Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| Grand Cayman |
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| (Address of principal executive offices) |
(Zip Code) |
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
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☒ |
Accelerated filer |
☐ | |||
| Non-accelerated filer |
☐ |
Smaller reporting company |
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| Emerging growth company |
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| Page No. |
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ITEM 1. |
FINANCIAL STATEMENTS |
| (in thousands of U.S. dollars, except share data and par value) |
September 27, 2019 |
June 28, 2019 |
||||||
| Assets |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | |
$ | |
||||
| Short-term restricted cash |
|
— |
||||||
| Short-term investments |
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|
||||||
| Trade accounts receivable, net |
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||||||
| Contract assets |
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|
||||||
| Inventory , net |
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||||||
| Prepaid expenses |
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||||||
| Other current assets |
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||||||
| Total current assets |
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||||||
| Non-current assets |
||||||||
| Long-term restricted cash |
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||||||
| Property, plant and equipment, net |
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|
||||||
| Intangibles, net |
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|
||||||
| Operating right-of-use |
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|
|
— |
| |
| Goodwill |
|
|
||||||
| Deferred tax assets |
|
|
||||||
| Other non-current assets |
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|
||||||
| Total non-current assets |
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|
||||||
| Total Assets |
$ | |
$ | |
||||
| Liabilities and Shareholders’ Equity |
||||||||
| Current liabilities |
||||||||
| Long-term borrowings, current portion , net |
$ | |
$ | |
||||
| Trade accounts payable |
|
|
||||||
| Contract liabilities |
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|
||||||
| Capital lease liability, current portion |
|
|
||||||
| Operating lease liability, current portion |
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|
|
|
|
— |
| |
| Income tax payable |
|
|
||||||
| Accrued payroll, bonus and related expenses |
|
|
||||||
| Accrued expenses |
|
|
||||||
| Other payables |
|
|
||||||
| Total current liabilities |
|
|
||||||
| Non-current liabilities |
||||||||
| Long-term borrowings, non-current portion, net |
|
|
||||||
| Deferred tax liability |
|
|
||||||
| Capital lease liability, non-current portion |
|
|
||||||
| Operating lease liability, non-current |
|
|
|
|
— |
| ||
| Severance liabilities |
|
|
||||||
| Other non-current liabilities |
|
|
||||||
| Total non-current liabilities |
|
|
||||||
| Total Liabilities |
|
|
||||||
| Commitments and contingencies (Note 1 8 ) |
||||||||
| Shareholders’ equity |
||||||||
| Preferred shares ( |
— |
— |
||||||
| Ordinary shares ( at September 27, 2019 and June 28, 2019, respectively ; and s outstanding at September 27, 2019 and |
|
|
||||||
| Additional paid-in capital |
|
|
||||||
| Less: Treasury shares ( |
( |
) | ( |
) | ||||
| Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
| Retained earnings |
|
|
||||||
| Total Shareholders’ Equity |
|
|
||||||
| Total Liabilities and Shareholders’ Equity |
$ | |
$ | |
||||
| Three Months Ended |
||||||||
| (in thousands of U.S. dollars, except per share data) |
September 27, 2019 |
September 28, 2018 |
||||||
| Revenues |
$ | |
$ | |
||||
| Cost of revenues |
( |
) | ( |
) | ||||
| Gross profit |
|
|
||||||
| Selling, general and administrative expenses |
( |
) | ( |
) | ||||
| Expenses related to reduction in workforce |
— |
( |
) | |||||
| Operating income, net |
|
|
||||||
| Interest income |
|
|
||||||
| Interest expense |
( |
) | ( |
) | ||||
| Foreign exchange (loss) gain, net |
( |
) | |
|||||
| Other income, net |
|
|
||||||
| Income before income taxes |
|
|
||||||
| Income tax expense |
( |
) | ( |
) | ||||
| Net income |
|
|
||||||
| Other comprehensive (loss) income, net of tax: |
||||||||
| Change in net unrealized gain on available-for-sale securities |
|
|
||||||
| Change in net unrealized gain (loss) on derivative instruments |
|
( |
) | |||||
| Change in net retirement benefits plan – prior service cost |
|
|
|
|
|
|
— |
|
| Change in foreign currency translation adjustment |
( |
) | ( |
) | ||||
| Total other comprehensive (loss) income, net of tax |
( |
) | |
|||||
| Net comprehensive income |
$ | |
$ | |
||||
| Earnings per share |
||||||||
| Basic |
$ | |
$ | |
||||
| Diluted |
$ | |
$ | |
||||
| |
| |||||||
| Weighted-average number of ordinary shares outstanding |
||||||||
| Basic |
|
|
||||||
| Diluted |
|
|
||||||
| (in thousands of U.S. dollars, except share data) |
Ordinary Share |
Additional Paid-in |
Treasury Shares |
Accumulated Other Comprehensive |
Retained |
||||||||||||||||||||
| Shares |
Amount |
Capital |
(Loss) Income |
Earnings |
Total |
||||||||||||||||||||
| Balances at June 28, 2019 |
|
|
|
( |
) | ( |
) | |
|
||||||||||||||||
| Net income |
— |
— |
— |
— |
— |
|
|
||||||||||||||||||
| Other comprehensive income |
— |
— |
— |
— |
( |
) | — |
( |
) | ||||||||||||||||
| Share-based compensation |
— |
— |
|
— |
— |
— |
|
||||||||||||||||||
| Issuance of ordinary shares |
|
|
( |
) | — |
— |
— |
— |
|||||||||||||||||
| Tax withholdings related to net share settlement of restricted share units |
— |
— |
( |
) | — |
— |
— |
( |
) | ||||||||||||||||
| Balances at September 27, 2019 |
|
|
|
( |
) |
( |
) |
|
|
||||||||||||||||
| (in thousands of U.S. dollars, except share data) |
Ordinary Share |
Additional Paid-in |
Treasury Shares |
Accumulated Other Comprehensive |
Retained |
||||||||||||||||||||
| Shares |
Amount |
Capital |
(Loss) Income |
Earnings |
Total |
||||||||||||||||||||
| Balances at June 29, 2018 |
|
|
|
|
|
|
( |
) | |
( |
) | |
|
|
|||||||||||
| Net income |
— |
— |
— |
— |
— |
|
|
||||||||||||||||||
| Other comprehensive income |
— |
— |
— |
— |
|
— |
|
||||||||||||||||||
| Cumulative effect adjustment from adoption of ASC 606 |
— |
— |
— |
— |
— |
|
|
||||||||||||||||||
| Share-based compensation |
— |
— |
|
— |
— |
— |
|
||||||||||||||||||
| Issuance of ordinary shares |
|
|
( |
) | — |
— |
— |
— |
|||||||||||||||||
| Tax withholdings related to net share settlement of restricted share units |
— |
— |
( |
) | — |
— |
— |
( |
) | ||||||||||||||||
| Balances at September 28, 2018 |
|
|
|
( |
) |
( |
) |
|
|
||||||||||||||||
| Three Months Ended |
||||||||
| (in thousands of U.S. dollars) |
September 27, 2019 |
September 28, 2018 |
||||||
| Cash flows from operating activities |
||||||||
| Net income for the period |
$ | |
$ | |
||||
| Adjustments to reconcile net income to net cash provided by operating activities |
||||||||
| Depreciation and amortization |
|
|
||||||
| Loss on disposal of property, plant and equipment |
|
|
||||||
| Loss on disposal of intangibles |
— |
|
||||||
| (Gain) l oss from sales and maturities of available-for-sale securities |
( |
) | |
|||||
| Amortization of investment discount (premium) |
|
( |
) | |||||
| Amortization of deferred debt issuance costs |
|
— |
||||||
| (Reversal of) allowance for doubtful accounts |
( |
) | — |
|||||
| Unrealized loss (gain) on exchange rate and fair value of foreign currency forward contracts |
|
( |
) | |||||
| Unrealized loss (gain) on fair value of interest rate swaps |
|
|
|
|
|
|
( |
) |
| Share-based compensation |
|
|
||||||
| Deferred income tax |
|
|
||||||
| Severance liabilities |
|
|
||||||
| Other non-cash expenses |
|
( |
) | |||||
| Reversal of inventory obsolescence |
( |
) | ( |
) | ||||
| Changes in operating assets and liabilities |
||||||||
| Trade accounts receivable |
( |
) | ( |
) | ||||
| Contract assets |
|
( |
) | |||||
| Inventory |
( |
) | ( |
) | ||||
| Other current assets and non-current assets |
|
( |
) | |||||
| Trade accounts payable |
( |
) | |
|||||
| Contract liabilities |
|
— |
||||||
| Income tax payable |
|
|
||||||
| Other current liabilities and non-current liabilities |
( |
) | |
|||||
| Net cash provided by operating activities |
|
|
||||||
| Cash flows from investing activities |
||||||||
| Purchase of short-term investments |
( |
) | ( |
) | ||||
| Proceeds from sales of short-term investments |
|
|
||||||
| Proceeds from maturities of short-term investments |
|
|
||||||
| Purchase of property, plant and equipment |
( |
) | ( |
) | ||||
| Purchase of intangibles |
( |
) | ( |
) | ||||
| Net cash provided by investing activities |
|
|
||||||
| Cash flows from financing activities |
||||||||
| Payment of debt issuance costs |
|
|
( |
) |
|
|
— |
|
| Proceeds from long-term borrowings |
|
— |
||||||
| Repayment of long-term borrowings |
( |
) | ( |
) | ||||
| Repayment of capital lease liability |
( |
) | ( |
) | ||||
| Release of restricted cash held in connection with business acquisition |
— |
( |
) | |||||
| Withholding tax related to net share settlement of restricted share units |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Net increase in cash, cash equivalents and restricted cash |
|
|
||||||
| Movement in cash, cash equivalents and restricted cash |
||||||||
| Cash, cash equivalents and restricted cash |
|
|
||||||
| Increase in cash, cash equivalents and restricted cash |
|
|
||||||
| Effect of exchange rate on cash, cash equivalents and restricted cash |
( |
) | |
|||||
| Cash, cash equivalents and restricted cash at end of period |
$ | |
$ | |
||||
| Non-cash investing and financing activities |
||||||||
| Construction, software and equipment-related payables |
$ | |
$ | |
||||
| (amount in thousands) |
As of September 27, 2019 |
As of September 28, 2018 |
||||||
| Cash and cash equivalents |
$ | |
$ | |
||||
| Restricted cash |
|
|
||||||
| Cash, cash equivalents and restricted cash |
$ | |
$ | |
||||
1. |
Business and organization |
2. |
Accounting policies |
| (amount in thousands) |
||||
| 2020 |
$ |
|
||
| 2021 |
|
|||
| 2022 |
|
|||
| 2023 |
|
|||
| Thereafter |
|
|||
| Total future minimum operating lease payments |
$ |
|
||
3. |
Revenues from contracts with customers |
| (amount in thousands) |
Contract |
|||
| Beginning balance, June 28, 2019 |
$ | |
||
| Revenue recognized |
|
|||
| Amounts collected or invoiced |
( |
) | ||
| Ending balance, September 27, 2019 |
$ | |
||
| (amount in thousands) |
Contract Liabilities |
|||
| Beginning balance, June 28, 2019 |
$ |
|
||
| Additions advance payment received during the period |
|
|||
| Revenue recognized |
( |
) | ||
| Ending balance, September 27, 2019 |
$ |
|
||
| (amount in thousands , except percentages) |
Three Months Ended September 27, 2019 |
As a % of Total Revenues |
||||||
| North America |
$ | |
|
% | ||||
| Asia-Pacific |
|
|
||||||
| Europe |
|
|
||||||
| $ | |
|
% | |||||
| (amount in thousands , except percentages) |
Three Months Ended September 28, 2018 |
As a % of Total Revenues |
||||||
| North America |
$ | |
|
% | ||||
| Asia-Pacific |
|
|
||||||
| Europe |
|
|
||||||
$ |
|
|
% | |||||
| (amount in thousands , except percentages) |
Three Months Ended September 27, 2019 |
As a % of Total Revenues |
||||||
| Optical communications |
$ | |
|
% | ||||
| Lasers, sensors and other |
|
|
||||||
| Total |
$ |
|
|
% | ||||
| (amount in thousands , except percentages) |
Three Months Ended September 28, 2018 |
As a % of Total Revenues |
||||||
| Optical communications |
$ | |
|
% | ||||
| Lasers, sensors and other |
|
|
||||||
| Total |
$ |
|
|
% | ||||
4. |
Earnings per ordinary share |
| Three Months Ended |
||||||||
| (amount in thousands except per share amounts) |
September 27, 2019 |
September 28, 2018 |
||||||
| Net income attributable to shareholders |
$ | |
$ | |
||||
| Weighted-average number of ordinary shares outstanding (thousands of shares) |
|
|
||||||
| Incremental shares arising from the assumed vesting of restricted share units and performance share units (thousands of shares) |
|
|
||||||
| Weighted-average number of ordinary shares for diluted earnings per ordinary share (thousands of shares) |
|
|
||||||
| Basic earnings per ordinary share |
$ | |
$ | |
||||
| Diluted earnings per ordinary share |
$ | |
$ | |
||||
| Outstanding performance share units excluded from the computation of diluted earnings per ordinary share (thousands of shares) (1) |
|
|
||||||
(1) |
These performance share units were |
5. |
Cash, cash equivalents and short-term investments |
| Fair Value |
||||||||||||||||||||
| (amount in thousands) |
Carrying Cost |
Unrealized Gain/ (Loss) |
Cash and Cash Equivalents |
Marketable Securities |
Other Investments |
|||||||||||||||
| As of September 27, 2019 |
||||||||||||||||||||
| Cash |
$ | |
$ | — |
$ | |
$ | — |
$ | — |
||||||||||
| Cash equivalents |
|
— |
|
— |
— |
|||||||||||||||
| Liquidity funds |
|
— |
— |
— |
|
|||||||||||||||
| Certificates of deposit and time deposits |
|
— |
— |
— |
|
|||||||||||||||
| Corporate bonds and commercial papers |
|
|
— |
|
— |
|||||||||||||||
| U.S. agency and U.S. treasury securities |
|
|
— |
|
— |
|||||||||||||||
| Total |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||
| As of June 28, 2019 |
||||||||||||||||||||
| Cash |
$ | |
$ | — |
$ | |
$ | — |
$ | — |
||||||||||
| Cash equivalents |
|
— |
|
— |
— |
|||||||||||||||
| Liquidity funds |
|
— |
— |
— |
|
|||||||||||||||
| Certificates of deposit and time deposits |
|
— |
— |
— |
|
|||||||||||||||
| Corporate bonds and commercial papers |
|
|
— |
|
— |
|||||||||||||||
| U.S. agency and U.S. treasury securities |
|
|
— |
|
— |
|||||||||||||||
| Total |
$ | |
$ |
|
|
$ | |
$ | |
$ | |
|||||||||
| |
|
September 27, 2019 |
|
|
June 29, 2018 |
| ||||||||||
| (amount in thousands) |
Carrying Cost |
Fair Value |
|
Carrying Cost |
|
|
Fair Value |
| ||||||||
| Due within one year |
$ | |
$ | |
|
$ |
|
|
$ |
|
| |||||
| Due between one to five years |
|
|
|
|
|
|
|
|
|
| ||||||
| |
|
|
|
|
|
|
| |||||||||
| Total |
$ | |
$ | |
|
$ |
|
|
|
$ |
|
| ||||
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 September 27, 2019 |
||||||||||||||||
| Assets |
||||||||||||||||
| Cash equivalents |
$ | — |
$ | |
$ | — |
$ | |
||||||||
| Liquidity funds |
— |
|
— |
|
||||||||||||
| Certificates of deposit and time deposits |
— |
|
— |
|
||||||||||||
| Corporate bonds and commercial papers |
— |
|
— |
|
||||||||||||
| U.S. agency and U.S. treasury securities |
— |
|
— |
|
||||||||||||
| Derivative assets |
— |
|
(1) |
— |
|
|||||||||||
| Total |
$ | — |
$ | |
$ | — |
$ | |
||||||||
| Liabilities |
||||||||||||||||
| Derivative liabilities |
$ | — |
$ | |
(2) |
$ | — |
$ | |
|||||||
| Total |
$ | — |
$ | |
$ | — |
$ | |
||||||||
| Fair Value Measurements at Reporting Date Using |
||||||||||||||||
| (amount in thousands) |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
| As of June 28, 2019 |
||||||||||||||||
| Assets |
||||||||||||||||
| Cash equivalents |
$ | — |
$ | |
$ | — |
$ | |
||||||||
| Liquidity funds |
— |
|
— |
|
||||||||||||
| Certificates of deposit and time deposits |
— |
|
— |
|
||||||||||||
| Corporate bonds and commercial papers |
— |
|
— |
|
||||||||||||
| U.S. agency and U.S. treasury securities |
— |
|
— |
|
||||||||||||
| Derivative assets |
— |
|
(3) |
— |
|
|||||||||||
| Total |
$ | — |
$ |
|
$ | — |
$ | |
||||||||
| Liabilities |
||||||||||||||||
| Derivative liabilities |
$ | — |
$ | |
(4) |
$ | — |
$ | |
|||||||
| Total |
$ | — |
$ | |
$ | — |
$ |
|
||||||||
(1) |
Foreign currency forward contracts with a notional amount of $ |
(2) |
Two interest rate swap agreements with an aggregate notional amount of $ . |
(3) |
Foreign currency forward contracts with notional amount of $ |
(4) |
Interest rate swap agreement with a notional amount of $ |
| Three Months Ended |
||||||||||
| (amount in thousands ) |
Financial statements line item |
September 27, 2019 |
September 28, 2018 |
|||||||
| Derivatives gain |
|
|||||||||
| Interest rate swaps |
Other comprehensive income |
|
$ | |
$ | — |
||||
| Derivatives gain |
||||||||||
| Interest rate swaps |
Interest expenses |
— |
— |
|||||||
| September 27, 2019 |
June 28, 2019 |
|||||||||||||||
| (amount in thousands) |
Derivative Assets |
Derivative Liabilities |
Derivative Assets |
Derivative Liabilities |
||||||||||||
| Derivatives not designated as hedging instruments |
||||||||||||||||
| Foreign currency forward contracts |
$ |
|
$ |
( |
) |
$ |
|
$ |
— |
|||||||
| Interest rate swaps |
— |
— |
$ |
— |
$ |
( |
) | |||||||||
| Derivatives designated as hedging instruments |
||||||||||||||||
| Interest rate swaps |
— |
( |
) |
$ |
— |
$ |
— |
|||||||||
| Gross amounts of derivatives |
|
( |
) |
$ |
|
$ |
( |
) | ||||||||
| Gross amounts of derivatives offset in the balance sheet |
( |
) |
|
$ |
— |
$ |
— |
|||||||||
| Net amounts of derivatives |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) | ||||||
| Derivative Financial Instruments |
Financial statements line item | |
| Fair Value of Derivative Assets |
Other current assets | |
| Fair Value of Derivative Liabilities |
Accrued expenses |
| Three Months Ended |
||||||||
| (amount in thousands) |
September 27, 2019 |
September 28, 2018 |
||||||
| Foreign currency forward contract |
$ | — |
$ | — |
||||
| Interest rate swaps |
( |
) | ( |
) | ||||
| Total |
$ | ( |
) | $ | ( |
) | ||
7. |
Trade accounts receivable, net |
| (amount in thousands) |
As of September 27, 2019 |
As of June 28, 2019 |
||||||
| Trade accounts receivable |
$ | |
$ |
|
||||
| Less: allowance for doubtful account |
( |
) | ( |
) | ||||
| Trade accounts receivable, net |
$ | |
$ | |
||||
8. |
Inventory |
| (amount in thousands) |
As of September 27, 2019 |
As of June 28, 2019 |
||||||
| Raw materials |
$ | |
$ |
|
||||
| Work - in- progress |
|
|
||||||
| Finished goods |
|
|
||||||
| Goods in transit |
|
|
||||||
| |
|
|||||||
| Less: Inventory obsolescence |
( |
) | ( |
) | ||||
| Inventory, net |
$ | |
$ | |
||||
9. |
Restricted cash |
10. |
Leases |
| Impact of Adopting ASC 842 |
||||||||||||
| (amount in thousands) |
Balance at June 28, 2019 |
Adjustment |
Balance at June 29, 2019 |
|||||||||
| Assets |
||||||||||||
| Operating lease ROU assets |
$ | — |
$ | |
$ | |
||||||
| Liabilities and Shareholders’ Equity |
||||||||||||
| Operating lease liabilities – current |
$ | — |
$ | |
$ | |
||||||
| Operating lease liabilities – non current |
$ | — |
$ | |
$ | |
||||||
| (amount in thousands) |
||||
| 2020 (remaining nine months) |
$ |
|
||
| 2021 |
|
|||
| 2022 |
|
|||
| 2023 |
|
|||
| 2024 |
|
|||
| Thereafter |
|
|||
| Total undiscounted lease payments |
|
|||
| Less |
( |
) | ||
| Total present value of lease liabilities |
$ |
|
( 1 ) | |
(1) |
Included current portion of operating lease liabilities of $ 1.6 million. |
| (amount in thousands) |
||||
| 2020 |
$ |
|
||
| 2021 |
|
|||
| Total minimum capital lease payments |
|
|||
| Less: Future finance charge on capital leases |
( |
) | ||
| Present value of capital lease |
$ |
|
||
| Representing capital lease liabilities |
||||
| Current |
$ |
|
||
| Non-current |
|
|||
| Total capital lease liabilities |
$ |
|
||
| (amount in thousands) |
||||
| 2020 |
$ |
|
||
| 2021 |
|
|||
| Present value of capital lease |
$ |
|
||
| |
As of September 27, 2019 |
|||
| Weighted-average remaining lease term (in years) |
||||
| Operating leases |
|
|||
| Capital leases |
|
|||
| Weighted-average discount rate |
||||
| Operating leases |
|
% | ||
| Capital leases |
|
% | ||
| (amount in thousands) |
Three Months Ended September 27, 2019 |
|||
| Cash paid for amounts included in the measurement of lease liabilities |
||||
| Operating cash flows from operating leases |
$ |
|
||
| Financing cash flows from capital leases |
$ |
|
||
| ROU assets obtained in exchange for lease liabilities |
$ |
|
||
| Capital lease assets |
$ |
|
||
11. |
Intangibles |
| (amount in thousands) |
Gross Carrying Amount |
|
Accumulated Amortization |
|
F oreignCurrency Translation Adjustment |
|
Net |
|||||||||
| As of September 27, 2019 |
||||||||||||||||
| Software |
$ | |
$ | ( |
) | $ | |
$ | |
|||||||
| Customer relationships |
|
( |
) | ( |
) | |
||||||||||
| Backlog |
|
( |
) | |
|
|||||||||||
| Total intangibles |
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
||||||
| (amount in thousands) |
Gross Carrying Amount |
Accumulated Amortization |
Foreign Currency Translation Adjustment |
Net |
||||||||||||
| As of June 28, 2019 |
||||||||||||||||
| Software |
$ | |
$ | ( |
) | $ | |
$ | |
|||||||
| Customer relationships |
|
( |
) | ( |
) | |
||||||||||
| Backlog |
|
( |
) | |
|
|||||||||||
| Total intangibles |
$ | |
$ | ( |
) | $ | ( |
) | $ | |
||||||
| (years) |
As of September 27, 2019 |
As of June 28, 2019 |
||||||
| Customer relationships |
|
|
||||||
(amount in thousands) |
||||
2020 (remaining nine months) |
$ |
|||
2021 |
||||
2022 |
||||
2023 |
||||
2024 |
||||
Thereafter |
||||
Total |
$ |
|||
12. |
Goodwill |
(amount in thousands) |
Goodwill |
|||
Balance as of June 28, 2019 |
$ | |||
Foreign currency translation adjustment |
( |
) | ||
Balance as of September 27, 2019 |
$ | |||
(amount in thousands) |
Goodwill |
|||
Balance as of June 29, 2018 |
$ | |||
Foreign currency translation adjustment |
( |
) | ||
Balance as of September 28, 2018 |
$ | |||
13. |
Borrowings |
( amount in thousands |
||||||||||||||
Rate |
Conditions |
Maturity |
As of September 27, 2019 |
As of June 28, 2019 |
||||||||||
Long-term borrowings, current portion, net: |
||||||||||||||
Long-term borrowings, current portion |
$ | $ | ||||||||||||
Less: Unamortized debt issuance costs – current portion |
( |
) | — |
|||||||||||
Long-term borrowings, current portion, net |
$ | |||||||||||||
Long-term borrowings, non-current portion, net: |
||||||||||||||
Term loan borrowings: |
||||||||||||||
(1) |
$ | — |
$ | |||||||||||
(1) |
— |
|||||||||||||
Less: Current portion |
( |
) | ( |
) | ||||||||||
Less: Unamortized debt issuance costs – non-current portion |
( |
) | — |
|||||||||||
Long-term borrowings, non-current portion, net |
$ | $ | ||||||||||||
(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 . |
Three Months Ended |
||||||||
(amount in thousands) |
September 27, 2019 |
September 28, 2018 |
||||||
Opening balance |
$ |
$ |
||||||
Borrowings during the period |
— |
|||||||
Repayments during the period |
( |
) |
( |
) | ||||
Closing balance |
$ |
$ |
||||||
(amount in thousands) |
||||
2020 (remaining nine months) |
$ | |||
2021 |
||||
2022 |
||||
2023 |
||||
2024 |
||||
Total |
$ | |||
14. |
Income taxes |
15. |
Share-based compensation |
| Three Months Ended |
||||||||
| (amount in thousands) |
September 27, 2019 |
September 28, 2018 |
||||||
| Share-based compensation expense by type of award: |
||||||||
| Restricted share units |
$ |
|
$ |
|
||||
| Performance share units |
|
|
||||||
| Total share-based compensation expense |
|
|
||||||
| Tax effect on share-based compensation expense |
|
|
||||||
| |
||||||||
| Net effect on share-based compensation expense |
$ |
|
$ |
|
||||
| Three Months Ended |
||||||||
| (amount in thousands) |
September 27, 2019 |
September 28, 2018 |
||||||
| Cost of revenue |
$ | |
$ | |
||||
| Selling, general and administrative expense |
|
|
||||||
| Total share-based compensation expense |
$ | |
$ | |
||||
| Number of Shares |
Weighted- Average Grant Date Fair Value Per Share |
|||||||
| Balance as of June 28, 2019 |
|
$ | |
|||||
| Granted |
|
$ | |
|||||
| Issued |
( |
) | $ | |
||||
| Forfeited |
( |
) | $ | |
||||
| Balance as of September 27, 2019 |
|
$ |
|
|||||
| Number of Shares |
Weighted- Average Grant Date Fair Value Per Share |
|||||||
| Balance as of June 29, 2018 |
|
$ | |
|||||
| Granted |
|
$ | |
|||||
| Issued |
( |
) | $ | |
||||
| Forfeited |
( |
) | $ | |
||||
| Balance as of September 28, 2018 |
|
$ |
|
|||||
| Number of Shares |
Weighted- Average Grant Date Fair Value Per Share |
|||||||
| Balance as of June 28, 2019 |
|
$ | |
|||||
| Granted |
|
$ | |
|||||
| Issued |
|
|
||||||
| Forfeited |
( |
) | $ | |
||||
| Balance as of September 27, 2019 |
|
$ |
|
|||||
| Number of Shares |
Weighted- Average Grant Date Fair Value Per Share |
|||||||
| Balance as of June 29, 2018 |
|
$ | |
|||||
| Granted |
|
$ | |
|||||
| Issued |
( |
) | $ | |
||||
| Forfeited |
( |
) | $ | |
||||
| Balance as of September 28, 2018 |
|
$ | |
|||||
16. |
Shareholders’ equity |
17. |
Accumulated other comprehensive income (loss) (“AOCI”) |
| (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 |
$ |
|
$ |
|
( |
) |
$ |
( |
) |
$ |
( |
) | ||||||||
| Other comprehensive income before reclassification adjustment |
( |
) | |
|
( |
) |
( |
) | ||||||||||||
| Amounts reclassified out of AOCI to foreign exchange loss the unaudited condensed consolidated statements of operations and comprehensive income |
|
— |
— |
— |
|
|||||||||||||||
| Tax effects |
— |
— |
— |
— |
— |
|||||||||||||||
| Other comprehensive income (loss) |
$ |
|
$ |
|
|
$ |
( |
) |
$ |
( |
) | |||||||||
| Balance as of September 27, 2019 |
$ |
|
$ |
|
( |
) |
$ |
( |
) |
$ |
( |
) | ||||||||
| (amount in thousands) |
Unrealized net (Losses)/Gains on Available-for-sale Securities |
Unrealized net (Losses)/Gains on Derivative Instruments |
Retirement benefit plan - Prior service cost |
Foreign Currency Translation Adjustment |
Total |
|||||||||||||||
| Balance as of June 29, 2018 |
$ | ( |
) | $ | |
— |
$ | ( |
) | $ | ( |
) | ||||||||
| Other comprehensive income before reclassification adjustmen t |
|
— |
— |
( |
) | |
||||||||||||||
| Amounts reclassified out of AOCI to foreign exchange loss in the unaudited condensed consolidated statements of operations and comprehensive income |
( |
) | ( |
) | — |
— |
( |
) | ||||||||||||
| Tax effects |
— |
— |
— |
— |
— |
|||||||||||||||
| Other comprehensive income (loss) |
$ | |
$ | ( |
) | — |
$ | ( |
) | $ | |
|||||||||
| Balance as of September 28, 2018 |
$ | ( |
) | $ | |
— |
$ | ( |
) | $ | ( |
) | ||||||||
18. |
Commitments and contingencies |
19. |
Business segments and geographic information |
| Three Months Ended |
||||||||
| (amount in thousands) |
September 27, 2019 |
September 28, 2018 |
||||||
| North America |
$ | |
$ | |
||||
| Asia-Pacific |
|
|
||||||
| Europe |
|
|
||||||
| $ | |
$ | |
|||||
20. |
Subsequent events |
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
| • | our goals and strategies; |
| • | our and our customers’ estimates regarding future revenues, operating results, expenses, capital requirements and liquidity; |
| • | our belief that we will be able to maintain favorable pricing on our services; |
| • | our expectation that the portion of our revenues attributable to customers in regions outside of North America for the remainder of fiscal year 2020 will be in line with the portion of those revenues for the three months ended September 27, 2019; |
| • | our expectation that we will incur incremental costs of revenue as a result of our planned expansion of our business into new geographic markets; |
| • | our expectation that our fiscal year 2020 selling, general and administrative (“SG&A”) expenses will increase as a percentage of revenue compared to fiscal year 2019 SG&A expenses; |
| • | our expectation that our employee costs will increase in Thailand and the People’s Republic of China (“PRC”); |
| • | our future capital expenditures and our needs for additional financing; |
| • | the expansion of our manufacturing capacity, including into new geographies; |
| • | the growth rates of our existing markets and potential new markets; |
| • | our ability, and the ability of our customers and suppliers, to respond successfully to technological or industry developments; |
| • | our suppliers’ estimates regarding future costs; |
| • | our ability to increase our penetration of existing markets and to penetrate new markets; |
| • | our plans to diversify our sources of revenues; |
| • | our plans to execute acquisitions; |
| • | trends in the optical communications, industrial lasers, and sensors markets, including trends to outsource the production of components used in those markets; |
| • | our ability to attract and retain a qualified management team and other qualified personnel and advisors; and |
| • | competition in our existing and new markets. |
| Three Months Ended |
||||||||
| September 27, 2019 |
September 28, 2018 |
|||||||
| North America |
50.3 |
% | 47.7 |
% | ||||
| Asia-Pacific |
29.7 |
40.3 |
||||||
| Europe |
20.0 |
12.0 |
||||||
| 100.0 |
% | 100.0 |
% | |||||
| As of September 27, 2019 |
As of June 28, 2019 |
|||||||||||||||||||||||
| (amount in thousands, except percentages) |
Currency |
$ |
% |
Currency |
$ |
% |
||||||||||||||||||
| Assets |
||||||||||||||||||||||||
| Thai baht |
781,245 |
$ | 25,497 |
53.5 |
664,860 |
$ | 21,628 |
60.0 |
||||||||||||||||
| RMB |
99,873 |
14,120 |
29.6 |
53,393 |
7,767 |
21.5 |
||||||||||||||||||
| GBP |
6,540 |
8,062 |
16.9 |
5,270 |
6,682 |
18.5 |
||||||||||||||||||
| Total |
$ | 47,679 |
100.0 |
$ | 36,077 |
100.0 |
||||||||||||||||||
| Liabilities |
||||||||||||||||||||||||
| Thai baht |
1,881,355 |
$ | 61,402 |
90.3 |
1,961,972 |
$ | 63,825 |
90.0 |
||||||||||||||||
| RMB |
28,911 |
4,088 |
6.0 |
26,373 |
3,836 |
5.4 |
||||||||||||||||||
| GBP |
2,038 |
2,513 |
3.7 |
2,598 |
3,294 |
4.6 |
||||||||||||||||||
| Total |
$ | 68,003 |
100.0 |
$ | 70,955 |
100.0 |
||||||||||||||||||
| • | Foreign Currency Administration Rules, as amended on August 5, 2008, or the Exchange Rules; |
| • | Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules; and |
| • | Notice on Perfecting Practices Concerning Foreign Exchange Settlement Regarding the Capital Contribution by Foreign-invested Enterprises, as promulgated by the State Administration of Foreign Exchange (“SAFE”), on August 29, 2008, or Circular 142. |
| (amount in thousands) |
Three Months Ended |
|||||||
| September 27, 2019 |
September 28, 2018 |
|||||||
| Revenues |
$ | 399,296 |
$ | 377,177 |
||||
| Cost of revenues |
(353,309 |
) | (336,901 |
) | ||||
| Gross profit |
45,987 |
40,276 |
||||||
| Selling, general and administrative expenses |
(16,000 |
) | (14,437 |
) | ||||
| Expenses related to reduction in workforce |
— |
(85 |
) | |||||
| Operating income |
29,987 |
25,754 |
||||||
| Interest income |
2,098 |
1,444 |
||||||
| Interest expense |
(2,393 |
) | (634 |
) | ||||
| Foreign exchange gain (loss), net |
(1,953 |
) | 3,068 |
|||||
| Other income, net |
377 |
77 |
||||||
| Income before income taxes |
28,116 |
29,709 |
||||||
| Income tax expense |
(2,159 |
) | (1,859 |
) | ||||
| Net income |
25,957 |
27,850 |
||||||
| Other comprehensive (loss) income, net of tax |
(212 |
) | 87 |
|||||
| Net comprehensive income |
$ | 25,745 |
$ | 27,937 |
||||
| Three Months Ended |
||||||||
| September 27, 2019 |
September 28, 2018 |
|||||||
| Revenues |
100.0 |
% | 100.0 |
% | ||||
| Cost of revenues |
(88.5 |
) | (89.3 |
) | ||||
| Gross profit |
11.5 |
10.7 |
||||||
| Selling, general and administrative expenses |
(4.0 |
) | (3.8 |
) | ||||
| Expenses related to reduction in workforce |
0.0 |
0.0 |
||||||
| Operating income |
7.5 |
6.9 |
||||||
| Interest income |
0.5 |
0.4 |
||||||
| Interest expense |
(0.6 |
) | (0.2 |
) | ||||
| Foreign exchange gain (loss), net |
(0.5 |
) | 0.8 |
|||||
| Other income, net |
0.1 |
0.0 |
||||||
| Income before income taxes |
7.0 |
7.9 |
||||||
| Income tax expense |
(0.5 |
) | (0.5 |
) | ||||
| Net income |
6.5 |
7.4 |
||||||
| Other comprehensive (loss) income, net of tax |
(0.1 |
) | 0.0 |
|||||
| Net comprehensive income |
6.4 |
% | 7.4 |
% | ||||
| Three Months Ended |
||||||||
| (amount in thousands) |
September 27, 2019 |
September 28, 2018 |
||||||
| Optical communications |
$ | 302,379 |
$ | 280,768 |
||||
| Lasers, sensors and other |
96,917 |
96,409 |
||||||
| Total |
$ | 399,296 |
$ | 377,177 |
||||
| Three Months Ended |
||||||||
| (amount in thousands) |
September 27, 2019 |
September 28, 2018 |
||||||
| Net cash provided by operating activities |
$ | 2,647 |
$ | 34,593 |
||||
| Net cash provided by investing activities |
$ | 11,676 |
$ | 36,601 |
||||
| Net cash used in financing activities |
$ | (4,406 |
) | $ | (13,318 |
) | ||
| Net increase in cash, cash equivalents and restricted cash |
$ | 9,917 |
$ | 57,876 |
||||
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. |
CONTROLS AND PROCEDURES |
ITEM 1. |
LEGAL PROCEEDINGS |
ITEM 1A. |
RISK FACTORS |
| • | our ability to acquire new customers and retain our existing customers by delivering superior quality and customer service; |
| • | the cyclicality of the optical communications market, as well as the industrial lasers, medical and sensors markets; |
| • | competition; |
| • | our ability to achieve favorable pricing for our services; |
| • | the effect of fluctuations in foreign currency exchange rates; |
| • | our ability to manage our headcount and other costs; and |
| • | changes in the relative mix in our revenues. |
| • | compliance with a variety of domestic and foreign laws and regulations, including trade regulatory requirements; |
| • | periodic changes in a specific country’s or region’s economic conditions, such as recession; |
| • | unanticipated restrictions on our ability to sell to foreign customers where sales of products and the provision of services may require export licenses or are prohibited by government action (for example, in early 2018, the U.S. Department of Commerce prohibited the export and sale of a broad category of U.S. products, as well as the provision of services, to ZTE Corporation, and in 2019, to Huawei, both of which are customers of certain of our customers); |
| • | fluctuations in currency exchange rates; |
| • | inadequate protection of intellectual property rights in some countries; and |
| • | potential political, legal and economic instability, foreign conflicts, and the impact of regional and global infectious illnesses in the countries in which we and our customers and suppliers are located. |
| • | the quality of input, materials and equipment; |
| • | the quality and feasibility of our customer’s design; |
| • | the repeatability and complexity of the manufacturing process; |
| • | the experience and quality of training of our manufacturing and engineering teams; and |
| • | the monitoring of the manufacturing environment. |
| • | the integration of the acquired assets, information systems and facilities into our business may be difficult, time-consuming and costly, and may adversely impact our profitability; |
| • | we may lose key employees of the acquired companies or divisions; |
| • | we may issue additional ordinary shares, which would dilute our current shareholders’ percentage ownership in us; |
| • | we may incur indebtedness to pay for the transactions; |
| • | we may assume liabilities, some of which may be unknown at the time of the transactions; |
| • | we may record goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential periodic impairment charges; |
| • | we may incur amortization expenses related to certain intangible assets; |
| • | we may devote significant resources to transactions that may not ultimately yield anticipated benefits; |
| • | we may incur greater than expected expenses or lower than expected revenues; |
| • | we may assume obligations with respect to regulatory requirements, including environmental regulations, which may prove more burdensome than expected; or |
| • | we may become subject to litigation. |
Risks |
Related to Ownership of Our Ordinary Shares |
| • | establish a classified board of directors; |
| • | prohibit our shareholders from calling meetings or acting by written consent in lieu of a meeting; |
| • | limit the ability of our shareholders to propose actions at duly convened meetings; and |
| • | authorize our board of directors, without action by our shareholders, to issue preferred shares and additional ordinary shares. |
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| 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 29, 2019 – July 26, 2019 |
— |
$ | — |
— |
$ | 62,220,607 |
||||||||||
| July 27, 2019 – August 23, 2019 |
— |
$ | — |
— |
$ | 62,220,607 |
||||||||||
| August 24, 2019 – September 27, 2019 |
— |
$ | — |
— |
$ | 62,220,607 |
||||||||||
| Total |
— |
$ | — |
— |
$ | 62,220,607 |
||||||||||
ITEM 6. |
EXHIBITS |
| Exhibit Number |
Description |
Incorporated by reference herein |
||||||||||||||
| Form |
Exhibit No. |
Filing Date |
||||||||||||||
| 10.1 |
8-K, Item 5.02 |
N/A |
August 20, 2019 |
|||||||||||||
| 10.2 |
8-K |
10.1 |
August 20, 2019 |
|||||||||||||
| 10.3 |
8-K |
10.1 |
September 12, 2019 |
|||||||||||||
| 10.4 |
8-K |
10.2 |
September 12, 2019 |
|||||||||||||
| 31.1 |
||||||||||||||||
| 31.2 |
||||||||||||||||
| 32.1 |
||||||||||||||||
| 101.INS |
Inline XBRL Instance. |
|||||||||||||||
| 101.SCH |
Inline XBRL Taxonomy Extension Schema. |
|||||||||||||||
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase. |
|||||||||||||||
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase. |
|||||||||||||||
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase. |
|||||||||||||||
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase. |
|||||||||||||||
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|||||||||||||||
| FABRINET | ||
| By: |
/s/ Toh-Seng Ng | |
| Name: |
Toh-Seng Ng | |
| Title: |
Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) | |
Exhibit 31.1
CERTIFICATION
I, Seamus Grady, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Fabrinet; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 5, 2019 | ||||||
| /s/ SEAMUS GRADY | ||||||
| Seamus Grady | ||||||
| Chief Executive Officer (Principal Executive Officer) | ||||||
Exhibit 31.2
CERTIFICATION
I, Toh-Seng Ng, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Fabrinet; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 5, 2019 | ||||||
| /s/ TOH-SENG NG | ||||||
| Toh-Seng Ng | ||||||
| Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||
Exhibit 32.1
CERTIFICATIONS 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
I, Seamus Grady, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Fabrinet for the fiscal quarter ended September 27, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Fabrinet.
| By: | /s/ SEAMUS GRADY | |||||
| Date: November 5, 2019 | Name: | Seamus Grady | ||||
| Title: | Chief Executive Officer (Principal Executive Officer) |
I, Toh-Seng Ng, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Fabrinet for the fiscal quarter ended September 27, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Fabrinet.
| By: | /s/ TOH-SENG NG | |||||
| Date: November 5, 2019 | Name: | Toh-Seng Ng | ||||
| Title: | Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) |
Fair Value - Schedule Of Cash Settlements Received and Payments On Derivative Instruments (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Sep. 27, 2019 |
Sep. 28, 2018 |
|
| cash settlements (paid) received | $ (57) | $ (82) |
| Interest rate swap | ||
| cash settlements (paid) received | $ (57) | $ (82) |
Fair Value on Recurring Basis (Parenthetical) (Detail) - Fair Value, Measurements, Recurring $ in Millions, $ in Millions |
Sep. 27, 2019
USD ($)
|
Jun. 28, 2019
USD ($)
|
Jun. 28, 2019
CAD ($)
|
|---|---|---|---|
| Foreign currency forward contracts | |||
| Fair Value Measurements at Reporting Date Using | |||
| Derivative assets, notional amount | $ 74.0 | $ 72.0 | $ 0.6 |
| Interest rate swap | |||
| Fair Value Measurements at Reporting Date Using | |||
| Derivative liabilities, notional amount | $ 125.1 | $ 64.2 |
Future Maturities of Long-Term Debt (Detail) - USD ($) $ in Thousands |
Sep. 27, 2019 |
Jun. 28, 2019 |
Sep. 28, 2018 |
Jun. 29, 2018 |
|---|---|---|---|---|
| Debt Instrument [Line Items] | ||||
| 2020 (remaining nine months) | $ 9,140 | |||
| 2021 | 12,188 | |||
| 2022 | 15,234 | |||
| 2023 | 12,188 | |||
| 2024 | 12,188 | |||
| Total | $ 60,938 | $ 60,938 | $ 63,375 | $ 64,188 |
Estimated Future Amortization of Intangibles (Detail) - USD ($) $ in Thousands |
Sep. 27, 2019 |
Jun. 28, 2019 |
|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | ||
| 2020 (remaining nine months) | $ 862 | |
| 2021 | 1,020 | |
| 2022 | 784 | |
| 2023 | 516 | |
| 2024 | 288 | |
| Thereafter | 191 | |
| Total | $ 3,661 | $ 3,887 |
Restricted Share Unit Activity (Detail) - Stock Plan 2010 and 2017 - Restricted Share Units - $ / shares |
3 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 27, 2019 |
Jun. 30, 2017 |
|
| Number of restricted share units | ||
| Number of share units, Beginning Balance | 800,751 | 1,073,580 |
| Number of share units, Granted | 292,321 | 255,821 |
| Number of share units, Issued | (240,595) | (369,757) |
| Number of share units, Forfeited | (21,577) | (29,845) |
| Number of share units, Ending Balance | 830,900 | 929,799 |
| Weighted Average Grant Date Fair Value Per Share | ||
| Weighted-average grant date fair value per share, Beginning Balance | $ 42.48 | $ 35.19 |
| Weighted-average grant date fair value per share, Granted | 48.39 | 48.02 |
| Weighted-average grant date fair value per share, Issued | 39.62 | 34.34 |
| Weighted-average grant date fair value per share, Forfeited | 42.00 | 38.32 |
| Weighted-average grant date fair value per share, Ending Balance | $ 45.40 | $ 38.95 |
Cash, Cash Equivalents and Short-Term Investments |
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| Cash, cash equivalents and short-term investments |
The Company’s cash, cash equivalents, and short-term investments can be analyzed as follows:
All highly liquid investments with original maturities of three months or less at the date of purchase are classified as cash equivalents. 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 its 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 months to three years. The Company’s short-term investments consist of U.S. Treasuries and fixed income securities and have been classified and accounted for as available-for-sale. The following table summarizes the cost and estimated fair value of
short-term investments classified as available-for-sale securities based on stated effective maturities as of September 27, 2019:
During the three months ended September 27, 2019, the Company recognized a realized gain of $67 thousands from sales and maturities of available-for-sale securities.As of September 27, 2019, the Company considered the declines in market value of its short-term investments portfolio to be temporary in nature and did not consider any of its securities other-than-temporarily impaired. The Company typically invests in highly-rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires investments generally to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s cost basis. No impairment losses were recorded for the three months ended September 27, 2019. |
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Restricted cash |
3 Months Ended | ||
|---|---|---|---|
Sep. 27, 2019 | |||
| Restricted cash |
As of September 27, 2019 and June 28, 2019, the Company had two outstanding standby letters of credit o f and one outstanding standby letter of credit of 6.0 million Euros, respectively, 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 27, 2019 and June 28, 2019, the standby letters of credit were backed by cash collateral of $29.6 million and $ 7.4 million, respectively. |
Business and organization |
3 Months Ended | ||
|---|---|---|---|
Sep. 27, 2019 | |||
| 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”). |
Inventory (Tables) |
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| Inventories |
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Earnings per ordinary share (Tables) |
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| Earnings Per Ordinary Share | Earnings per ordinary share was calculated as follows:
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Borrowings (Tables) |
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| Total Borrowings, Including Revolving and Long-Term Borrowings | The Company’s total borrowings, including current
portion and non-current long-term borrowings, consisted of the following: portion of
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| Movements of Long-Term Loans | The movements of long-term borrowings for the three months ended September 27, 2019 and September 28, 2018 were as follows:
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| Future Maturities of Long-Term Debt | As of September 27, 2019, future maturities of long-term borrowings during each fiscal year were as follows:
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Accounting policies (Policies) |
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Sep. 27, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of presentation | Basis of presentation The accompanying unaudited condensed consolidated financial statements for Fabrinet as of September 27, 2019 and for the three months ended September 27, 2019 and September 28, 2018 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 28, 2019.The balance sheet as of June 28, 2019 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The results for the three months ended September 27, 2019 may not be indicative of results for the year ending June 26, 2020 or any future periods. |
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| Use of Estimates | 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, 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. |
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| Fiscal years | Fiscal years The Company utilizes a 52-53 week fiscal year ending on the Friday in June closest to June 30. The three months ended September 27, 2019 and September 28, 2018 each consisted of 13 weeks. Fiscal year 2020 will be comprised of 52 weeks and will end on June 26, 2020. |
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| Changes in Accounting Policies | Changes in Accounting Policies Except for the adoption of the new lease accounting standard and the derivatives and hedging standard described below, the Company has consistently applied the accounting policies to all periods presented in these unaudited condensed consolidated financial statements. |
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| Adoption of New Accounting Standard | Adoption of New Accounting Standard s On June 29, 2019, the Company adopted the new lease accounting standard, Accounting Standards Codification Topic 842 (“ASC 842”), which provides guidance for the recognition and disclosure of lease arrangements. The Company adopted ASC 842 using the modified retrospective transition approach. Accordingly, the Company’s comparative financial statements as of June 28, 2019 have not been adjusted. ASC 842 also provides practical expedients for the Company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its operating leases with a term of less than 12 months, which will not require recognition of right of use (“ROU”) assets or lease liabilities for these leases. For periods prior to adoption of ASC 842, the Company is required to present disclosures in accordance with ASC Topic 840. The following disclosure provides the future minimum lease payments due under non-cancelable operating leases as of June 28, 2019:
The most significant impact of the adoption of ASC 842 was the recognition of ROU assets and lease liabilities for operating leases with a term of greater than 12 months, while the accounting for finance leases will remain substantially unchanged. See Note 10 for further details. On June 29, 2019, the Company also adopted Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 simplifies existing hedge accounting guidance in order to better portray in financial statements the economic impact of risk management activities in the financial statements, including eliminating the separate measurement and presentation of hedge ineffectiveness. Prior to the adoption of ASU 2017-12, the Company
wa s required to separately measure and reflect the amount by which the hedging instrument did not offset the changes in the fair value or cash flows of hedged items, and to record the ineffective portion as earnings. Upon the adoption of ASU 2017-12, the Company is no longer recognizes hedge ineffectiveness as earnings, but instead records the entire changes in the fair value of the hedged instruments as other comprehensive income. Amounts recorded as other comprehensive income are subsequently reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the hedged item affects earnings . See Note 6 for further details. |
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| Concentration of credit risk | 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 receivableand 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. |
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| New Accounting Pronouncements – not yet adopted by the Company | New Accounting Pronouncements – not yet adopted by the Company In May 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief.” The amendments in ASU 2019-05 provide entities that have certain instruments within the scope of Subtopic 326-20 (“Financial Instruments—Credit Losses—Measured at Amortized Cost”) with an option to irrevocably elect the fair value option in Subtopic 825-10 (“Financial Instruments—Overall”), applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10 (“Fair Value Measurement—Overall”) and 825-10. For public business entities, this update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This ASU will be effective for the Company in the first quarter of fiscal 2021. Early adoption is permitted. The Company does not expect this update will impact its condensed consolidated financial statements. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The amendments in ASU 2019-04 apply to all reporting entities within the scope of the affected accounting guidance. For public business entities, this update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This ASU will be effective for the Company in the first quarter of fiscal 2021. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this update on its condensed consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 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. This update is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, beginning after December 15, 2019. This ASU will be effective for the Company in the first quarter of fiscal 2021. The Company is currently evaluating the impact of the adoption of this update on its condensed consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 modified the concept of impairment assessment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. Public companies that are SEC filers should adopt the amendment for annual and any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. This ASU will be effective for the Company in the first quarter of fiscal 2021. The Company does not expect this update will impact its condensed consolidated financial statements.
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Borrowings |
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| Borrowings |
The Company’s total borrowings, including current
portion and non-current long-term borrowings, consisted of the following: portion of
The movements of long-term borrowings for the three months ended September 27, 2019 and September 28, 2018 were as follows:
As of September 27, 2019, future maturities of long-term borrowings during each fiscal year were as follows:
Credit facility agreements: Bank of Ayudhya Public Company Limited On August 20, 2019, Fabrinet Thailand (the “Borrower”), and the Bank entered into a Credit Facility Agreement (the “Credit Facility Agreement”). The Credit Facility Agreement provides for a facility of 110.0 million Thai Baht(approximately $ 3.6 million based on the applicable exchange rate as of September 27, 2019) and $ 160.9million which may be used for, among other things, an overdraft facility, short-term loans against promissory notes, a letter of guarantee facility, a term loan facility and foreign exchange facilities. The Bank may approve any request for extension of credit under the Credit Facility Agreement and may increase or decrease any facility amount in its sole discretion. Under the Credit Facility Agreement, on August 20, 2019, the Borrower and the Bank entered into a Term Loan Agreement pursuant to which the Borrower drew down on September 3, 2019 a term loan in the original principal amount of $60.9 million. The proceeds from the term loan, together with cash on hand, were used to repay outstanding obligations under the Company’s pre-existing credit facility agreement between the Company and Bank of America, N.A.The term loan accrues interest at 3-month LIBOR plus 1.35% and is repayable in quarterly installments of $3.0 million, commencing on September 30, 2019. The term loan matures on June 30, 2024. The Borrower may prepay the term loan in whole or in part at any time without premium or penalty. Any portion of the term loan repaid or prepaid may not be re-borrowed. During the three months ended September 27, 2019, the Company recorded $0.2 million of interest expense in connection with this term loan.Any borrowings under the Credit Facility Agreement, including those borrowing under the Term Loan Agreement are guaranteed by Fabrinet and secured by land and buildings in Pathumthani and Chonburi Provinces owned by the Borrower in Thailand. The Term Loan Agreement contains affirmative and negative covenants applicable to the Borrower, including delivery of financial statements and other information, compliance with laws, maintenance of insurance, restrictions on granting security interests or liens on its assets, disposing of its assets, incurring indebtedness and making acquisitions. While the term loan is outstanding, the Borrower is required to maintain a loan to value of the mortgaged real property ratio of not greater than 65%. If the loan to value ratio is not maintained, the Borrower will be required to provide additional security or prepay a portion of the term loan in order to restore the required ratio. The Company is also required to maintain a debt service coverage ratio of at least 1.25 times and a debt to equity ratio less than or equal to 1.0 times. In the case of any payment of a dividend by the Company, its debt service coverage ratio must be at least 1.50 times. At September 27, 2019, the Company was in compliance with all of its covenants under the Term Loan Agreement .The events of default in the Term Loan Agreement include failure to pay amounts due under the Term Loan Agreement or the related finance documents when due, failure to comply with the covenants under the Term Loan Agreement or the related finance documents, cross default with other indebtedness of the Borrower, events of bankruptcy or insolvency in respect of the Borrower, and the occurrence of any event or series of events that in the opinion of the Bank has or is reasonably likely to have a material adverse effect. At September 27, 2019, there was $ 60.9 million outstanding under the term loan. Bank of America, N.A. On May 22, 2014, the Company and a consortium of banks entered into a syndicated senior credit facility agreement led by Bank of America (the “Bank of America Facility Agreement”). The Bank of America Facility Agreement provided for a $200.0 million credit line, comprised of a $150.0 million revolving loan facility and a $50.0 million delayed draw term loan facility. From time to time, we amended the Bank of America Facility Agreement, before repaying all outstanding amounts under the agreement and terminating such agreement on September 10, 2019 .The most recent amendment on June 4, 2018, (i) reduced the revolving commitments thereunder from $150.0 million to $25.0 million, (ii) refinanced the outstanding amounts under the revolving loan and term loan facilities into a $65.0 million term loan which was to be repaid in quarterly installments through the maturity date of June 4, 2023; and (iii) reduced the interest rate margins and commitment fees. The term loan bore interest, at the Company’s option, at a rate per annum equal to a LIBOR rate plus a spread of 1.50% to 2.25% , or a base rate plus a spread of 0.50% to 1.25% . During the three months ended September 27, 2019 and September 28, 2018, the Company recorded $0.5 million and $0.7 million , respectively, of interest expense in connection with this term loan. During the three months ended September 27, 2019, the Company fully repaid $61.0 million in principal, accrued interest and other fees under the agreement. The early termination of this agreement did not trigger any early termination fees. At September 27, 2019, there were no amounts outstanding under the Bank of America Facility Agreement. At June 28, 2019, there was $60.9 million outstanding under the Bank of America Facility Agreement, related to the term loan. |
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Accumulated other comprehensive income (loss) ("AOCI") |
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| Accumulated other comprehensive income (loss) |
The changes in AOCI for the three months ended September 27, 2019 and Sept e mber 28, 2018 were as follows:
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Schedule of Activity in the Company's Contract Assets and Contract Liabilities (Detail) $ in Thousands |
3 Months Ended |
|---|---|
|
Sep. 27, 2019
USD ($)
| |
| Contract Assets | |
| Beginning balance, June 28, 2019 | $ 12,447 |
| Revenue recognized | 21,653 |
| Amounts collected or invoiced | (22,480) |
| Ending balance, September 27, 2019 | 11,620 |
| Contract Liabilities | |
| Beginning balance, June 28, 2019 | 2,239 |
| Additions advance payment received during the period | 2,230 |
| Revenue recognized | (2,203) |
| Ending balance, September 27, 2019 | $ 2,266 |
Accumulated other comprehensive income (loss) ("AOCI") (Tables) |
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| Changes in AOCI, Net of Tax | The changes in AOCI for the three months ended September 27, 2019 and Sept e mber 28, 2018 were as follows:
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Earnings Per Ordinary Share - Additional Information (Detail) |
3 Months Ended |
|---|---|
|
Sep. 27, 2019
shares
| |
| Employee Stock Option | |
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |
| Antidilutive securities excluded from computation of earnings per share, amount | 0 |
Leases - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
Sep. 27, 2019 |
Jun. 29, 2019 |
Jun. 28, 2019 |
|
| Operating Lease Term Of Contract | 12 months | ||
| Operating Lease Rental Expense | $ 500 | ||
| Operating lease liability, current portion | $ 1,550 | $ 1,601 | |
| Lease Expiration Date | Sep. 01, 2020 | ||
| Capital lease liability, current portion | $ 391 | $ 398 | |
| Rental expense under operating leases | $ 20 | ||
| Maximum [Member] | |||
| Operating lease expiration year | 2025 | ||
| Lessee operating lease option to extend term | 5 years | ||
| Minimum [Member] | |||
| Lessee operating lease option to extend term | 1 year |
Leases - Capital Lease Liabilities (Detail) - USD ($) $ in Thousands |
Sep. 27, 2019 |
Jun. 28, 2019 |
|---|---|---|
| Capital Leased Assets [Line Items] | ||
| Current | $ 391 | $ 398 |
| Non-current | $ 102 | |
| Present value of capital lease | $ 391 |
Income taxes |
3 Months Ended | ||
|---|---|---|---|
Sep. 27, 2019 | |||
| Income taxes |
As of September 27, 2019 and June 28, 2019, the liability for uncertain tax positions including accrued interest and penalties was $2.2 million and $2.1 million, respectively. The Company expects the estimated amount of liability associated with its uncertain tax positions to decrease within the next 12 months due to the lapse of the applicable statute of limitations in foreign tax jurisdictions. The Company files income tax returns in the United States and foreign tax jurisdictions. The tax years from 2014 to 2018 remain open to examination by U.S. federal and state, and foreign tax authorities. The Company’s income tax is recognized based on the best estimate of the expected annual effective tax rate for the full financial year of each entity in the Company, adjusted for discrete items arising in that quarter. If the Company’s estimated annual effective tax rate changes, the Company makes a cumulative adjustment in that quarter. The effective tax rate for the Company for the three months ended September 27, 2019 and September 28, 2018 was 5.0% and 6.7%, respectively, of net income. The decrease was primarily due to the fact that the Company had lower income subject to tax during the first quarter of fiscal year 2020 as compared to the same period in fiscal year 2019. |
Commitments and contingencies |
3 Months Ended | ||
|---|---|---|---|
Sep. 27, 2019 | |||
| Commitments and contingencies |
Letter of credit and Bank guarantees As of September 27, 2019, the Company had two outstanding standby letters of credit o 16.2 f million Euros and one outstanding standby letter of credit of 6.0 million Euros, respectively, 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. T hese standby letters of credit were backed by cash collateral of $ million and $ 7.4 million, respectively. As of June 28, 2019, 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. The standby letter of credit was backed by cash collateral of $7.4 million. As of September 27, 2019 and June 28, 2019, there were outstanding bank guarantees given by a bank on behalf of our subsidiary in Thailand for electricity usage and other normal business amounting to $1.6 million and $1.6 million, respectively , and there were other bank guarantees given by a bank on behalf of our subsidiaries in China and the United Kingdom to support their operations of $70 thousand and $25 Purchase obligations Purchase obligations represent legally-binding commitments to p u rchase inventory and other commitments made in the normal course of business to meet operational requirements. Although open purchase orders are considered enforceable and legally binding, their terms generally give the Company the option to cancel, reschedule and/or adjust its requirements based on its business needs prior to the delivery of goods or performance of services. Obligations to purchase inventory and other commitments are generally expected to be fulfilled within one year. As of September 27, 2019, the Company had an outstanding commitment to third parties of $8.2 million. Indemnification of directors and officers Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of directors and officers, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Fabrinet’s amended and restated memorandum and articles of association provide for indemnification of directors and officers for actions, costs, charges, losses, damages and expenses incurred in their capacities as such, except that such indemnification does not extend to any matter in respect of any fraud or dishonesty that may attach to any of them. In accordance with Fabrinet’s form of indemnification agreement for its directors and officers, Fabrinet has agreed to indemnify its directors and officers against certain liabilities and expenses incurred by such persons in connection with claims by reason of their being such a director or officer. Fabrinet maintains a director and officer liability insurance policy that may enable it to recover a portion of any future amounts paid under the indemnification agreements. |
Accounting policies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 27, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Future Minimum Lease Payments Due Under Non-Cancelable Operating Leases | The following disclosure provides the future minimum lease payments due under non-cancelable operating leases as of June 28, 2019:
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Revenues from contracts with customers - Additional Information (Detail) $ in Thousands |
3 Months Ended |
|---|---|
|
Sep. 27, 2019
USD ($)
| |
| Revenue From Contract With Customers [Line Items] | |
| Product warranty, description | The Company generally provides a warranty of between one to five years |
| Incremental cost | $ 0 |
| Minimum | |
| Revenue From Contract With Customers [Line Items] | |
| Product warranty term | 1 year |
| Maximum | |
| Revenue From Contract With Customers [Line Items] | |
| Product warranty term | 5 years |
Share-based compensation (Tables) |
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| Effect of Recording Share-Based Compensation Expense | The effect of recording share-based compensation expense for the three months ended September 27, 2019 and September 28, 2018 was as follows:
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| Share-Based Compensation Expense Recorded in Condensed Consolidated Statements of Operations and Comprehensive Income | Share-based compensation expense was recorded in the unaudited condensed consolidated statements of operations and comprehensive income as follows:
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| Restricted Share Unit Activity | The following table summarizes restricted share unit activity under the Equity Incentive Plans:
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| Performance Share Unit Activity | The following table summarizes performance share unit activity under the Equity Incentive Plans:
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Leases - Schedule Of Adoption Of Topic 842 On Operating Lease In Consolidate Financial Position (Detail) - USD ($) $ in Thousands |
Sep. 27, 2019 |
Jun. 29, 2019 |
|---|---|---|
| Assets | ||
| Operating lease ROU assets | $ 6,185 | $ 5,370 |
| Liabilities and Shareholders' Equity | ||
| Operating lease liabilities – current | 1,550 | 1,601 |
| Operating lease liabilities – non current | $ 4,635 | 3,769 |
| Accounting Standards Update 2016-02 [Member] | ||
| Assets | ||
| Operating lease ROU assets | 5,370 | |
| Liabilities and Shareholders' Equity | ||
| Operating lease liabilities – current | 1,601 | |
| Operating lease liabilities – non current | $ 3,769 |
Leases -Present Value of Capital Lease (Detail) $ in Thousands |
Sep. 27, 2019
USD ($)
|
|---|---|
| Capital Leased Assets [Line Items] | |
| 2020 | $ 292 |
| 2021 | 99 |
| Present value of capital lease | $ 391 |
Available-for-Sale Securities Based on Stated Effective Maturities (Detail) - USD ($) $ in Thousands |
Sep. 27, 2019 |
Jun. 28, 2019 |
Jun. 29, 2018 |
|---|---|---|---|
| Investments Classified by Contractual Maturity Date [Line Items] | |||
| Total | $ 182,545 | $ 200,913 | |
| Fair Value | |||
| Investments Classified by Contractual Maturity Date [Line Items] | |||
| Due within one year | 55,786 | $ 69,830 | |
| Due between one to five years | 126,759 | 131,083 | |
| Total | 182,545 | 200,913 | |
| Carrying Cost | |||
| Investments Classified by Contractual Maturity Date [Line Items] | |||
| Due within one year | 55,726 | 69,746 | |
| Due between one to five years | 126,381 | 130,765 | |
| Total | $ 182,107 | $ 200,511 |
Fair Value - Additional Information (Detail) shares in Millions, $ in Millions |
3 Months Ended | |||
|---|---|---|---|---|
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Sep. 27, 2019
USD ($)
Contract
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Sep. 28, 2018
USD ($)
Contract
shares
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Sep. 03, 2019 |
Jul. 25, 2018 |
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| Foreign Currency Fair Value Hedge Derivative [Line Items] | ||||
| Number of forward contracts outstanding | Contract | 2 | |||
| Derivative notional amount | $ 125.1 | |||
| Derivative maturity period | 2018-12 | |||
| Derivative, Fixed Interest Rate | 2.86% | |||
| Foreign currency forward contracts | ||||
| Foreign Currency Fair Value Hedge Derivative [Line Items] | ||||
| Number of forward contracts outstanding | Contract | 3 | |||
| Derivative notional amount | $ 6.0 | |||
| Unrealized gain (loss) on derivatives | $ 1.9 | $ 2.8 | ||
| Foreign currency forward contracts | Non designated | ||||
| Foreign Currency Fair Value Hedge Derivative [Line Items] | ||||
| Number of forward contracts outstanding | Contract | 61 | |||
| Derivative notional amount | $ 74.0 | |||
| Foreign currency option contracts | ||||
| Foreign Currency Fair Value Hedge Derivative [Line Items] | ||||
| Number of forward contracts outstanding | Contract | 6 | |||
| Derivative notional amount | $ 19.0 | |||
| Interest Rate Swap [Member] | ||||
| Foreign Currency Fair Value Hedge Derivative [Line Items] | ||||
| Number Of Interest Rate Swaps | shares | 64.2 | |||
| Interest Rate Swap [Member] | Bank of Ayudhya Public Company [Member] | Bank of America Credit Facility [Member] | ||||
| Foreign Currency Fair Value Hedge Derivative [Line Items] | ||||
| Derivative maturity period | 2024-06 | |||
| Long term Debt Fixed Interest Percentage | 4.36% | |||
| Interest Rate Swap [Member] | Non designated | ||||
| Foreign Currency Fair Value Hedge Derivative [Line Items] | ||||
| Unrealized gain (loss) on derivatives | $ (1.7) | $ 0.1 | ||
Trade Accounts Receivable, Net (Detail) - USD ($) $ in Thousands |
Sep. 27, 2019 |
Jun. 28, 2019 |
|---|---|---|
| Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
| Trade accounts receivable | $ 273,707 | $ 260,698 |
| Less: Allowance for doubtful account | (91) | (96) |
| Trade accounts receivable, net | $ 273,616 | $ 260,602 |
Changes in AOCI, Net of Tax (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Sep. 27, 2019 |
Sep. 28, 2018 |
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| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Beginning Balance | $ 863,099 | $ 740,939 |
| Total other comprehensive (loss) income, net of tax | (212) | 87 |
| Ending Balance | 890,695 | 766,157 |
| Unrealized net (Losses) Gains on Available-for- sale Securities | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Beginning Balance | 952 | (1,091) |
| Other comprehensive income before reclassification adjustment | (32) | 591 |
| Amounts reclassified out of AOCI to foreign exchange loss in the unaudited condensed consolidated statements of operations and comprehensive income | 67 | (303) |
| Total other comprehensive (loss) income, net of tax | 35 | 288 |
| Ending Balance | 987 | (803) |
| Unrealized net (Losses) Gains on Derivative Instruments | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Beginning Balance | 32 | 33 |
| Other comprehensive income before reclassification adjustment | 39 | |
| Amounts reclassified out of AOCI to foreign exchange loss in the unaudited condensed consolidated statements of operations and comprehensive income | (1) | |
| Total other comprehensive (loss) income, net of tax | 39 | (1) |
| Ending Balance | 71 | 32 |
| Retirement benefit plan - Prior service cost | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Beginning Balance | (2,537) | |
| Other comprehensive income before reclassification adjustment | 83 | |
| Total other comprehensive (loss) income, net of tax | 83 | |
| Ending Balance | (2,454) | |
| Foreign Currency Translation Adjustment | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Beginning Balance | (833) | (199) |
| Other comprehensive income before reclassification adjustment | (369) | (200) |
| Total other comprehensive (loss) income, net of tax | (369) | (200) |
| Ending Balance | (1,202) | (399) |
| AOCI Attributable to Parent | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Beginning Balance | (2,386) | (1,257) |
| Other comprehensive income before reclassification adjustment | (279) | 391 |
| Amounts reclassified out of AOCI to foreign exchange loss in the unaudited condensed consolidated statements of operations and comprehensive income | 67 | (304) |
| Total other comprehensive (loss) income, net of tax | (212) | 87 |
| Ending Balance | $ (2,598) | $ (1,170) |
Movements of Long-Term Loans (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Sep. 27, 2019 |
Sep. 28, 2018 |
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| Debt Instrument [Line Items] | ||
| Opening balance | $ 60,938 | $ 64,188 |
| Borrowings during the period | 60,938 | |
| Repayments during the period | (60,938) | (813) |
| Closing balance | $ 60,938 | $ 63,375 |
Weighted-Average Remaining Life of Intangible Assets (Detail) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 27, 2019 |
Jun. 28, 2019 |
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| Global CEM Solutions, Ltd. | Customer relationships | ||
| Finite-Lived Intangible Liabilities [Line Items] | ||
| Weighted average remaining life of acquired intangible assets | 5 years 2 months 12 days | 5 years 4 months 24 days |
Share-Based Compensation - Additional Information (Detail) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Sep. 27, 2019 |
Sep. 28, 2018 |
Nov. 02, 2017 |
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| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Shares withheld to settle employee minimum statutory obligation for applicable income and other employment taxes | 82,220 | 201,877 | |
| Tax withholdings related to net share settlement of restricted share units | $ 4,144,000 | $ 8,904,000 | |
| Stock Plan 2010 | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Ordinary shares available for future grant | 1,302,154 | ||
| Stock Plan 2017 | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Ordinary shares available for future grant | 111,347 | ||
| Shares authorized for future issuance | 160,000 | ||
| Performance Share Units | Stock Plan 2010 | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Share units outstanding | 436,304 | ||
| Performance Share Units | Executive of the Company | Vest at the end of the performance period | Minimum | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Award vesting percentage | 0.00% | ||
| Performance Share Units | Executive of the Company | Vest at the end of the performance period | Maximum | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Award vesting percentage | 100.00% | ||
| Restricted Share Units | Stock Plan 2010 | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Share units outstanding | 806,573 | ||
| Restricted Share Units | Stock Plan 2017 | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Share units outstanding | 24,327 | ||
| Restricted Share Units | Equity Incentive Plans | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Unrecognized share-based compensation expense | $ 20,200,000 | ||
| Unrecognized compensation expense, weighted-average period for recognition | 2 years 10 months 24 days | ||
| Restricted Share Units | Vesting Option One | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Award granted vesting period, year | 3 years | ||
| Restricted Share Units | Vesting Option Two | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Award granted vesting period, year | 4 years | ||
| Restricted Share Units | Non Employee Director | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Award granted vesting period, year | 1 year | ||
| Restricted Share Units | Non Employee Director | Vest on the first of January | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Award vesting percentage | 100.00% | ||
| Performance Share Units | Equity Incentive Plans | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Unrecognized share-based compensation expense | $ 11,300,000 | ||
| Unrecognized compensation expense, weighted-average period for recognition | 1 year 8 months 12 days | ||
| Performance Share Units | Executive of the Company | |||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Award granted vesting period, year | 2 years | ||
Fair value of financial instruments |
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| Fair value of financial instruments |
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs for the valuation of an asset or liability as of measurement date. The three levels of inputs that may be used to measure fair value are defined as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for assets or liabilities, either directly or indirectly. If the assets or liabilities have a specified (contractual) term, Level 2 inputs must be observable for substantially the full term of assets or liabilities. Level 3 inputs are unobservable inputs for assets or liabilities, which require the reporting entity to develop its own valuation techniques and assumptions. The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The following table provides details of the financial instruments measured at fair value on a recurring basis, including:
Derivative Financial Instruments The Company utilizes derivative financial instruments to hedge (i) foreign exchange risk associated with certain foreign currency denominated assets and liabilities and other foreign currency transactions, and (ii) interest rate risk associated with its long-term debt. The Company minimizes the credit risk associated with its derivative instruments by limiting the exposure to any single counterparty and by entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard. Foreign Currency Forward Contracts As a result of foreign currency rate fluctuations, the U.S. dollar equivalent values of the Company’s foreign currency denominated assets and liabilities also fluctuate. The Company uses foreign currency contracts to manage the foreign exchange risk associated with certain foreign currency denominated assets and liabilities and other foreign currency transactions. The Company enters into foreign currency forward contracts to hedge fluctuations in the U.S. dollar value of forecasted transactions denominated in Thai baht and Canadian dollars.As of September 27, 2019, the Company had outstanding foreign currency forward contracts with an aggregate notional amount f $74.0 million with maturity dates from October 2019 through January 2020. These foreign currency forward contracts were not designated for hedge accounting and were used to hedge fluctuations in the U.S. dollar value of forecasted transactions denominated in Thai baht. During the three months period endedrecorded unrealized loss of $1.9 million from changes in the fair value of foreign currency contracts in earnings as foreign exchange gain, net in the unaudited condensed consolidated statements of operations and comprehensive income. As of September 28, 2018, the Company had three outstanding foreign currency forward contracts with a n aggregate notional amount of $6.0 million, and six outstanding foreign currency option contracts with an aggregate notional amount of $19.0 million with maturity dates from October through . These foreign currency forward contracts and option contracts were not designated for hedge accounting and were used to hedge fluctuations in the U.S. dollar value of forecasted transactions denominated in Thai baht. During the three months ended September 28, 2018, the CompanyDecember 2018 included unrealized gain of $2.8 million from changes in the fair value of foreign currency contracts in earnings as foreign exchange gain, net in the unaudited condensed consolidated statements of operations and comprehensive income. Interest Rate Swap Agreement s The Company enter ed into interest rate swap agreements to mitigate interest rate risk and improve the interest rate profile of the Company’s debt obligations. As of September 27, 2019, the Company had two outstanding interest rate swap agreements with an aggregate notional amount of $125.1 million. As of September 28, 2018, the Company had one outstanding interest rate swap agreement with a notional amount of $64.2 million. On July 25, 2018, Fabrinet Thailand entered into an interest rate swap agreement to effectively convert the floating interest rate of its term loan under the Bank of America Credit Facility Agreement to a fixed interest rate of 2.86% per annum through the scheduled maturity of the term loan in June 2023 (see Note 13). The Company did not designate this interest rate swap for hedge accounting. On September 3, 2019, the Company entered into a new term loan agreement under a Credit Facility Agreement with the Bank of Ayudhya Public Company Limited (the “Bank”) (see Note 13) and on September 10, 2019, repaid in full the outstanding term loan under the Bank of America Credit Facility (see Note 13). In conjunction with the funding of the new term loan, the Company entered into a second interest rate swap agreement. The combination of both of these interest rate swaps effectively convert the floating interest rate of the Company’s new term loan with the Bank to a fixed interest rate of 4.36% per annum through the maturity of the term loan in June 2024. On September 27, 2019, the Company designated these two interest rate swaps as a cash flow hedge for the Company’s term loan under the Credit Facility Agreement with the Bank. The combination of these two interest rate swaps ied for hedge accounting bec the hedges are highly effective, and a usethe Company has designated and documented contemporaneously the hedging relationships involving these interest rate swaps. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings. From September 27, 2019, any gains or losses related to these interest rate swaps will be recorded in accumulated other comprehensive income in the unaudited condensed consolidated balance sheets, and the Company will reclassify a portion of the gains or losses from accumulated other comprehensive income into earnings at each reporting period based on either the accrued interest amount or the interest payment. The following table provides a summary of the impacts of derivative gain (loss) of our cash flow hedges on the una condensed consolidated statements of operations and other comprehensive income: u dited
Prior to September 27, 2019, these interest rate swaps were not designated as cash flow hedges . A ll changes in the fair value of these interest rate swaps was reflected in earnings. During the three months ended September 27, 2019 and September 28, 2018, the Company recorded unrealized loss of $1.7 million and unrealized gain of $0.1 million, respectively, from changes in the fair value of these interest rate swaps as interest expense in the unaudited condensed consolidated statements of operations and comprehensive income. Fair Value The following table provides the fair values of our derivative financial instruments for the periods presented:
The Company recorded fair value of derivative financial instrument in unaudited condensed consolidated balance sheets as followings:
Settlement Our derivative instruments are typically settled monthly or quarterly. The following table presents cash settlements (paid) received related to the below derivative instruments:
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Leases |
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| Leases |
The Company leases facilities under non-cancelable the Cayman Islands, China, the United States and the United Kingdom under operating lease arrangements that expire at various dates through 2025. Certain of these lease arrangements provide the Company the ability to extend the lease from to five years following the expiration of the current term. However, the Company has excluded all lease extension options from its ROU assets and lease liabilities as the Company is not reasonably assured that it will exercise these options. All leases agreements have no term conditions of residual value guarantee provided by lessee. The Company also has one intercompany lease transaction which is a lease of office and manufacturing space between Fabritek and Fabrinet West. Operatin leasesg The Company determines if an arrangement contains a lease at inception. The Company applies the guidance in ASC 842 to determine whether a contract is, or contains, a lease. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Operating leases are included in operating lease ROU The Company rents certain real estate under agreements that are classified as operating leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Variable lease payments are expensed as incurred and are not included within the ROU asset and lease liability calculation. Variable lease payments primarily include reimbursements of costs incurred by lessors for common area maintenance and utilities. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not account for lease components (e.g., fixed payments including rent) separately from the non-lease components (e.g., common-area maintenance costs).The following table shows the impact of adoption of ASC 842 on the adoption date of June 29, 2019 on the consolidated balance sheets: Consolidated Balance Sheets
As of September 27, 2019, the maturities of the Company’s operating lease liabilities are as follows:
Rental expense related to the Company’s operating leases is recognized on a straight-line basis over the lease term. Rental expense for long the three months ended September 27, 2019 was $0.5 million.- term leases for Rental expense for short-term lease s for the three months ended September 27, 2019 was $0.02 million.Capital leases In connection with the acquisition of Fabrinet UK, the Company assumed the capital lease commitments of several machines and equipment, with various expiration dates through . The equipment can be purchased at the determined prices upon expiration of such contracts. As of September 27, 2019, the Company ha d capital lease liabilities of $0.4 million, which were recorded under current liabilities and property, plant and equipment in the unaudited condensed consolidated balance sheets . As of September 27, 2019, the future minimum lease payments under non-cancelable capital leases during each fiscal year were as follows:
As of September 27, 2019, the present value of capital lease s during each fiscal year was as follows:
The following summarizes additional information related to the Company’s operating leases and capital leases:
T he following information represents supplemental disclosure for the statement of cash flows related to operating and capital leases for the three months ended September 27, 2019:
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Goodwill (Tables) |
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| Changes in Carrying Amount of Goodwill from Acquisition | The changes in the carrying amount of goodwill from the acquisition of Fabrinet UK were as follows:
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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands |
Total |
Ordinary Shares |
Additional Paid-in Capital |
Treasury Shares |
Accumulated Other Comprehensive (Loss) Income |
Retained Earnings |
|---|---|---|---|---|---|---|
| Beginning Balance at Jun. 29, 2018 | $ 740,939 | $ 377 | $ 151,797 | $ (42,401) | $ (1,257) | $ 632,423 |
| Beginning Balance (in shares) at Jun. 29, 2018 | 37,723,733 | |||||
| Net income | 27,850 | 27,850 | ||||
| Other comprehensive income | 87 | 87 | ||||
| Cumulative effect adjustment from adoption of ASC 606 | 1,205 | 1,205 | ||||
| Share-based compensation | 4,980 | 4,980 | ||||
| Issuance of ordinary shares | $ 4 | (4) | ||||
| Issuance of ordinary shares (in shares) | 394,876 | |||||
| Tax withholdings related to net share settlement of restricted share units | (8,904) | (8,904) | ||||
| Ending Balance at Sep. 28, 2018 | 766,157 | $ 381 | 147,869 | (42,401) | (1,170) | 661,478 |
| Ending Balance (in shares) at Sep. 28, 2018 | 38,118,609 | |||||
| Beginning Balance at Jun. 28, 2019 | 863,099 | $ 382 | 158,299 | (47,779) | (2,386) | 754,583 |
| Beginning Balance (in shares) at Jun. 28, 2019 | 38,230,753 | |||||
| Net income | 25,957 | 25,957 | ||||
| Other comprehensive income | (212) | (212) | ||||
| Share-based compensation | 5,995 | 5,995 | ||||
| Issuance of ordinary shares | $ 2 | (2) | ||||
| Issuance of ordinary shares (in shares) | 158,375 | |||||
| Tax withholdings related to net share settlement of restricted share units | (4,144) | (4,144) | ||||
| Ending Balance at Sep. 27, 2019 | $ 890,695 | $ 384 | $ 160,148 | $ (47,779) | $ (2,598) | $ 780,540 |
| Ending Balance (in shares) at Sep. 27, 2019 | 38,389,128 |
Cover Page - shares |
3 Months Ended | |
|---|---|---|
Sep. 27, 2019 |
Oct. 25, 2019 |
|
| Cover [Abstract] | ||
| Document Type | 10-Q | |
| Current Fiscal Year End Date | --06-26 | |
| Amendment Flag | false | |
| Document Period End Date | Sep. 27, 2019 | |
| Document Fiscal Year Focus | 2020 | |
| Document Fiscal Period Focus | Q1 | |
| Entity Central Index Key | 0001408710 | |
| Entity Registrant Name | Fabrinet | |
| Trading Symbol | FN | |
| Entity Current Reporting Status | Yes | |
| Entity Filer Category | Large Accelerated Filer | |
| Entity Shell Company | false | |
| Entity Emerging Growth Company | false | |
| Entity Small Business | false | |
| Entity Interactive Data Current | Yes | |
| Security Exchange Name | NYSE | |
| Title of 12(b) Security | Ordinary Shares | |
| Document Quarterly Report | true | |
| Document Transition Report | false | |
| Entity File Number | 001-34775 | |
| Entity Incorporation, State or Country Code | E9 | |
| Entity Tax Identification Number | 98-1228572 | |
| Entity Address, Address Line One | c/o Intertrust Corporate Services (Cayman) Limited | |
| Entity Address, Address Line Two | 190 Elgin Avenue | |
| Entity Address, City or Town | George Town | |
| Entity Address, Country | KY | |
| Entity Address, Postal Zip Code | KY1-9005 | |
| City Area Code | 66 | |
| Local Phone Number | 2-524-9600 | |
| Entity Common Stock, Shares Outstanding | 37,002,648 |
Accounting policies |
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Sep. 27, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting policies |
Basis of presentation The accompanying unaudited condensed consolidated financial statements for Fabrinet as of September 27, 2019 and for the three months ended September 27, 2019 and September 28, 2018 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 28, 2019.The balance sheet as of June 28, 2019 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The results for the three months ended September 27, 2019 may not be indicative of results for the year ending June 26, 2020 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, 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. Fiscal years The Company utilizes a 52-53 week fiscal year ending on the Friday in June closest to June 30. The three months ended September 27, 2019 and September 28, 2018 each consisted of 13 weeks. Fiscal year 2020 will be comprised of 52 weeks and will end on June 26, 2020. Changes in Accounting Policies Except for the adoption of the new lease accounting standard and the derivatives and hedging standard described below, the Company has consistently applied the accounting policies to all periods presented in these unaudited condensed consolidated financial statements. Adoption of New Accounting Standard s On June 29, 2019, the Company adopted the new lease accounting standard, Accounting Standards Codification Topic 842 (“ASC 842”), which provides guidance for the recognition and disclosure of lease arrangements. The Company adopted ASC 842 using the modified retrospective transition approach. Accordingly, the Company’s comparative financial statements as of June 28, 2019 have not been adjusted. ASC 842 also provides practical expedients for the Company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its operating leases with a term of less than 12 months, which will not require recognition of right of use (“ROU”) assets or lease liabilities for these leases. For periods prior to adoption of ASC 842, the Company is required to present disclosures in accordance with ASC Topic 840. The following disclosure provides the future minimum lease payments due under non-cancelable operating leases as of June 28, 2019:
The most significant impact of the adoption of ASC 842 was the recognition of ROU assets and lease liabilities for operating leases with a term of greater than 12 months, while the accounting for finance leases will remain substantially unchanged. See Note 10 for further details. On June 29, 2019, the Company also adopted Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 simplifies existing hedge accounting guidance in order to better portray in financial statements the economic impact of risk management activities in the financial statements, including eliminating the separate measurement and presentation of hedge ineffectiveness. Prior to the adoption of ASU 2017-12, the Company wa s required to separately measure and reflect the amount by which the hedging instrument did not offset the changes in the fair value or cash flows of hedged items, and to record the ineffective portion as earnings. Upon the adoption of ASU 2017-12, the Company is no longer recognizes hedge ineffectiveness as earnings, but instead records the entire changes in the fair value of the hedged instruments as other comprehensive income. Amounts recorded as other comprehensive income are subsequently reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the hedged item affects earnings . See Note 6 for further details.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 receivableand 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 May 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief.” The amendments in ASU 2019-05 provide entities that have certain instruments within the scope of Subtopic 326-20 (“Financial Instruments—Credit Losses—Measured at Amortized Cost”) with an option to irrevocably elect the fair value option in Subtopic 825-10 (“Financial Instruments—Overall”), applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10 (“Fair Value Measurement—Overall”) and 825-10. For public business entities, this update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This ASU will be effective for the Company in the first quarter of fiscal 2021. Early adoption is permitted. The Company does not expect this update will impact its condensed consolidated financial statements. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The amendments in ASU 2019-04 apply to all reporting entities within the scope of the affected accounting guidance. For public business entities, this update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This ASU will be effective for the Company in the first quarter of fiscal 2021. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this update on its condensed consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 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. This update is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, beginning after December 15, 2019. This ASU will be effective for the Company in the first quarter of fiscal 2021. The Company is currently evaluating the impact of the adoption of this update on its condensed consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 modified the concept of impairment assessment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. Public companies that are SEC filers should adopt the amendment for annual and any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. This ASU will be effective for the Company in the first quarter of fiscal 2021. The Company does not expect this update will impact its condensed consolidated financial statements.
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Trade accounts receivable, net (Tables) |
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| Trade Accounts Receivable, Net |
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