falsedesktopFN2020-12-25000140871021000011{"tbl_sim": "https://q10k.com/tbl-sim", "search": "https://q10k.com/search"}{"q10k_tbl_0": "\tPage No.\nRISK FACTORS SUMMARY\t4\nPART I. FINANCIAL INFORMATION\t6\nItem 1. Financial Statements\t6\nCondensed Consolidated Balance Sheets as of December 25 2020 and June 26 2020 (unaudited)\t6\nCondensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended December 25 2020 and December 27 2019 (unaudited)\t7\nCondensed Consolidated Statements of Shareholders' Equity for the three and six months ended December 25 2020 and December 27 2019 (unaudited)\t8\nCondensed Consolidated Statements of Cash Flows for the six months ended December 25 2020 and December 27 2019 (unaudited)\t10\nNotes to Condensed Consolidated Financial Statements (unaudited)\t12\nItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations\t32\nItem 3. Quantitative and Qualitative Disclosures About Market Risk\t44\nItem 4. Controls and Procedures\t45\nPART II. OTHER INFORMATION\t46\nItem 1. Legal Proceedings\t46\nItem 1A. Risk Factors\t46\nItem 2. Unregistered Sales of Equity Securities and Use of Proceeds\t63\nItem 6. Exhibits\t64\nSignature\t65\n", "q10k_tbl_1": "(in thousands of U.S. dollars except share data and par value)\tDecember 25 2020\tJune 26 2020\nAssets\t\t\nCurrent assets\t\t\nCash and cash equivalents\t219221\t225430\nShort-term restricted cash\t7402\t7402\nShort-term investments\t261817\t262693\nTrade accounts receivable net of allowance for doubtful accounts of $123 and $336 respectively\t318430\t272665\nContract assets\t16223\t13256\nInventories\t371996\t309786\nOther receivable\t24310\t24310\nPrepaid expenses\t3141\t5399\nOther current assets\t29187\t14508\nTotal current assets\t1251727\t1135449\nNon-current assets\t\t\nLong-term restricted cash\t153\t0\nProperty plant and equipment net\t227670\t228274\nIntangibles net\t4367\t4312\nOperating right-of-use assets\t7271\t8068\nDeferred tax assets\t6213\t5675\nOther non-current assets\t236\t202\nTotal non-current assets\t245910\t246531\nTotal Assets\t1497637\t1381980\nLiabilities and Shareholders' Equity\t\t\nCurrent liabilities\t\t\nLong-term borrowings current portion net\t12156\t12156\nTrade accounts payable\t296948\t251603\nFixed assets payable\t7748\t15127\nContract liabilities\t1804\t1556\nOperating lease liabilities current portion\t2277\t1979\nIncome tax payable\t2806\t2242\nAccrued payroll bonus and related expenses\t17633\t19265\nAccrued expenses\t14504\t8979\nOther payables\t39159\t21514\nTotal current liabilities\t395035\t334421\nNon-current liabilities\t\t\nLong-term borrowings non-current portion net\t33436\t39514\nDeferred tax liability\t4592\t4729\nOperating lease liability non-current portion\t4737\t5873\nSeverance liabilities\t19011\t17379\nOther non-current liabilities\t4156\t5655\nTotal non-current liabilities\t65932\t73150\nTotal Liabilities\t460967\t407571\nCommitments and contingencies (Note 17)\t\t\nShareholders' equity\t\t\nPreferred shares (5000000 shares authorized $0.01 par value; no shares issued and outstanding as of December 25 2020 and June 26 2020)\t0\t0\nOrdinary shares (500000000 shares authorized $0.01 par value; 38698068 shares and 38471967 shares issued at December 25 2020 and June 26 2020 respectively; and 36852416 shares and 36727864 shares outstanding at December 25 2020 and June 26 2020 respectively)\t387\t385\nAdditional paid-in capital\t177125\t175610\nLess: Treasury shares (1845652 shares and 1744103 shares as of December 25 2020 and June 26 2020 respectively)\t(75575)\t(68501)\nAccumulated other comprehensive income (loss)\t(1657)\t(1147)\nRetained earnings\t936390\t868062\nTotal Shareholders' Equity\t1036670\t974409\nTotal Liabilities and Shareholders' Equity\t1497637\t1381980\n", "q10k_tbl_2": "\tThree Months Ended\t\tSix Months Ended\t\n(in thousands of U.S. dollars except per share data)\tDecember 25 2020\tDecember 27 2019\tDecember 25 2020\tDecember 27 2019\nRevenues\t453827\t426217\t890466\t825513\nCost of revenues\t(400806)\t(377059)\t(786965)\t(730368)\nGross profit\t53021\t49158\t103501\t95145\nSelling general and administrative expenses\t(17156)\t(17078)\t(34019)\t(33078)\nExpenses related to reduction in workforce\t0\t(16)\t0\t(16)\nOperating income\t35865\t32064\t69482\t62051\nInterest income\t1111\t1940\t2215\t4038\nInterest expense\t(265)\t(181)\t(516)\t(2574)\nForeign exchange gain (loss) net\t(533)\t(988)\t(405)\t(2941)\nOther income (expense) net\t158\t397\t279\t774\nIncome before income taxes\t36336\t33232\t71055\t61348\nIncome tax expense\t(952)\t(2001)\t(2620)\t(4160)\nNet income\t35384\t31231\t68435\t57188\nOther comprehensive income (loss) net of tax:\t\t\t\t\nChange in net unrealized gain (loss) on available-for-sale securities\t(42)\t(82)\t(367)\t(47)\nChange in net unrealized gain (loss) on derivative instruments\t2385\t(189)\t(823)\t(150)\nChange in net retirement benefits plan - prior service cost\t50\t101\t223\t184\nChange in foreign currency translation adjustment\t(146)\t616\t457\t247\nTotal other comprehensive income (loss) net of tax\t2247\t446\t(510)\t234\nNet comprehensive income (loss)\t37631\t31677\t67925\t57422\nEarnings per share\t\t\t\t\nBasic\t0.96\t0.84\t1.86\t1.55\nDiluted\t0.94\t0.83\t1.83\t1.52\nWeighted-average number of ordinary shares outstanding (thousands of shares)\t\t\t\t\nBasic\t36936\t37011\t36877\t36962\nDiluted\t37551\t37763\t37467\t37646\n", "q10k_tbl_3": "\tOrdinary Share\t\tAdditional Paid-in Capital\tTreasury Shares\tAccumulated Other Comprehensive Income (Loss)\tRetained Earnings\tTotal\n(in thousands of U.S. dollars except share data)\tShares\tAmount\nBalances at September 25 2020\t38680659\t387\t171715\t(68501)\t(3904)\t901006\t1000703\nNet income\t0\t0\t0\t0\t0\t35384\t35384\nOther comprehensive income (loss)\t0\t0\t0\t0\t2247\t0\t2247\nShare-based compensation\t0\t0\t5851\t0\t0\t0\t5851\nIssuance of ordinary shares\t17409\t0\t0\t0\t0\t0\t0\nRepurchase of 101549 shares held as treasury shares\t0\t0\t0\t(7074)\t0\t0\t(7074)\nTax withholdings related to net share settlement of restricted share units\t0\t0\t(441)\t0\t0\t0\t(441)\nBalances at December 25 2020\t38698068\t387\t177125\t(75575)\t(1657)\t936390\t1036670\n", "q10k_tbl_4": "\tOrdinary Share\t\tAdditional Paid-in Capital\tTreasury Shares\tAccumulated Other Comprehensive Income (Loss)\tRetained Earnings\tTotal\n(in thousands of U.S. dollars except share data)\tShares\tAmount\nBalances at June 26 2020\t38471967\t385\t175610\t(68501)\t(1147)\t868062\t974409\nNet income\t0\t0\t0\t0\t0\t68435\t68435\nOther comprehensive income (loss)\t0\t0\t0\t0\t(510)\t0\t(510)\nCumulative effect adjustment from adoption of ASC 326\t0\t0\t0\t0\t0\t(107)\t(107)\nShare-based compensation\t0\t0\t11878\t0\t0\t0\t11878\nIssuance of ordinary shares\t226101\t2\t(2)\t0\t0\t0\t0\nRepurchase of 101549 shares held as treasury shares\t0\t0\t0\t(7074)\t0\t0\t(7074)\nTax withholdings related to net share settlement of restricted share units\t0\t0\t(10361)\t0\t0\t0\t(10361)\nBalances at December 25 2020\t38698068\t387\t177125\t(75575)\t(1657)\t936390\t1036670\n", "q10k_tbl_5": "\tOrdinary Share\t\tAdditional Paid-in Capital\tTreasury Shares\tAccumulated Other Comprehensive Income (Loss)\tRetained Earnings\tTotal\n(in thousands of U.S. dollars except share data)\tShares\tAmount\nBalances at September 27 2019\t38389128\t384\t160148\t(47779)\t(2598)\t780540\t890695\nNet income\t0\t0\t0\t0\t0\t31231\t31231\nOther comprehensive income (loss)\t0\t0\t0\t0\t446\t0\t446\nShare-based compensation\t0\t0\t6188\t0\t0\t0\t6188\nIssuance of ordinary shares\t19762\t0\t0\t0\t0\t0\t0\nTax withholdings related to net share settlement of restricted share units\t0\t0\t(233)\t0\t0\t0\t(233)\nBalances at December 27 2019\t38408890\t384\t166103\t(47779)\t(2152)\t811771\t928327\n", "q10k_tbl_6": "\tOrdinary Share\t\tAdditional Paid-in Capital\tTreasury Shares\tAccumulated Other Comprehensive Income (Loss)\tRetained Earnings\tTotal\n(in thousands of U.S. dollars except share data)\tShares\tAmount\nBalances at June 28 2019\t38230753\t382\t158299\t(47779)\t(2386)\t754583\t863099\nNet income\t0\t0\t0\t0\t0\t57188\t57188\nOther comprehensive income (loss)\t0\t0\t0\t0\t234\t0\t234\nShare-based compensation\t0\t0\t12183\t0\t0\t0\t12183\nIssuance of ordinary shares\t178137\t2\t(2)\t0\t0\t0\t0\nTax withholdings related to net share settlement of restricted share units\t0\t0\t(4377)\t0\t0\t0\t(4377)\nBalances at December 27 2019\t38408890\t384\t166103\t(47779)\t(2152)\t811771\t928327\n", "q10k_tbl_7": "\tSix Months Ended\t\n(in thousands of U.S. dollars)\tDecember 25 2020\tDecember 27 2019\nCash flows from operating activities\t\t\nNet income for the period\t68435\t57188\nAdjustments to reconcile net income to net cash provided by operating activities\t\t\nDepreciation and amortization\t17650\t15279\n(Gain) loss on disposal of property plant and equipment\t(24)\t242\n(Gain) loss from sales and maturities of available-for-sale securities\t(86)\t(79)\nAmortization of investment discount\t1003\t117\nAmortization of deferred debt issuance costs\t16\t10\n(Reversal of) allowance for doubtful accounts\t(321)\t6\nUnrealized (gain) loss on exchange rate and fair value of foreign currency forward contracts\t(290)\t1205\nUnrealized loss (gain) on fair value of interest rate swaps\t0\t1672\nAmortization of fair value at hedge inception of interest rate swaps\t(695)\t(433)\nShare-based compensation\t11878\t12183\nDeferred income tax\t(461)\t1543\nOther non-cash expenses\t(657)\t(851)\nChanges in operating assets and liabilities\t\t\nTrade accounts receivable\t(45410)\t(24970)\nContract assets\t(2967)\t1333\nInventories\t(62211)\t(767)\nOther current assets and non-current assets\t(11983)\t7471\nTrade accounts payable\t45179\t(22816)\nContract liabilities\t248\t121\nIncome tax payable\t548\t1336\nSeverance liabilities\t1350\t2015\nOther current liabilities and non-current liabilities\t20112\t805\nNet cash provided by operating activities\t41314\t52610\nCash flows from investing activities\t\t\nPurchase of short-term investments\t(126701)\t(101727)\nProceeds from sales of short-term investments\t57486\t72664\nProceeds from maturities of short-term investments\t68807\t62666\nFunds provided to customer to support transfer of manufacturing operations (Note 8)\t0\t(24310)\nPurchase of property plant and equipment\t(22693)\t(15411)\nPurchase of intangibles\t(1271)\t(808)\nProceeds from disposal of property plant and equipment\t26\t1195\nNet cash used in investing activities\t(24346)\t(5731)\nCash flows from financing activities\t\t\nPayment of debt issuance costs\t0\t(153)\nProceeds from long-term borrowings\t0\t60938\nRepayment of long-term borrowings\t(6094)\t(63985)\nRepayment of finance lease liability\t(100)\t(189)\nRepurchase of ordinary shares\t(7074)\t0\nWithholding tax related to net share settlement of restricted share units\t(10361)\t(4377)\nNet cash used in financing activities\t(23629)\t(7766)\nNet increase (decrease) in cash cash equivalents and restricted cash\t(6661)\t39113\nMovement in cash cash equivalents and restricted cash\t\t\nCash cash equivalents and restricted cash at the beginning of period\t232832\t188241\nIncrease (decrease) in cash cash equivalents and restricted cash\t(6661)\t39113\nEffect of exchange rate on cash cash equivalents and restricted cash\t605\t351\nCash cash equivalents and restricted cash at the end of period\t226776\t227705\nNon-cash investing and financing activities\t\t\nConstruction software and equipment-related payables\t7748\t14307\n", "q10k_tbl_8": "(amount in thousands)\tAs of December 25 2020\tAs of December 27 2019\nCash and cash equivalents\t219221\t220031\nRestricted cash\t7555\t7674\nCash cash equivalents and restricted cash\t226776\t227705\n", "q10k_tbl_9": "\tJune 26 2020\t\t\n(amount in thousands)\tAs previously reported\tReclassification\tAfter reclassification\nConsolidated Balance Sheet\t\t\t\nCurrent assets\t\t\t\nOther current assets\t13915\t593\t14508\nCurrent liabilities\t\t\t\nAccrued expenses\t12104\t(3125)\t8979\nNon-current liabilities\t\t\t\nOther non-current liabilities\t1937\t3718\t5655\n", "q10k_tbl_10": "(amount in thousands except percentages)\tThree Months Ended December 25 2020\tAs a % of Total Revenues\tSix Months Ended December 25 2020\tAs a % of Total Revenues\nNorth America\t224672\t49.5%\t432074\t48.5%\nAsia-Pacific\t153734\t33.9\t299380\t33.6\nEurope\t75421\t16.6\t159012\t17.9\n\t453827\t100.0%\t890466\t100.0%\n", "q10k_tbl_11": "(amount in thousands except percentages)\tThree Months Ended December 27 2019\tAs a % of Total Revenues\tSix Months Ended December 27 2019\tAs a % of Total Revenues\nNorth America\t223398\t52.4%\t424345\t51.4%\nAsia-Pacific\t141147\t33.1\t259570\t31.4\nEurope\t61672\t14.5\t141598\t17.2\n\t426217\t100.0%\t825513\t100.0%\n", "q10k_tbl_12": "(amount in thousands except percentages)\tThree Months Ended December 25 2020\tAs a % of Total Revenues\tSix Months Ended December 25 2020\tAs a % of Total Revenues\nOptical communications\t347840\t76.6%\t691757\t77.7%\nLasers sensors and other\t105987\t23.4\t198709\t22.3\nTotal\t453827\t100.0%\t890466\t100.0%\n", "q10k_tbl_13": "(amount in thousands except percentages)\tThree Months Ended December 27 2019\tAs a % of Total Revenues\tSix Months Ended December 27 2019\tAs a % of Total Revenues\nOptical communications\t322068\t75.6%\t624447\t75.6%\nLasers sensors and other\t104149\t24.4\t201066\t24.4\nTotal\t426217\t100.0%\t825513\t100.0%\n", "q10k_tbl_14": "(amount in thousands)\tContract Assets\nBeginning balance June 26 2020\t13256\nRevenue recognized\t35464\nAmounts collected or invoiced\t(32497)\nEnding balance December 25 2020\t16223\n", "q10k_tbl_15": "(amount in thousands)\tContract Liabilities\nBeginning balance June 26 2020\t1556\nAdditions advance payment received during the period\t14597\nRevenue recognized\t(14349)\nEnding balance December 25 2020\t1804\n", "q10k_tbl_16": "\tThree Months Ended\t\tSix Months Ended\t\n(amount in thousands except per share amounts)\tDecember 25 2020\tDecember 27 2019\tDecember 25 2020\tDecember 27 2019\nNet income attributable to shareholders\t35384\t31231\t68435\t57188\nWeighted-average number of ordinary shares outstanding (thousands of shares)\t36936\t37011\t36877\t36962\nIncremental shares arising from the assumed vesting of restricted share units and performance share units (thousands of shares)\t615\t752\t590\t684\nWeighted-average number of ordinary shares for diluted earnings per ordinary share (thousands of shares)\t37551\t37763\t37467\t37646\nBasic earnings per ordinary share\t0.96\t0.84\t1.86\t1.55\nDiluted earnings per ordinary share\t0.94\t0.83\t1.83\t1.52\nOutstanding performance share units excluded from the computation of diluted earnings per ordinary share (thousands of shares)(1)\t91\t50\t91\t50\n", "q10k_tbl_17": "\t\t\tFair Value\t\t\n(amount in thousands)\tCarrying Cost\tUnrealized Gain/ (Loss)\tCash and Cash Equivalents\tMarketable Securities\tOther Investments\nAs of December 25 2020\t\t\t\t\t\nCash\t211314\t0\t211314\t0\t0\nCash equivalents\t7907\t0\t7907\t0\t0\nLiquidity funds\t41245\t0\t0\t0\t41245\nCertificates of deposit and time deposits\t20500\t0\t0\t0\t20500\nCorporate debt securities\t159485\t790\t0\t160275\t0\nU.S. agency and U.S. treasury securities\t39462\t335\t0\t39797\t0\nTotal\t479913\t1125\t219221\t200072\t61745\nAs of June 26 2020\t\t\t\t\t\nCash\t218117\t0\t218117\t0\t0\nCash equivalents\t7313\t0\t7313\t0\t0\nLiquidity funds\t41051\t0\t0\t0\t41051\nCertificates of deposit and time deposits\t11800\t0\t0\t0\t11800\nCorporate debt securities\t159220\t948\t0\t160168\t0\nU.S. agency and U.S. treasury securities\t49130\t544\t0\t49674\t0\nTotal\t486631\t1492\t225430\t209842\t52851\n", "q10k_tbl_18": "\tDecember 25 2020\t\tJune 26 2020\t\n(amount in thousands)\tCarrying Cost\tFair Value\tCarrying Cost\tFair Value\nDue within one year\t82493\t82508\t76127\t76196\nDue between one to five years\t116454\t117564\t132223\t133646\nTotal\t198947\t200072\t208350\t209842\n", "q10k_tbl_19": "\tFair Value Measurements at Reporting Date Using\t\t\t\t\n(amount in thousands)\tLevel 1\tLevel 2\t\tLevel 3\tTotal\nAs of December 25 2020\t\t\t\t\t\nAssets\t\t\t\t\t\nCash equivalents\t0\t7907\t\t0\t7907\nLiquidity funds\t0\t41245\t\t0\t41245\nCertificates of deposit and time deposits\t0\t20500\t\t0\t20500\nCorporate debt securities\t0\t160275\t\t0\t160275\nU.S. agency and U.S. treasury securities\t0\t39797\t\t0\t39797\nDerivative assets - current portion\t0\t3071\t(1)\t0\t3071\nTotal\t0\t272795\t\t0\t272795\nLiabilities\t\t\t\t\t\nDerivative liabilities - current portion\t0\t1676\t\t0\t1676\nDerivative liabilities - non-current portion\t0\t2894\t\t0\t2894\nTotal\t0\t4570\t(2)\t0\t4570\n", "q10k_tbl_20": "\tFair Value Measurements at Reporting Date Using\t\t\t\t\n(amount in thousands)\tLevel 1\tLevel 2\t\tLevel 3\tTotal\nAs of June 26 2020\t\t\t\t\t\nAssets\t\t\t\t\t\nCash equivalents\t0\t7313\t\t0\t7313\nLiquidity funds\t0\t41051\t\t0\t41051\nCertificates of deposit and time deposits\t0\t11800\t\t0\t11800\nCorporate debt securities\t0\t160168\t\t0\t160168\nU.S. agency and U.S. treasury securities\t0\t49674\t\t0\t49674\nDerivative assets\t0\t2823\t(3)\t0\t2823\nTotal\t0\t272829\t\t0\t272829\nLiabilities\t\t\t\t\t\nDerivative liabilities - current portion\t0\t2148\t\t0\t2148\nDerivative liabilities - non-current portion\t0\t3718\t\t0\t3718\nTotal\t0\t5866\t(4)\t0\t5866\n", "q10k_tbl_21": "\t\tThree Months Ended\t\tSix Months Ended\t\n(amount in thousands)\tFinancial statements line item\tDecember 25 2020\tDecember 27 2019\tDecember 25 2020\tDecember 27 2019\nDerivatives gain (loss) recognized in other comprehensive income (loss):\t\t\t\t\t\nForeign currency forward contracts\tOther comprehensive income\t3149\t0\t809\t0\nInterest rate swaps\tOther comprehensive income\t386\t243\t743\t282\nTotal derivatives gain (loss) recognized in other comprehensive income (loss)\t\t3535\t243\t1552\t282\nDerivatives loss (gain) reclassified from accumulated other comprehensive income (loss) into earnings:\t\t\t\t\t\nForeign currency forward contracts\tCost of revenues\t337\t0\t(1720)\t0\nForeign currency forward contracts\tSG&A\t14\t0\t(73)\t0\nForeign currency forward contracts\tForeign exchange loss net\t(1165)\t0\t113\t0\nInterest rate swaps\tInterest expense\t(336)\t(432)\t(695)\t(432)\nTotal derivatives (gain) loss reclassified from accumulated other comprehensive income (loss) into earnings\t\t(1150)\t(432)\t(2375)\t(432)\nChange in net unrealized gain (loss) on derivatives instruments\t\t2385\t(189)\t(823)\t(150)\n", "q10k_tbl_22": "\tDecember 25 2020\t\tJune 26 2020\t\n(amount in thousands)\tDerivative Assets\tDerivative Liabilities\tDerivative Assets\tDerivative Liabilities\nDerivatives not designated as hedging instruments\t\t\t\t\nForeign currency forward and option contracts\t1095\t0\t9\t(611)\nInterest rate swaps\t0\t0\t0\t0\nDerivatives designated as hedging instruments\t\t\t\t\nForeign currency forward contracts\t1976\t(140)\t2814\t(83)\nInterest rate swaps\t0\t(4430)\t0\t(5172)\nDerivatives gross balances\t3071\t(4570)\t2823\t(5866)\n", "q10k_tbl_23": "(amount in thousands)\tAs of December 25 2020\tAs of June 26 2020\nRaw materials\t143230\t141522\nWork in progress\t177881\t136344\nFinished goods\t30194\t17950\nGoods in transit\t20691\t13970\nInventories\t371996\t309786\n", "q10k_tbl_24": "(amount in thousands)\tAs of December 25 2020\t\n2021 (remaining six months)\t1285\t\n2022\t2568\t\n2023\t2448\t\n2024\t1088\t\n2025\t30\t\nTotal undiscounted lease payments\t7419\t\nLess imputed interest\t(405)\t\nTotal present value of lease liabilities\t7014\t(1)\n", "q10k_tbl_25": "\tAs of December 25 2020\tAs of June 26 2020\nWeighted-average remaining lease term (in years)\t3.1\t3.3\nWeighted-average discount rate\t3.7%\t3.7%\n", "q10k_tbl_26": "\tThree Months Ended\t\tSix Months Ended\t\n(amount in thousands)\tDecember 25 2020\tDecember 27 2019\tDecember 25 2020\tDecember 27 2019\nCash paid for amounts included in the measurement of lease liabilities\t\t\t\t\nOperating cash flows from operating leases\t667\t566\t1261\t1024\nFinancing cash flows from finance leases\t0\t80\t100\t189\nROU assets obtained in exchange for lease liabilities\t43\t1373\t7271\t7558\n", "q10k_tbl_27": "(amount in thousands)\tGross Carrying Amount\tAccumulated Amortization\tForeign Currency Translation Adjustment\tNet\nAs of December 25 2020\t\t\t\t\nSoftware\t9018\t(6100)\t0\t2918\nCustomer relationships\t4373\t(2954)\t30\t1449\nBacklog\t119\t(119)\t0\t0\nTotal intangibles\t13510\t(9173)\t30\t4367\n", "q10k_tbl_28": "(amount in thousands)\tGross Carrying Amount\tAccumulated Amortization\tForeign Currency Translation Adjustment\tNet\nAs of June 26 2020\t\t\t\t\nSoftware\t8317\t(5577)\t0\t2740\nCustomer relationships\t4373\t(2691)\t(110)\t1572\nBacklog\t119\t(119)\t0\t0\nTotal intangibles\t12809\t(8387)\t(110)\t4312\n", "q10k_tbl_29": "(amount in thousands)\t\n2021 (remaining six months)\t312\n2022\t1215\n2023\t1208\n2024\t924\n2025\t488\nThereafter\t220\nTotal\t4367\n", "q10k_tbl_30": "(amount in thousands)\t\t\t\t\nRate\tConditions\tMaturity\tAs of December 25 2020\tAs of June 26 2020\nLong-term borrowings current portion net:\t\t\t\t\nLong-term borrowings current portion\t\t\t12188\t12188\nLess: Unamortized debt issuance costs - current portion\t\t\t(32)\t(32)\nLong-term borrowings current portion net\t\t\t12156\t12156\nLong-term borrowings non-current portion net:\t\t\t\t\nTerm loan borrowings:\t\t\t\t\n3-month LIBOR +1.35% per annum (1)\tRepayable in quarterly installments\tJune 2024\t45703\t51797\nLess: Current portion\t\t\t(12188)\t(12188)\nLess: Unamortized debt issuance costs - non-current portion\t\t\t(79)\t(95)\nLong-term borrowings non-current portion net\t\t\t33436\t39514\n", "q10k_tbl_31": "\tSix Months Ended\t\n(amount in thousands)\tDecember 25 2020\tDecember 27 2019\nOpening balance\t51797\t60938\nBorrowings during the period\t0\t60938\nRepayments during the period\t(6094)\t(63985)\nClosing balance\t45703\t57891\n", "q10k_tbl_32": "(amount in thousands)\t\n2021 (remaining six months)\t9141\n2022\t12187\n2023\t12187\n2024\t12188\nTotal\t45703\n", "q10k_tbl_33": "\tThree Months Ended\t\tSix Months Ended\t\n(amount in thousands)\tDecember 25 2020\tDecember 27 2019\tDecember 25 2020\tDecember 27 2019\nShare-based compensation expense by type of award:\t\t\t\t\nRestricted share units\t4175\t4186\t9424\t8584\nPerformance share units\t1676\t2002\t2454\t3599\nTotal share-based compensation expense\t5851\t6188\t11878\t12183\nTax effect on share-based compensation expense\t0\t0\t0\t0\nNet effect on share-based compensation expense\t5851\t6188\t11878\t12183\n", "q10k_tbl_34": "\tThree Months Ended\t\tSix Months Ended\t\n(amount in thousands)\tDecember 25 2020\tDecember 27 2019\tDecember 25 2020\tDecember 27 2019\nCost of revenue\t1592\t1591\t3417\t3311\nSelling general and administrative expense\t4259\t4597\t8461\t8872\nTotal share-based compensation expense\t5851\t6188\t11878\t12183\n", "q10k_tbl_35": "\tNumber of Shares\tWeighted- Average Grant Date Fair Value Per Share\nBalance as of June 26 2020\t797757\t46.88\nGranted\t216776\t69.48\nIssued\t(292874)\t43.75\nForfeited\t(13997)\t54.23\nBalance as of December 25 2020\t707662\t54.95\n", "q10k_tbl_36": "\tNumber of Shares\tWeighted- Average Grant Date Fair Value Per Share\nBalance as of June 28 2019\t800751\t42.48\nGranted\t331900\t49.78\nIssued\t(264275)\t39.60\nForfeited\t(23855)\t42.09\nBalance as of December 27 2019\t844521\t46.26\n", "q10k_tbl_37": "\tNumber of Shares\tWeighted- Average Grant Date Fair Value Per Share\nBalance as of June 26 2020\t440140\t48.37\nGranted\t184718\t69.85\nIssued\t(82185)\t48.02\nForfeited\t(115645)\t48.02\nBalance as of December 25 2020\t427028\t57.82\n", "q10k_tbl_38": "\tNumber of Shares\tWeighted- Average Grant Date Fair Value Per Share\nBalance as of June 28 2019\t548500\t40.97\nGranted\t238474\t48.39\nIssued\t0\t0\nForfeited\t(350670)\t36.99\nBalance as of December 27 2019\t436304\t48.22\n", "q10k_tbl_39": "(amount in thousands)\tUnrealized net (Losses)/Gains on Available-for-sale Securities\tUnrealized net (Losses)/Gains on Derivative Instruments\tRetirement benefit plan - Prior service cost\tForeign Currency Translation Adjustment\tTotal\nBalance as of June 26 2020\t1490\t602\t(2009)\t(1230)\t(1147)\nOther comprehensive income before reclassification adjustment\t(289)\t1552\t0\t457\t1720\nAmounts reclassified out of AOCI to the unaudited condensed consolidated statements of operations and comprehensive income\t(78)\t(2375)\t223\t0\t(2230)\nTax effects\t0\t0\t0\t0\t0\nOther comprehensive income (loss)\t(367)\t(823)\t223\t457\t(510)\nBalance as of December 25 2020\t1123\t(221)\t(1786)\t(773)\t(1657)\n", "q10k_tbl_40": "(amount in thousands)\tUnrealized net (Losses)/Gains on Available-for-sale Securities\tUnrealized net (Losses)/Gains on Derivative Instruments\tRetirement benefit plan - Prior service cost\tForeign Currency Translation Adjustment\tTotal\nBalance as of June 28 2019\t952\t32\t(2537)\t(833)\t(2386)\nOther comprehensive income before reclassification adjustment\t(126)\t(150)\t184\t247\t155\nAmounts reclassified out of AOCI to the unaudited condensed consolidated statements of operations and comprehensive income\t79\t0\t0\t0\t79\nTax effects\t0\t0\t0\t0\t0\nOther comprehensive income (loss)\t(47)\t(150)\t184\t247\t234\nBalance as of December 27 2019\t905\t(118)\t(2353)\t(586)\t(2152)\n", "q10k_tbl_41": "\tThree Months Ended\t\tSix Months Ended\t\n\tDecember 25 2020\tDecember 27 2019\tDecember 25 2020\tDecember 27 2019\nNorth America\t49.5%\t52.4%\t48.5%\t51.4%\nAsia-Pacific\t33.9\t33.1\t33.6\t31.4\nEurope\t16.6\t14.5\t17.9\t17.2\n\t100.0%\t100.0%\t100.0%\t100.0%\n", "q10k_tbl_42": "\tAs of December 25 2020\t\t\tAs of June 26 2020\t\t\n(amount in thousands except percentages)\tCurrency\t$\t%\tCurrency\t$\t%\nAssets\t\t\t\t\t\t\nThai baht\t633768\t21076\t49.6%\t667955\t21617\t41.8%\nRMB\t87668\t13419\t31.6\t158060\t22402\t43.3\nGBP\t5902\t8006\t18.8\t6220\t7726\t14.9\nTotal\t\t42501\t100.0%\t\t51745\t100.0%\nLiabilities\t\t\t\t\t\t\nThai baht\t1997135\t66416\t90.8%\t2102392\t68039\t89.5%\nRMB\t29894\t4576\t6.2\t42586\t6036\t8.0\nGBP\t1600\t2170\t3.0\t1545\t1919\t2.5\nTotal\t\t73162\t100.0%\t\t75994\t100.0%\n", "q10k_tbl_43": "(amount in thousands)\tThree Months Ended\t\t\t\tSix Months Ended\t\t\nDecember 25 2020\t\tDecember 27 2019\t\tDecember 25 2020\t\tDecember 27 2019\nRevenues\t453827\t\t426217\t\t890466\t\t825513\nCost of revenues\t(400806)\t\t(377059)\t\t(786965)\t\t(730368)\nGross profit\t53021\t\t49158\t\t103501\t\t95145\nSelling general and administrative expenses\t(17156)\t\t(17078)\t\t(34019)\t\t(33078)\nExpenses related to reduction in workforce\t0\t\t(16)\t\t0\t\t(16)\nOperating income\t35865\t\t32064\t\t69482\t\t62051\nInterest income\t1111\t\t1940\t\t2215\t\t4038\nInterest expense\t(265)\t\t(181)\t\t(516)\t\t(2574)\nForeign exchange gain (loss) net\t(533)\t\t(988)\t\t(405)\t\t(2941)\nOther income (expense) net\t158\t\t397\t\t279\t\t774\nIncome before income taxes\t36336\t\t33232\t\t71055\t\t61348\nIncome tax expense\t(952)\t\t(2001)\t\t(2620)\t\t(4160)\nNet income\t35384\t\t31231\t\t68435\t\t57188\nOther comprehensive income (loss) net of tax\t2247\t\t446\t\t(510)\t\t234\nNet comprehensive income\t37631\t\t31677\t\t67925\t\t57422\n", "q10k_tbl_44": "\tThree Months Ended\t\tSix Months Ended\t\n\tDecember 25 2020\tDecember 27 2019\tDecember 25 2020\tDecember 27 2019\nRevenues\t100.0%\t100.0%\t100.0%\t100.0%\nCost of revenues\t(88.3)\t(88.5)\t(88.4)\t(88.5)\nGross profit\t11.7\t11.5\t11.6\t11.5\nSelling general and administrative expenses\t(3.8)\t(4.0)\t(3.8)\t(4.0)\nExpenses related to reduction in workforce\t0\t0\t0\t0\nOperating income\t7.9\t7.5\t7.8\t7.5\nInterest income\t0.2\t0.4\t0.3\t0.5\nInterest expense\t0\t0\t(0.1)\t(0.3)\nForeign exchange gain (loss) net\t(0.1)\t(0.2)\t0\t(0.4)\nOther income (expense) net\t0\t0.1\t0\t0.1\nIncome before income taxes\t8.0\t7.8\t8.0\t7.4\nIncome tax expense\t(0.2)\t(0.5)\t(0.3)\t(0.5)\nNet income\t7.8\t7.3\t7.7\t6.9\nOther comprehensive income (loss) net of tax\t0.5\t0.1\t(0.1)\t0\nNet comprehensive income\t8.3%\t7.4%\t7.6%\t6.9%\n", "q10k_tbl_45": "\tThree Months Ended\t\tSix Months Ended\t\n(amount in thousands)\tDecember 25 2020\tDecember 27 2019\tDecember 25 2020\tDecember 27 2019\nOptical communications\t347840\t322068\t691757\t624447\nLasers sensors and other\t105987\t104149\t198709\t201066\nTotal\t453827\t426217\t890466\t825513\n", "q10k_tbl_46": "\tSix Months Ended\t\n(amount in thousands)\tDecember 25 2020\tDecember 27 2019\nNet cash provided by operating activities\t41314\t52610\nNet cash used in investing activities\t(24346)\t(5731)\nNet cash used in financing activities\t(23629)\t(7766)\nNet (decrease) increase in cash cash equivalents and restricted cash\t(6661)\t39113\n", "q10k_tbl_47": "Period\tTotal Number of Shares Purchased\tAverage Price Paid Per Share\tTotal Number of Shares Purchased As Part of Publicly Announced Program (1)\tMaximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (1)\nSeptember 26 2020 - October 23 2020\t0\t0\t0\t41499413\nOctober 24 2020 - November 20 2020\t0\t0\t0\t99999413\nNovember 21 2020 - December 25 2020\t101549\t69.64\t7071986\t92927427\nTotal\t101549\t69.64\t7071986\t\n", "q10k_tbl_48": "\t\tIncorporated by reference herein\t\t\nExhibit Number\tDescription\tForm\tExhibit No.\tFiling Date\n31.1\tCertification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002\t\t\t\n31.2\tCertification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002\t\t\t\n32.1\tCertifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002\t\t\t\n101.INS\tInline XBRL Instance\t\t\t\n101.SCH\tInline XBRL Taxonomy Extension Schema\t\t\t\n101.CAL\tInline XBRL Taxonomy Extension Calculation Linkbase\t\t\t\n101.DEF\tInline XBRL Taxonomy Extension Definition Linkbase\t\t\t\n101.LAB\tInline XBRL Taxonomy Extension Label Linkbase\t\t\t\n101.PRE\tInline XBRL Taxonomy Extension Presentation Linkbase\t\t\t\n104\tCover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)\t\t\t\n"}{"bs": "q10k_tbl_1", "is": "q10k_tbl_2", "cf": "q10k_tbl_7"}None
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii: Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
Exhibits
EX-31.1
fn-20201225x10qex311.htm
EX-31.2
fn-20201225x10qex312.htm
EX-32.1
fn-20201225x10qex321.htm
Fabrinet Earnings 2020-12-25
Balance Sheet
Income Statement
Cash Flow
Assets, Equity
Rev, G Profit, Net Income
Ops, Inv, Fin
fn-20201225
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(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Ordinary Shares, $0.01 par value
FN
New York Stock Exchange
____________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yesx No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesx No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No
As of January 22, 2021, the registrant had 36,870,691 ordinary shares, $0.01 par value, outstanding.
You should carefully consider the information set forth below under the heading “Risk Factors” in Part II, Item 1A before deciding whether to invest in our securities. Below is a summary of the principal risks associated with an investment in our securities.
•Our sales depend on a small number of customers. A reduction in orders from any of these customers, the loss of any of these customers, or a customer exerting significant pricing and margin pressures on us could harm our business, financial condition and operating results.
•Consolidation in the markets we serve could harm our business, financial condition and operating results.
•If the optical communications market does not expand as we expect, our business may not grow as fast as we expect.
•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.
•If we are unable to continue diversifying our precision optical and electro-mechanical manufacturing services across other markets within the optics industry, or if these markets do not grow as fast as we expect, our business may not grow as fast as we expect.
•If we are unable to compete successfully against our current and future competitors, our business, financial condition and operating results could be harmed.
•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.
•Our exposure to financially troubled customers or suppliers could harm our business, financial condition and operating results.
•We purchase some of the critical materials used in certain of our products from a single source or a limited number ofsuppliers.Supplyshortageshaveinthepast,andcouldinthefuture,impairthequality,reducetheavailabilityorincrease the cost of materials, which could harm our revenues, profitability and customer relations.
•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.
•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 experience manufacturing yields that are lower than expected, potentially resulting in increased costs, which could harm our business, operating results and customer relations.
•If the products that we manufacture contain defects, we could incur significant correction costs, demand for our services may decline and we may be exposed to product liability and product warranty claims.
•If we fail to attract additional skilled employees or retain key personnel, our business, financial condition and operating results could suffer.
•We conduct operations in a number of countries, which creates logistical and communications challenges for us and exposes us to other risks and challenges that could harm our business, financial condition and operating results.
•We are subject to governmental export and import controls in several jurisdictions that subject us to a variety of risks, including liability, impairment of our ability to compete in international markets, and decreased sales and customer orders.
•We are subject to risks related to the ongoing U.S.-China trade dispute, including increased tariffs on materials that we use in manufacturing, which could adversely affect our business, financial condition and operating results.
•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.
•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.
•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.
•Natural disasters (like the 2011 flooding in Thailand), epidemics, acts of terrorism and other political and economic developments could harm our business, financial condition and operating results.
•The loan agreements for our long-term debt obligations and other credit facilities contain financial ratio covenants that may impair our ability to conduct our business.
•The phase-out of the London Interbank Offered Rate could affect interest rates under our existing credit facility agreement, as well as our ability to seek future debt financing.
•Unfavorable worldwide economic conditions may negatively affect our business, operating results and financial condition.
•We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our shareholders.
•Our investment portfolio may become impaired by deterioration of the capital markets.
•We are not fully insured against all potential losses.
•Any changes in the estimates, judgments and assumptions used in the preparation of our financial statements could have a material adverse effect on our business, financial condition and operating results.
•Our business and operations would be adversely impacted in the event of a failure of our information technology infrastructure and/or cyber security attacks.
•Intellectual property infringement claims against our customers or us could harm our business, financial condition and operating results.
•Any failure to protect our customers’ intellectual property that we use in the products we manufacture for them could harm our customer relationships and subject us to liability.
•We are subject to the risk of increased income taxes.
•We have incurred and will continue to incur significant increased costs as a result of operating as a public company, and our management will be required to continue to devote substantial time to various compliance initiatives.
•Failure to comply with applicable environmental laws and regulations could have a material adverse effect on our business, financial condition and operating results.
•If we are unable to meet regulatory quality standards applicable to our manufacturing and quality processes for the products we manufacture, our business, financial condition or operating results could be harmed.
•Our share price may be volatile due to fluctuations in our operating results and other factors, including the activities and operating results of our customers or competitors, any of which could cause our share price to decline.
•If securities or industry analysts do not publish research or if they publish misleading or unfavorable research about our business, the market price and trading volume of our ordinary shares could decline.
•We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.
•Our business and share price could be negatively affected as a result of activist shareholders.
•Certain provisions in our constitutional documents may discourage our acquisition by a third party, which could limit your opportunity to sell shares at a premium.
•Our shareholders may face difficulties in protecting their interests because we are incorporated under Cayman Islands law.
•Certain judgments obtained against us by our shareholders may not be enforceable.
(in thousands of U.S. dollars, except share data and par value)
December 25, 2020
June 26, 2020
Assets
Current assets
Cash and cash equivalents
$
219,221
$
225,430
Short-term restricted cash
7,402
7,402
Short-term investments
261,817
262,693
Trade accounts receivable, net of allowance for doubtful accounts of $123 and $336, respectively
318,430
272,665
Contract assets
16,223
13,256
Inventories
371,996
309,786
Other receivable
24,310
24,310
Prepaid expenses
3,141
5,399
Other current assets
29,187
14,508
Total current assets
1,251,727
1,135,449
Non-current assets
Long-term restricted cash
153
—
Property, plant and equipment, net
227,670
228,274
Intangibles, net
4,367
4,312
Operating right-of-use assets
7,271
8,068
Deferred tax assets
6,213
5,675
Other non-current assets
236
202
Total non-current assets
245,910
246,531
Total Assets
$
1,497,637
$
1,381,980
Liabilities and Shareholders’ Equity
Current liabilities
Long-term borrowings, current portion, net
$
12,156
$
12,156
Trade accounts payable
296,948
251,603
Fixed assets payable
7,748
15,127
Contract liabilities
1,804
1,556
Operating lease liabilities, current portion
2,277
1,979
Income tax payable
2,806
2,242
Accrued payroll, bonus and related expenses
17,633
19,265
Accrued expenses
14,504
8,979
Other payables
39,159
21,514
Total current liabilities
395,035
334,421
Non-current liabilities
Long-term borrowings, non-current portion, net
33,436
39,514
Deferred tax liability
4,592
4,729
Operating lease liability, non-current portion
4,737
5,873
Severance liabilities
19,011
17,379
Other non-current liabilities
4,156
5,655
Total non-current liabilities
65,932
73,150
Total Liabilities
460,967
407,571
Commitments and contingencies (Note 17)
Shareholders’ equity
Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and outstanding as of December 25, 2020 and June 26, 2020)
—
—
Ordinary shares (500,000,000 shares authorized, $0.01 par value; 38,698,068 shares and 38,471,967 shares issued at December 25, 2020 and June 26, 2020, respectively; and 36,852,416 shares and 36,727,864 shares outstanding at December 25, 2020 and June 26, 2020, respectively)
387
385
Additional paid-in capital
177,125
175,610
Less: Treasury shares (1,845,652 shares and 1,744,103 shares as of December 25, 2020 and June 26, 2020 respectively)
(75,575)
(68,501)
Accumulated other comprehensive income (loss)
(1,657)
(1,147)
Retained earnings
936,390
868,062
Total Shareholders’ Equity
1,036,670
974,409
Total Liabilities and Shareholders’ Equity
$
1,497,637
$
1,381,980
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statements of cash flows:
(amount in thousands)
As of
December 25, 2020
As of
December 27, 2019
Cash and cash equivalents
$
219,221
$
220,031
Restricted cash
7,555
7,674
Cash, cash equivalents and restricted cash
$
226,776
$
227,705
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of U.S. dollars unless otherwise noted)
1.Business and organization
General
Fabrinet (“Fabrinet” or the “Parent Company”) was incorporated on August 12, 1999, and commenced operations on January 1, 2000. The Parent Company is an exempted company incorporated in the Cayman Islands, British West Indies. The “Company” refers to Fabrinet and its subsidiaries as a group.
The Company provides advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers (“OEMs”) of complex products, such as optical communication components, modules and sub-systems, industrial lasers, automotive components, medical devices and sensors. The Company offers a broad range of advanced optical and electro-mechanical capabilities across the entire manufacturing process, including process design and engineering, supply chain management, manufacturing, complex printed circuit board assembly, advanced packaging, integration, final assembly and testing. The Company focuses primarily on the production of low-volume, high-mix products. The principal subsidiaries of Fabrinet include Fabrinet Co., Ltd. (“Fabrinet Thailand”), Casix, Inc. (“Casix”), Fabrinet West, Inc. (“Fabrinet West”) and Fabrinet UK Limited (“Fabrinet UK”).
2.Accounting policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements for Fabrinet as of December 25, 2020 and for the three and six months ended December 25, 2020 and December 27, 2019 includes normal recurring adjustments necessary for a fair statement 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 Form 10-K for the year ended June 26, 2020.
The balance sheet as of June 26, 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.
The results for the three and six months ended December 25, 2020 may not be indicative of results for the year ending June 25, 2021 or any future periods.
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amount of total revenues and expenses during the year. The Company bases estimates on historical experience and various assumptions about the future that are believed to be reasonable based on available information. The Company’s reported financial position or results of operations may be materially different under different conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies, which are discussed below. Significant assumptions are used in accounting for share-based compensation, allowance for doubtful accounts, allowance for expected credit losses, income taxes, inventory obsolescence, goodwill and valuation of intangible assets related to business acquisition, among others. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates. In the event that estimates or assumptions prove to be different from actual results, adjustments will be made in subsequent periods to reflect more current information. Additionally, the extent to which the evolving COVID-19 pandemic impacts the Company’s unaudited condensed consolidated financial statements will depend on a number of factors, including the magnitude and duration of the pandemic. These estimates may change, as new events occur and additional information is obtained, as well as other factors related to the COVID-19 pandemic that could result in material impacts to the Company's unaudited condensed consolidated financial statements in future reporting periods.
The Company utilizes a 52-53 week fiscal year ending on the Friday in June closest to June 30. The three months ended December 25, 2020 and December 27, 2019 each consisted of 13 weeks. The six months ended December 25, 2020 and December 27, 2019 each consisted of 26 weeks. Fiscal year 2021 will be comprised of 52 weeks and will end on June 25, 2021.
Reclassifications
For presentation purposes, certain prior period amounts have been reclassified to conform to the current period presentation.
As of June 26, 2020, the derivative assets and liabilities were measured at fair value and recognized by offsetting the fair value amounts under master netting arrangements. Also, the Company chose not to separate a derivative into current and non-current portions as follows:
(i)A derivative for which the fair value is a net liability is classified in total as current.
(ii)A derivative for which the fair value is a net asset and the current portion is an asset is classified in total as non-current. If the current portion is a liability, it is presented as a current liability.
As of December 25, 2020, the derivative assets and liabilities were measured at fair value, but the gross fair value amount is presented in the unaudited condensed consolidated balance sheets. Additionally, a classification of current and non-current portion is determined by the maturity date of that derivative (e.g., a derivative that matures within one year is classified as current).
The reclassifications have been made to the consolidated balance sheet as of June 26, 2020 as shown in the following table:
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
Adoption of New Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This standard requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The standard replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The new standard also expands the required quantitative and qualitative disclosures surrounding expected credit losses.
On June 27, 2020, the Company adopted Accounting Standards Codification (“ASC”) 326 using the modified retrospective transition approach. The modified retrospective method requires the Company to recognize the cumulative effect of the adoption of ASC 326, to the opening accumulated retained earnings. Accordingly, the Company’s comparative financial statements as of June 26, 2020 have not been adjusted. The Company implemented internal controls to enable the preparation of financial information upon adoption.
Management estimates the expected credit losses of financial assets using relevant available information from internal and external sources relating to historical credit loss experience, current conditions and reasonable forecasts over a financial asset’s contractual term. Adjustments to historical loss information are made from qualitative and quantitative factors if economic conditions on the reporting date reflect stronger or weaker economic performance than the historical data implies based on management’s expectations of economic conditions on certain indicators of the Company, industry and economy. The Company reviews factors such as past collection experience, age of the accounts receivable and contract assets balance, significant trends in current balances, internal operations and macroeconomic conditions. In addition, the Company modified its impairment model to the Current Expected Credit Losses (“CECL”) model for available-for-sale
(“AFS”) debt securities and discontinued using the concept of “other than temporary” impairment on these AFS debt securities. CECL on the AFS debt securities are recognized in interest income and other income (expense), net on the Company’s unaudited condensed consolidated statements of operations and comprehensive income, and any remaining unrealized losses, are included in accumulated other comprehensive income (loss) (“AOCI”) in the unaudited condensed consolidated balance sheet.
As of June 27, 2020, the Company recorded a cumulative adjustment from CECL in the amount of $0.1 million, net of tax impact, to accumulated retained earnings in the unaudited condensed consolidated balance sheet.
On June 27, 2020, the Company also adopted ASC 820, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This standard is intended to improve the effectiveness of disclosures in the notes to the financial statements, including (1) the development of a framework that promotes consistent decisions by the FASB about disclosure requirements and (2) the appropriate exercise of discretion by reporting entities. The amendment modifies the disclosure requirements on transferring between level 1 and level 2 and valuation processes of level 3 fair value measurements. The Company adopted this standard with no impact on its unaudited condensed consolidated financial statements.
Changes in Accounting Policies
Except for the adoption of ASC 326, the Company has consistently applied the accounting policies to all periods presented in these unaudited condensed consolidated financial statements.
Short-term investments
Management determines the appropriate classification of its investments at the time of purchase and re-evaluates the designations at each balance sheet date. The Company may sell certain of the Company’s short-term investments prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and duration management. The maturities of the Company’s short-term investments generally range from three and six months to three years. The Company’s short-term investments, which consist of investments in U.S. Treasury, fixed income securities, liquidity funds that invest in short-term debt securities and certificates of deposit and time deposits, have been classified and accounted for as AFS. The AFS investments are carried at estimated fair value with any unrealized gains and losses, included in AOCI in the Company’s unaudited condensed consolidated balance sheet. The Company determines realized gains or losses on sale of marketable securities on a specific identification method and records such gains or losses as interest income and other income (expense), net in the unaudited condensed consolidated statements of operations and comprehensive income.
AFS debt securities are required to be individually evaluated for impairment. A security is considered impaired if the fair value of the security is less than its amortized cost basis.
An impairment is considered other than temporary if (i) the Company has the intent to sell the security, (ii) it is more likely than not that the Company will be required to sell the security before recovery of the entire amortized cost basis, or (iii) the Company does not expect to recover the entire amortized cost basis of the security.
If an impairment is considered other than temporary based on condition (i) or (ii), the entire difference between the amortized cost and the fair value of the debt security is recognized as interest income and other income (expense), net in the unaudited condensed consolidated statements of operations and comprehensive income.
If an impairment is considered other than temporary based on condition (iii), the amount representing credit losses (defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security) is recognized in interest and other income (expense), net in the unaudited condensed consolidated statements of operations and comprehensive income, and any remaining unrealized losses are included in AOCI in the unaudited condensed consolidated balance sheet.
Trade accounts receivable
Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. The Company makes estimates of expected credit losses for the allowance for doubtful accounts based upon its assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers. The estimated credit loss allowance is recorded as selling, general and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income.
A contract asset is recognized when the Company has recognized revenues prior to generating an invoice for payment. Contract assets are classified separately within the unaudited condensed consolidated balance sheets and transferred to accounts receivable when rights to payment become unconditional. The Company makes estimates of expected credit losses for the allowance for contract assets based upon its assessment of various factors, including historical experience, the age of the contract assets balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers. The estimated credit loss allowance is recorded as selling, general and administrative expenses in its unaudited condensed consolidated statements of operations and comprehensive income.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, short-term investments, derivatives, accounts receivable and contract assets.
Cash, cash equivalents and short-term investments are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seeks to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring the risk profiles of these counterparties. The Company limits its short-term investments in marketable securities to securities with a maturity not in excess of three years and securities that are rated A1, P-1, F1, or better.
The Company enters into derivative contracts with financial institutions with reputable credit and monitors the credit profiles of these counterparties.
The Company performs ongoing credit evaluations for credit worthiness of its customers and usually does not require collateral from its customers. Management has implemented a program to closely monitor near term cash collection and credit exposures to mitigate any material losses.
New Accounting Pronouncements – not yet adopted by the Company
In December 2019, the FASB issued ASU2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. This ASU will be effective for the Company in the first quarter of fiscal year 2022. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this update on its unaudited condensed consolidated financial statements.
3.Revenues from contracts with customers
Revenue by Geographic Area and End Market
Revenues are attributed to a particular geographic area based on the bill-to-location of the Company’s customers. The Company operates in three geographic regions: North America, Asia-Pacific and Europe.
The following table presents total revenues by geographic region: