net comprehensive income | 5.6 | % | 6.6 | % | 5.9 | % | 6.7 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
Three Months Ended | ||||||||
September 25, 2020 | September 27, 2019 | |||||||
Revenues | 100.0 | % | 100.0 | % | ||||
Cost of revenues | (88.4 | ) | (88.5 | ) | ||||
Gross profit | 11.6 | 11.5 | ||||||
Selling, general and administrative expenses | (3.9 | ) | (4.0 | ) | ||||
Operating income | 7.7 | 7.5 | ||||||
Interest income | 0.3 | 0.5 | ||||||
Interest expense | (0.1 | ) | (0.6 | ) | ||||
Foreign exchange gain (loss), net | 0.0 | (0.5 | ) | |||||
Other income (expense), net | 0.0 | 0.1 | ||||||
Income before income taxes | 7.9 | 7.0 | ||||||
Income tax expense | (0.4 | ) | (0.5 | ) | ||||
Net income | 7.5 | 6.5 | ||||||
Other comprehensive income (loss), net of tax | (0.6 | ) | (0.1 | ) | ||||
Net comprehensive income | 6.9 | % | 6.4 | % | ||||
| 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 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 337,072 | $ | 351,156 | $ | 694,385 | $ | 683,199 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Three Months Ended | ||||||||
(amount in thousands) | September 25, 2020 | September 27, 2019 | ||||||
Optical communications | $ | 343,917 | $ | 302,379 | ||||
Lasers, sensors and other | 92,722 | 96,917 | ||||||
Total | $ | 436,639 | $ | 399,296 | ||||
Total revenues.
September 27, 2019
Our total revenues increased by $11.2with $353.3 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. This increase was primarily due to an increase in our customers’ demand fornon-optical communications manufacturing services partially offset by a decrease in our customers’ demand for optical communications manufacturing services. Revenues from optical communications manufacturing services represented 74.5%88.5% of our total revenues for the six months ended December 29, 2017, compared to 77.7% for the six months ended December 30, 2016.
Cost of revenues.
Our cost of revenues decreased by $8.2 million, or 2.7%, to $299.9 million, or 89.0% of total revenues, for the three months ended December 29, 2017, compared with $308.1 million, or 87.7% of total revenues, for the three months ended December 30, 2016.September 27, 2019. The decreaseincrease in cost of revenues on an absolute dollar basis was in line with the increase in revenue.
Our cost September 25, 2020, as compared to unrealized foreign exchange loss from
Gross profit.
Our gross profit decreased by $5.9 million, or 13.7%, to $37.2 million, or 11.0% of total revenues, for the three months ended December 29, 2017, compared with $43.0 million, or 12.3% of total revenues, for the three months ended December 30, 2016.
Our gross profit decreased by $5.2 million, or 6.2%, 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.
SG&A expenses.
Our SG&A expenses decreased by $4.5 million, or 25.5%, to $13.2 million, or 3.9% of total revenues, for the three months ended December 29, 2017, compared with $17.7 million, or 5.0% of total revenues, for the three months ended December 30, 2016. Our SG&A expenses decreased primarily due to lower incentive-based compensation.
Our SG&A expenses decreased by $4.6 million, or 13.9%, to $28.8 million, or 4.1% 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.
Operating income.
Our operating income decreased by $3.2 million to $22.2 million, or 6.6% of total revenues, for the three months ended December 29, 2017, compared with $25.4 million, or 7.3% of total revenues, for the three months ended December 30, 2016.
Our operating income 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.
Our interest income increased by $0.3 million to $0.6 million, or 0.2% of total revenues, for the three months ended December 29, 2017, compared with $0.3 million, or 0.1% 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. The increase was primarily due to a higher weighted average interest rate and an increase in the average balance of our outstanding cash.
Interest expense.
Our interest expense increased by $0.3 million to $0.8$1.9 million for the three months ended December 29, 2017, compared with $0.5 million for the three months ended December 30, 2016. Our interest expense decreased by $0.2 million to $1.7 million for the six months ended December 29, 2017, compared with $1.9 million for the six months ended December 30, 2016. The decrease was primarily due to a decrease in the average balanceSeptember 27, 2019.
September 27, 2019.
Our provision for income tax reflects an effective tax rate of 6.3% for the six months ended December 29, 2017, compared with an effective tax rate of 6.7% for the six months ended December 30, 2016. The decrease was primarily due to the fact that we had higher income not subject to tax during the six months ended December 29, 2017 as compared to the same period in fiscal year 2017.
2020.
We recorded net income of $40.3 million, or 5.8% 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.
September 27, 2019.
.
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 25, 2020.
In December 2015, we began construction
| 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 25, 2020 | September 27, 2019 | ||||||
Net cash provided by operating activities | $ | 34,506 | $ | 2,647 | ||||
Net cash (used in) provided by investing activities | $ | (58,434 | ) | $ | 11,676 | |||
Net cash used in financing activities | $ | (13,067 | ) | $ | (4,406 | ) | ||
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (36,995 | ) | $ | 9,917 | |||
$6.5 million.
to a bank.
We have not entered into any financial guarantees or other commitments
was backed by cash collateral of $7.4 million.
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 as
For example, in the six months ended June 26, 2020, we experienced some order cancelations and delays with respect to certain products that we manufacture for our customers due to
Reliance
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.
Volatility
rates. Uncertainty about worldwide economic conditions poses a risk as businesses may further reduce or postpone spending in response to reduced budgets, tight credit, negative financial news and declines in income or asset values, which could adversely affect our business, financial condition and operating results and increase the volatility of our share price. In addition, our ability to access capital markets may be restricted, which could have an impact on our ability to react to changing economic and business conditions and could also adversely affect our business, operating results and financial condition and operating results.
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 of products. If our customers do not believe that we have sufficient manufacturing capacity, they may: (1) outsource all of their production to another source that they believe can fulfill all of their production requirements; (2) look to a second source for the manufacture of additional quantities of the products that we currently manufacture for them; (3) manufacture the products themselves; or (4) otherwise decide against using our services for their new products.
Most recently, we expanded our manufacturing capacity with a new facility in Chonburi, Thailand. We may continue to devote significant resourcescondition.
However, if we expand our manufacturing capacity and are unable to promptly utilizepredict or estimate the additional space due to reduced demand for our services, an inability to win new projects, new customers or penetrate new markets, or if the optics industry does not grow as we expect, we may experience periods of excess capacity, which could harmultimate impact on our business or business prospects. The ultimate significance of
condition.
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 may encounter difficulties completing or integrating acquisitions, asset purchases and other types of transactions that we may pursue in the future, which could disrupt our business, cause dilution to our shareholders and harm our business, financial condition and operating results.
We have grown and may continue to grow our business through acquisitions, asset purchases and other types of transactions, including the transfer of products from our customers and their suppliers. Most recently, we acquired Fabrinet UK in September 2016. Acquisitions and other strategic transactions typically involve many risks, including the following:
Acquisitions are inherently risky, and we can provide no assurance that the acquisition of Fabrinet UK or any future acquisitions will be successful or will not harm our business, financial condition and operating results.
We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our shareholders.
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.
We regularly review our investment portfolio to determine if any security is other-than-temporarily impaired, which would require us to record an impairment charge in the period any such determination is made. In making this judgment, we evaluate, among other things, the duration and extent to which the fair value
shares.
Period | 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 | ||||||||||||
September 30, 2017 – October 31, 2017 | — | $ | — | — | $ | 30,000,000 | ||||||||||
November 1, 2017 – November 30, 2017 | 315,973 | $ | 31.36 | 315,973 | $ | 20,089,748 | ||||||||||
December 1, 2017 – December 29, 2017 | — | $ | — | — | $ | 20,089,748 | ||||||||||
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Total | 315,973 | $ | 315,973 | $ | 20,089,748 | |||||||||||
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Period | 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 | ||||||||||||
June 27, 2020 – July 24, 2020 | — | $ | — | — | $ | 41,499,413 | ||||||||||
July 25, 2020 – August 21, 2020 | — | $ | — | — | $ | 99,999,413 | ||||||||||
August 22, 2020 – September 25, 2020 | — | $ | — | — | $ | 99,999,413 | ||||||||||
Total | — | $ | — | — | $ | 99,999,413 | ||||||||||
FABRINET | ||
| By: | /s/ | |
| Name: | Csaba Sverha | |
| Title: | Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) | |
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