☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
26, 202030, 2017☐ Not Applicable
incorporation or organization)
Identification No.)
Symbol(s)
on which registered (Title of each class)(Name of exchange on which registered)and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation (§and post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒ (Check one):Large accelerated filer ☒ ☒ Accelerated filer ☐ ☐ (Do not check if smaller reporting company)☐ Smaller reporting company ☐ Emerging growth company ☐ 30, 2016,27, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, shares held by$1.5$2.3 billion, based on the closing price for the registrant’s ordinary shares as reported on the New York Stock Exchange on such date.11, 2017,7, 2020, the registrant had 37,365,44336,744,258 ordinary shares, $0.01 par value, outstanding.20172020 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form
2020. rapid expansion of data center infrastructures. Carrier demand for optical communications network equipment has increased as a direct result of higher network utilization and increased demand for bandwidth capacity. The increase in network traffic volumes advanced packaging team develops and maintains generic recipes that are readily available to be tailored and refined for the specific new applications of our customers, which helps to further accelerate prototype development and product delivery time. year 2019, Lumentum Operations LLC contributed 20% of our total revenues. costs to address these problems. RBA. experienced any work stoppages, slowdowns, or strikes. We consider our relations with our employees to be positive. delays with respect to certain products that we manufacture for our customers due to pricing pressures, this consolidation may also reduce overall demand for our manufacturing services if customers obtain new capacity to manufacture products Unfavorable worldwide economic conditions may negatively affect our business, operating results and financial condition. rates. Uncertainty about worldwide economic conditions poses a risk as businesses may further reduce or postpone spending in response to reduced budgets, tight credit, negative financial news and declines in income or asset values, which could adversely affect our business, financial condition and operating results and increase the volatility of our share price. In addition, our ability to access capital markets may be restricted, which could have an impact on our ability to react to changing economic and business conditions and could also adversely affect our business, operating results and financial condition. manufacture may at times contain manufacturing or design defects, and our manufacturing processes may be subject to errors or fail to be in compliance with applicable statutory or regulatory requirements. Additionally, not all defects are immediately detectible. The testing procedures of our customers are generally limited to the evaluation of the products that we manufacture under likely and foreseeable failure scenarios. For various reasons (including, among others, the occurrence of performance problems that are unforeseeable at the time of testing or that are detected only when products are fully deployed and operated under peak stress conditions), these products may fail to perform as expected after their initial acceptance by a customer. We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our shareholders. control could cause the market price of our ordinary shares to change substantially. Any of these factors may result in Fiscal Year 2017 Fourth Quarter (April 1, 2017—June 30, 2017) Third Quarter (December 31, 2016—March 31, 2017) Second Quarter (October 1, 2016—December 30, 2016) First Quarter (June 25, 2016—September 30, 2016) Fiscal Year 2016 Fourth Quarter (March 26, 2016—June 24, 2016) Third Quarter (December 26, 2015—March 25, 2016) Second Quarter (September 26, 2015—December 25, 2015) First Quarter (June 27, 2015—September 25, 2015) deemed to be incorporated by reference into any filing of Fabrinet under the Securities Act of 1933, as amended, or the Exchange Act. Revenues Cost of revenues Gross profit Selling, general and administrative expenses Other income related to flooding, net Expenses related to reduction in workforce Operating income Interest income Interest expense Foreign exchange (loss) gain, net Other income (expense) Income before income taxes Income tax expense Net income Other comprehensive (loss) income, net of tax Net comprehensive income Earnings per share: Basic Diluted Weighted average number of ordinary shares outstanding (thousands of shares) Basic Diluted Cash and cash equivalents Marketable securities Restricted cash in connection with business acquisition Working capital(1) Total assets Current and long-term debt Total liabilities Total shareholders’ equity Net cash provided by operating activities Net cash (used in) provided by investing activities Net cash provided by (used in) financing activities Net (decrease) increase in cash, cash equivalents and restricted cash subsidiaries. business, see Part I – ITEM 1. BUSINESS. Years Fiscal year 2018 ended on June 29, 2018 and consisted of 52 weeks. Lumentum Operations LLC Oclaro, Inc. Note 23 of our audited consolidated financial statements. Because we depend upon a small number of 2020. North America Asia-Pacific Europe The excess or obsolete inventory is shipped to the customer and revenue is recognized upon shipment. 2020 SG&A expenses. on a quarterly basis. Assets Thai baht RMB GBP Total Liabilities Thai baht RMB GBP Total As of June 28, 2019, there was $72.0 million in foreign currency forward contracts outstanding on the Thai baht payables. gains until March 6, 2039. 2019, we completed our assessment of the income tax effects resulting from the Tax Reform Act and concluded that no cumulative remeasurement adjustments were required. sale have been resolved. We recognize revenue net of rebates and other similar allowances. Revenues are recognized only if these estimates can be reasonably and reliably determined. We base our estimates on historical results taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. for the deferred tax assets was set up as of June 26, 2020. During the three months ended June 26, 2020, we performed annual goodwill impairment testing on our subsidiary in the U.K. and found that the carrying amount of the reporting unit exceeded its fair value. As a result, we recognized goodwill impairment loss of $3.5 million in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income. Revenues Cost of revenues Gross profit Selling, general and administrative expenses Other income related to flooding, net Expenses related to reduction in workforce Operating income Interest income Interest expense Foreign exchange loss, net Other income (expense), net Income before income taxes Income tax expense Net income Other comprehensive (loss) income, net of tax Net comprehensive income Revenues Cost of revenues Gross profit Selling, general and administrative expenses Other income related to flooding, net Expenses related to reduction in workforce Operating income Interest income Interest expense Foreign exchange loss, net Other income (expense), net Income before income taxes Income tax expense Net income Other comprehensive (loss) income, net of tax Net comprehensive income Optical communications Lasers, sensors, and other Total 2019 2019. 2019. (5) an increase in executive and management expenses of $0.4 million from bonuses and other benefits. 2020, compared with $122.6 million, or 7.7% of total revenues, for fiscal year 2019. cash and cash equivalents and short-term investments. 2019. 2019. 2019. 2019. 2018 2018. volume. fixed costs leverage. 2018. the average balance of our outstanding cash and cash equivalents and short-term investments. $4.6 million in fiscal year 2018. 2018. 2018. 2018. 2018. 26, 2020. Net cash provided by operating activities Net cash used in investing activities Net cash provided by financing activities Net (decrease) increase in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of period Cash, cash equivalents and restricted cash, end of period $5.4 million. intangible assets. 2019. decrease was primarily due to a decrease in cash paid for the repurchase of Long-term debt obligations Interest expense obligation(1) Capital lease obligations Operating lease obligations Severance liabilities(2) Deferred liability in connection with business acquisition Provision for uncertain income tax position Total 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. Capital expenditures facilities. June 26, 2020, the standby letter of credit was backed by cash collateral of $7.4 million. transactions could significantly affect the comparability of our results between financial periods or result in significant changes to the carrying value of our assets, liabilities and shareholders’ equity. 18, 2020 Current assets Cash and cash equivalents Marketable securities Trade accounts receivable, net Inventory, net Deferred tax assets Prepaid expenses Other current assets Total current assets Non-current assets Restricted cash in connection with business acquisition Property, plant and equipment, net Intangibles, net Goodwill Deferred tax assets Deferred debt issuance costs on revolving loan and other non-current assets Total non-current assets Total Assets Liabilities and Shareholders’ Equity Current liabilities Bank borrowings, net of unamortized debt issuance costs Trade accounts payable Fixed assets payable Capital lease liability, current portion Income tax payable Accrued payroll, bonus and related expenses Accrued expenses Other payables Total current liabilities Non-current liabilities Long-term loan from bank, net of unamortized debt issuance costs Deferred tax liability Capital lease liability, non-current portion Deferred liability in connection with business acquisition Severance liabilities Other non-current liabilities Total non-current liabilities Total Liabilities Commitments and contingencies (Note 19) Shareholders’ equity Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and outstanding as of June 30, 2017 and June 24, 2016) Ordinary shares (500,000,000 shares authorized, $0.01 par value; 37,340,496 shares and 36,156,446 shares issued and outstanding as of June 30, 2017 and June 24, 2016, respectively) Additional paid-in capital Accumulated other comprehensive (loss) income Retained earnings Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity Revenues Cost of revenues Gross profit Selling, general and administrative expenses Other income related to flooding, net Expenses related to reduction in workforce Operating income Interest income Interest expense Foreign exchange loss, net Other income (expense), net Income before income taxes Income tax expense Net income Other comprehensive (losses) gains, net of tax: Change in net unrealized (losses) gains on marketable securities Change in net unrealized (losses) gains on derivative instruments 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 Ordinary Share Balances at June 27, 2014 Net income Other comprehensive loss Share-based compensation expense Issuance of ordinary shares Tax withholdings related to net share settlement of restricted share units Balances at June 26, 2015 Net income Other comprehensive income Share-based compensation expense Issuance of ordinary shares Tax withholdings related to net share settlement of restricted share units Balances at June 24, 2016 Net income Other comprehensive loss Share-based compensation expense Issuance of ordinary shares Tax withholdings related to net share settlement of restricted share units Balances at June 30, 2017 Cash flows from operating activities Net income for the year Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Gain on disposal of property, plant and equipment Loss from sales and maturities of marketable securities Amortization of investment (discount) premium Amortization of deferred debt issuance costs Income related to flooding Proceeds from insurers in settlement of claim related to flood damage (Reversal of) allowance for doubtful accounts Unrealized loss on exchange rate and fair value of derivative Share-based compensation Deferred income tax Other non-cash expenses Inventory obsolescence (reversal of) Loss from written-off inventory due to flood loss Changes in operating assets and liabilities Trade accounts receivable Inventory Other current assets and non-current assets Trade accounts payable Income tax payable Other current liabilities and non-current liabilities Net cash provided by operating activities Cash flows from investing activities Purchase of marketable securities Proceeds from sales of marketable securities Proceeds from maturities of marketable securities Payments in connection with business acquisition, net of cash acquired Purchase of property, plant and equipment Gain on cash settlement of hedged forward contracts Proceeds from disposal of property, plant and equipment Purchase of intangibles Proceeds from insurers in settlement of claims related to flood damage Net cash used in investing activities Cash flows from financing activities Payment of debt issuance costs Proceeds of short-term loan from bank Repayment of short-term loan from bank Proceeds of long-term loan from bank Repayment of long-term loan from bank Proceeds from issuance of ordinary shares under employee share option plan Repayment of capital lease liability Withholding tax related to net share settlement of restricted share units Net cash provided by financing activities Net (decrease) increase in cash, cash equivalents and restricted cash Movement in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at beginning of period (Decrease) 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 Supplemental disclosures Cash paid for Interest Taxes Cash received for interest Non-cash investing and financing activities Construction, software related and equipment related payables Cash and cash equivalents Restricted cash in connection with business acquisition (non-current assets) Cash, cash equivalents and restricted cash Fiscal year 2018 ended on June 29, 2018 and consisted of 52 weeks. of intangible assets related to business Additionally, the extent to which the evolving COVID-19 pandemic impacts the Company’s consolidated financial statements will depend on a number of factors, including the magnitude and duration of the pandemic. These estimates may change, as new events occur and additional information is obtained, as well as other factors related to COVID-19 that could result in material impacts to our consolidated financial statements in future reporting periods. in the Company’s consolidated balance sheets. liability. assets or asset groups is measured by comparing their carrying amount to the projected undiscounted cash flows that the long-lived assets or asset groups are expected to generate. If such assets are considered to be impaired, the impairment loss recognized, if any, is the amount by which the carrying amount of the that a reportable segment’s carrying value is greater than its fair value. If the Company’s qualitative assessment indicates it is more likely than not that the fair value of a reporting unit exceeds its carrying value, no further analysis is required and goodwill is not impaired. Otherwise, the Company performs a quantitative goodwill impairment test to determine if goodwill is impaired. The quantitative test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reportable segment exceeds the carrying value of the net assets associated with the segment, goodwill is not considered impaired. If the carrying value of the net assets associated with the reportable segment exceeds the fair value of the segment, the Company recognizes an impairment loss in an amount equal to the excess, not to exceed the carrying value of the reportable segment’s goodwill. The reporting unit’s carrying value used in an impairment test represents the assignment of various assets and liabilities, excluding certain corporate assets and liabilities, such as cash, investments, and debt. 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 the measurement date. The three levels of inputs that may be used to measure fair value are defined as follows: classified in the same line item as the underlying item. contract assets. 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 customer. Judgment may be required in determining if an acceptance clause provides for substantive acceptance. During the needed. companies that are SEC filers should adopt the amendment for gains until March 6, 2039. our Thai subsidiary is Current Deferred Total income tax expense Income before income taxes(1) Tax expense calculated at a statutory corporate income tax rate of 20% Effect of income taxes from locations with tax rates different from Thailand Income not subject to tax(2) Income tax on unremitted earnings Effect of different tax rate in relation to deferred tax utilization(3) Effect of foreign exchange rate adjustment Tax rebate from research and development application Others Corporate income tax expense Income not subject to tax relates to income earned in the Cayman Islands and income subject to an investment promotion privilege for Pinehurst Building Deferred tax assets: Depreciation Severance liability Reserves and allowance Loss carrying forward Others Total Deferred tax liabilities: Temporary differences from intangibles and changes in the fair value of assets acquired Deferred tax from unremitted earnings Total Net deferred tax assets of such Beginning balance Additions during the year Reductions for tax positions of prior years Ending balance stock method. Dilutive ordinary equivalent shares consist of share options, restricted share units and performance share units. The earnings per ordinary share was calculated as follows: Net income attributable to shareholders Weighted-average number of ordinary shares outstanding (thousands of shares) Incremental shares arising from the assumed exercise of share options and 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 share options excluded in the computation of diluted earnings per ordinary share (1) As of June 30, 2017 Cash Cash equivalents Corporate bonds and commercial papers U.S. agency and U.S. treasury securities Sovereign and municipal securities Total As of June 24, 2016 Cash Cash equivalents Corporate bonds and commercial papers U.S. agency and U.S. treasury securities Sovereign and municipal securities Total term bank deposits was Due within one year Due between one to three years Due after three years Total 26, 2020: recognized a realized gain of $0.1 million from sales and maturities of liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. As of June 30, 2017 Assets Cash equivalents Corporate bonds and commercial papers U.S. agency and U.S. treasury securities Sovereign and municipal securities Derivative assets Total Liabilities Derivative liabilities Total As of June 24, 2016 Assets Cash equivalents Corporate bonds and commercial papers U.S. agency and U.S. treasury securities Sovereign and municipal securities Derivative assets Total Liabilities Derivative liabilities Total financial instruments A Trade accounts receivable Less: Allowance for doubtful account Trade accounts receivable, net As of June Raw materials Work in progress Finished goods Goods in transit Less: Inventory obsolescence Inventory, net The Company did not designate this interest rate swap for hedge accounting. Cash Accounts receivable Inventory Other current assets Property, plant and equipment Intangibles Goodwill Other non-current assets Current liabilities Deferred tax liabilities Other non-current liabilities Total fair value of assets acquired and liabilities assumed Total purchase price, net of cash acquired finance leases: As of June 30, 2017 Cost Less: Accumulated depreciation Net book value As of June 24, 2016 Cost Less: Accumulated depreciation Net book value Cost—Capital leases Less: Accumulated depreciation Net book value Fabrinet UK. As of June 30, 2017 Software Customer relationships Backlog Total intangibles As of June 24, 2016 Software Customer relationships Backlog Total intangibles 2018 2019 2020 2021 2022 Thereafter Total Balance as of June 24, 2016 Addition in connection with business acquisition Foreign currency translation adjustment Balance as of June 30, 2017 impairment loss of $3.5 million in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income. As of June 28, 2019, 0 goodwill impairment had been recognized. Rate(1) Short-term borrowing: Revolving borrowing: LIBOR + 1.75% per annum 1 to 6 months Short-term loans from bank: Bank of England base rate +1.85% credit terms of secured Current portion of long-term borrowing Less: Unamortized debt issuance costs Long-term borrowing: LIBOR + 2.80% per annum quarterly installments Term loan borrowing: LIBOR + 1.75% per annum quarterly installments Less: Current portion Unamortized debt issuance costs Non-current portion Opening net book amount Additional loan during the period Repayment during the period Closing net book amount 28, 2019: 2018 2019 Total facilities agreements: Short-term Long-term Balance, beginning of the fiscal year Charged to selling, general and administrative expenses in the consolidated statements of operations and comprehensive income Balance, end of the fiscal year Present value of defined benefit obligation Total Current service cost Interest cost Benefit paid Actuarial loss on obligation Total unobservable inputs and have been treated as Level 3 fair value measurement because the fair value of which is based on the previous year end observable value and other unobservable inputs such as declared rates of bonus plus an enhancement on the policy for this scheme. Share-based compensation expense by type of award: Share options Restricted share units Performance share units Total share-based compensation expense Tax effect on share-based compensation expense Net effect on share-based compensation expense Cost of revenue Selling, general and administrative expense Total share-based compensation expense 29, 2018. Fabrinet’s board of directors has the authority to determine the type of option and the number of shares subject to an option. Options generally vest and become exercisable over four years and expire, if not exercised, within seven years of the grant date. In the case of a grantee’s first grant, 25 percent of the underlying shares Balance as of June 27, 2014 Granted Exercised Forfeited Expired Balance as of June 26, 2015 Granted Exercised Forfeited Expired Balance as of June 24, 2016 Granted Exercised Forfeited Expired Balance as of June 30, 2017 Expected to vest as of June 30, 2017 option activity under the 2010 Plan: vest monthly over each of the subsequent 36 months. In the case of any additional grants to an Options outstanding Options exercisable Expected to vest as of June 30, 2017 Balance as of June 27, 2014 Granted Issued Forfeited Balance as of June 26, 2015 Granted Issued Forfeited Balance as of June 24, 2016 Granted Issued Forfeited Balance as of June 30, 2017 Expected to vest as of June 30, 2017 Equity Incentive Plans: Balance as of June 24, 2016 Granted Issued Forfeited Balance as of June 30, 2017 Expected to vest as of June 30, 2017 Equity Incentive Plans: issued by the Company as it reduced the number of shares that would have been issued on the vesting date and was recorded as a reduction of additional Balance as of June 26, 2015 Other comprehensive income before reclassification Amounts reclassified from AOCI Tax effects Other comprehensive income Balance as of June 24, 2016 Other comprehensive income before reclassification Amounts reclassified from AOCI Tax effects Other comprehensive income Balance as of June 30, 2017 AOCI components Financial statements line item Unrealized losses on marketable securities Interest income Unrealized gains on derivative instruments Cost of revenues Selling, general and administrative expenses Total amounts reclassified from AOCI 2018 2019 2020 2021 2022 Thereafter Total future minimum operating lease payments 2018 2019 2020 2021 Total Less: Future finance charge on capital leases Present value of capital lease Current Non-current Total capital lease liabilities 2018 2019 2020 2021 Total future minimum capital lease payments $11.1 million. North America Asia-Pacific Europe Total Asia-Pacific and Europe. Optical communications Lasers, sensors, and other Total Lumentum Operations LLC Oclaro, Inc. Lumentum Operations LLC NeoPhotonics Corporation Acacia Communications Inc. Valeo and Pound sterling (“GBP”). Assets Thai baht RMB GBP Total Liabilities Thai baht RMB GBP Total As of June 28, 2019, there were $72.0 million of foreign currency forward contracts outstanding on the Thai baht payables. Total revenues Gross profit Net income Basic net income per share: Net income Weighted-average shares used in basic net income per share calculations Diluted net income per share: Net income Weighted-average shares used in diluted net income per share calculations Director Director Director Director Exhibit Description Incorporated by reference herein Form Exhibit No. Filing Date File No. Exhibit Description Incorporated by reference herein Form Exhibit No. Filing Date File No. Exhibit Description Incorporated by reference herein Form Exhibit No. Filing Date File No. 2 1415 3235 3235 3235 3235 3336 3537 3639 5358 5561 98113 98113 99114 100115 100115 100115 100115 100115 101116120 Fabrinet (“we”, “us” and “our”) providestest.testing. Although we focus primarily on “low-volume, we have received from our customers, we believe we are a global leader in providing these services to the optical communications, industrial lasers and automotive markets.have decreased from 25.5% for the year ended June 24, 2016 (“25.2% in fiscal year 2016”)2019 to 22.0% for the year ended June 30, 2017 (“24.0% in fiscal year 2017”),2020, while our revenues from optical communications products as a percentage of total revenues have increased from 74.5% for74.8% in fiscal year 20162019 to 78.0% for76.0% in fiscal year 2017. “factory-within-a-factory” We are organized and operate in a single segment. See Note 20, Business segments and geographic information of Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report onForm 10-K, which is incorporated herein by reference.30, 2017,26, 2020, our facilities comprised approximately 2.02.1 million total square feet, including approximately 0.2 million square feet of office space and approximately 1.81.9 million square feet devoted to manufacturing and related activities, of which approximately 0.70.8 million square feet are clean room facilities. Of the aggregate square footage of our facilities, approximately 1.6 million square feet are located in Thailand and the remaining balance is located in the People’s Republic of China (“PRC” or “China”), the United Kingdom, the United States, Israel and the Cayman Islands. See Part I, Item 2. Properties of this Annual Report on Formhavehas been driven by increasing demand for voice, data and video services delivered over wired and wireless Internet protocol, or IP, networks. The bandwidth demands for data center access have been largely driven by social media applications and cloud services, and continue to increase very rapidly.•Advanced Optical and Electro-Mechanical Manufacturing Technologies: We believe that our optical and electro-mechanical process technologies and capabilities, coupled with our customized optics and glass technologies, provide us with a key competitive advantage. These technologies include:•Efficient, Flexible and Low Cost Process Engineering and Manufacturing Platform: We enable our customers to transition their production to an efficient and flexible manufacturing platform that is specialized for the production of optics and similarly complex products and is located in a low-cost geography. We believe our advanced manufacturing technologies, coupled with our broad engineering capabilities, give us the ability to identify opportunities to improve our customers’ manufacturing processes and provide meaningful production cost benefits. We have also developed a series of customized software tools that we believe provide us with a specialized ability to manage the unique aspects of low-volume, high-mix production.•Customizable Factory-Within-a-Factory Production Environment: We offer our customers exclusive engineering teams and manufacturing space for production. We call this concept of segregating production by customer a “factory-within-a-factory.” We believe our approach maximizes intellectual property protection and provides greater opportunities to reduce cost and improve time to market for our customers’ products.•Vertical Integration Targeting Customized Optics and Glass: We believe our capabilities in the design and fabrication of high-value customized optics and glass are complementary to our manufacturing services. Specifically, these capabilities enable us to strategically align our business to our customers’ needs by streamlining our customers’ product development process and reducing the number of suppliers in our customers’ manufacturing supply chains. Also, we use these customized optics and glass products in certain of the components, modules and subsystems we manufacture, which enables us to shorten time to market and reduce the cost for our customers. We believe this level of vertical integration positions us to capitalize on further opportunities to cross-sell our design and fabrication capabilities.•Turn-Key Supply Chain Management: We have created a proprietary set of automated manufacturing resource planning tools designed specifically to address the unique inventory management demands of “low-volume, high-mix” manufacturing. Over the years, we have developed strong relationships with thousands of suppliers and implemented inventory management strategies with many of them, which enables us to obtain inventory on an as-needed basis and provide on-site stocking programs. We believe our deep expertise, relationships and capabilities in supply chain and materials management often allows us to further reduce costs and cycle times for our customers.•Strengthen Our Presence in the Optical Communications Market: We believe we are a leader in manufacturing products for the optical communications market. The optical communications market is growing rapidly, driven by the growth in demand for increased network bandwidth and penetration from core to metro networks and data center infrastructures. We believe this trend will continue to increase the demand for the products that we manufacture and the services we provide. We continue to invest resources in advanced manufacturing process and optical packaging technologies to support the manufacture of the next generation of complex optical products.•Leverage Our Technology and Manufacturing Capabilities to Continue to Diversify Our End-Markets: We intend to use our technological strengths in precision optical and electro-mechanical manufacturing, advanced packaging and process design engineering to continue our diversification into industrial lasers, medical, sensors, and other select markets that require similar capabilities.•Continue to Extend Our Customized Optics and Glass Vertical Integration: We will continue to extend our vertical integration into customized optics and glass in order to gain greater access to keycomponents used in the complex products we manufacture as well as to continue our diversification into new markets. We believe our customized optics and glass capabilities are highly complementary to our optical and electro-mechanical manufacturing services, and we intend to continue to market these products to our existing manufacturing services customers. In addition, we intend to continue our focus on customized optics and glass through further investment into research and development, as well as through potential acquisitions in what remains a highly fragmented market.•Evaluate Potential Strategic Alternatives such as Acquisitions and Joint Ventures:We will continue to evaluate opportunities to further expand our manufacturing capabilities and diversify our end-markets through the evaluation of various acquisition and joint venture opportunities around the globe. For example, in September 2016 we acquired Global CEM Solutions Ltd. and all of its subsidiaries (collectively, “Exception EMS”) to diversify our markets and customer base and accelerate our entrance into the European EMS market.•Broaden Our Client Base Geographically:Our manufacturing services are incorporated into products that are distributed in markets worldwide, but we intend to further build out our client base in strategic regions. We intend to focus on expanding our client base in Europe, Asia-Pacific, and the United States. We believe these regions have a large and robust optics market, as well as a need for advanced manufacturing services in other growth markets, and would benefit from our precision optical and electromechanical manufacturing services.•Establish New Product Introduction (“NPI”) Centers to Generate and Transfer New Business to Thailand:We established Fabrinet West, Inc. as an NPI center in the heart of Silicon Valley. Fabrinet West, Inc. serves as our business development arm with emphasis on new business generation and eventual transfer to Thailand after NPI. Equipped with state-of-the-art surface mount and advanced optical packaging technologies and infrastructure, and with close proximity to a large portion of our customer base, this center helps to accelerate customer NPI and provides seamless access and future transfer to the low-cost manufacturing base in Thailand.asa full suite of NPI services for quick-turn PCBA to•Fiber Optic Ferrules and Alignment Sleeves; Fiber Optic Substrates; Precision Glass Tubing, Precision Capillaries and Rods: These single bore and multi-bore products, in various shapes and dimensions, are used principally in optical communications, medical and industrial applications.•Laser Optics:Includes crystals (such as YVO4, Nd: YVO4, Cr: YAG, and BBO), optics, high reflectivity mirrors, lenses, prisms and windows used in laser applications.•Medical Optics:Includes mirrors, lenses, filters, waveplates, windows, and prisms incorporated into various medical equipment products.•Storage Optics: Includes mirrors, polarizing beam splitters or PBS, and waveplates incorporated into optical storage products.•Surveying Optics: Includes penta prisms, corner cubes, and T-Windows incorporated into precision surveying products.•Telecom Optics: Includes lenses (such as spherical, a-spherical, C-lens, and cylindrical), waveplates, mirrors, prisms, filters and YVO4 crystals used for telecommunications applications.•Telecommunication Subassemblies: Includes fiber pigtails (both single and dual), assemblies and collimators used in many fiber optic components such as isolators, circulators, optical switches and three-port filters.•Advanced Optical Packaging: We have extensive experience in developing manufacturing processes and performing value engineering to improve our customers’ product performance, quality, reliability and manufacturing yields. In many cases, we partner with our customers to develop custom manufacturing solutions for their optics products.•Reliability Testing: Our reliability laboratory enables us to test the degree to which our results and specifications conform to our customers’ requirements. Through the reliability laboratory, we are able to perform most of the tests required by industry standards, including damp heat, thermal aging, thermal shock, temperature cycling, shock and vibration, accelerated life testing and stress screening. The reliability laboratory is critical to verification of root cause failure analysis.•Optical and Mechanical Material and Process Analysis: Our in-house material and process laboratory analyzes materials to support incoming inspection, process development, process monitoring, failure analysis and verification of compliance with the applicable environmental standards.•Precision Optical Fiber and Electro-Mechanical Assembly:We have extensive experience in precision optical and electro-mechanical assemblies in clean room environments, clean room control discipline, cleaning technologies and electro-static discharge (“ESD”) protection.•Fiber Metallization and Lensing:We use our fiber metallization and fiber lensing capabilities to assist our customers in packaging their products. Many optical component package designs require metallized fiber and some designs also require lensing at the tip of the fiber. We have in-house capabilities that enable us to produce these products at a low cost, with short lead times and high quality.•Fiber Handling and Fiber Alignment: The technique with which optical fiber is handled can have a significant impact on the functionality and reliability of optics products due to the risk of damage or flaws introduced to the fiber surface or micro-cracks to the core of the fiber, which may impact alignment or signal quality, among other things. We have implemented a number of processes, techniques, and best practices to avoid stressing or otherwise damaging fiber during stripping, cleaving and connectorization. Such techniques are also designed to achieve optimal alignment of fiber in the shortest period of time during these processes.•Optical Testing:We have the capability to perform parametric and functional tests for a wide variety of optical devices. In many cases, we are also able to help our customers develop their own proprietary software and test fixtures.•Crystal Growth and Processing: Our crystal growth technology produces non-linear optical crystals and crystals used in laser applications. Our processing capabilities include dicing, grinding, polishing and inspection with high dimension, tolerance and surface quality.•Precision Glass Drawing: We have developed the specialized capabilities necessary to draw precision structures within tight tolerances using borosilicate, clear fused quartz and synthetic fused silica glass. Using these processes, we produce customized rectangular and circular glass tubes and rods in various configurations and with multiple bores that are accurately drawn in precise locations within the tubing. These tubes can be sliced into thin wafers for use in various applications, such as ultra-filtration of bacteria, micro-organism counting, and identification of organisms and substances. These tubes can also be cut into larger lengths to produce ferrules and sleeves for use in fiber optic communications components.•Optical Coating: We provide a wide variety of coating from simple single layer anti-reflection coatings to complex multi-layer stacks. The types of coating we provide include anti-reflection, partial reflection and high reflection.year 2017years 2020 and fiscal year 2016,2019, we had three customers and one customer, respectively, that contributed 10% or more of our total revenues. This customer accounted for 17%During fiscal year 2020, Lumentum Operations LLC, Acacia Communications, Inc. and 20%Infinera Corporation contributed 19%, 10% and 10%, respectively, of our total revenues during suchrevenues. During fiscal years.forresulting from various reasons,causes, including reduced yields by our suppliers, which have prevented us from manufacturing products for our customers in a timely manner. While we continually undertake programs to ensurestrengthen our supply chain, we are experiencing, and expect for the long-term availability of raw materials, there can be no assurance that we will be successful in doing so or that we will not be subjectforeseeable future to continue to experience, strain on our supply chain, as well as periodic supplier problems. We have incurred, and expect to continue to incur for the foreseeable future, supply constraints.ISO9001ISO 9001 for Manufacturing Quality Management Systems; ISO14001ISO 14001 for Environmental Management Systems; TL9000TL 9000 for Telecommunications Industry Quality Certification; ISO/TS16949IATF 16949 for Automotive Industry Quality Certification; ISO13485ISO 13485 for Medical Devices Industry Quality Certification; AS9100AS 9100 for Aerospace Industry Quality Certification; NADCAP (National Aerospace andOHSAS18001 Defense Contractors Accreditation Program) for Quality Assurance throughout the Aerospace and Defense Industries; and OHSAS 18001 for Occupational Health and Safety Management Systems. We also maintain compliance with various additional standards imposed by the U.S. Food and Drug Administration, or FDA, with respect to the manufacture of medical devices.include:include improved conditions for workers, increased efficiency and productivity for customers and suppliers, economic development, and a clean environment for our communities. We are committed to implementing programs that focus on driving continuous improvements in social, ethical, and environmental compliance throughout all of our global operating units in accordance with our Code of Business Conduct. As a guide to achieve this end, we look at principles, policies and standards as prescribed by the Electronics Industry Citizenship CoalitionResponsible Business Alliance (“EICC”RBA”), an association of global electronics companies whose mission is to enable companies to improve the social and environmental conditions in the global supply chain. Fabrinet is a full member of the EICC.sixteenseventeen direct and indirect subsidiaries, all of which are wholly-owned. As the parent company, we enter into contracts directly with our customers and have entered into various inter-company agreements withwhile some of our subsidiaries, while our subsidiaries,namely Casix, Inc., FBN New Jersey Manufacturing, Inc., Fabrinet West, Inc., and Exception EMSFabrinet UK Limited, each enter into sales contracts or purchase orders directly with their customers. We have inter-company agreements with Fabrinet Co., Ltd., and FBN New Jersey Manufacturing, Inc., whereby each provides manufacturing services to us. We also have inter-company agreements with Fabrinet USA, Inc., and Fabrinet Pte., Ltd. and Fabrinet IHQ Co., Ltd. to provide us certain administrative and business development services.30, 2017,26, 2020, we employed approximately 10,54111,506 full-time employees worldwide, including approximately 10,24411,193 employees in manufacturing operations and 297313 employees in business development and general and administrative functions. None of our employees are represented by a labor union. We have notYou may also access all of our public filings through the SEC’sThe SEC maintains a website at www.sec.gov. Further, a copywww.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including Fabrinet. depend on and will continue to depend on a small number of customers. A reduction in orders from any of these customers, the loss of any of these customers, or a customer exerting significant pricing and margin pressures on us could harm our business, financial condition and operating results.year 2017years 2020 and fiscal year 2016,2019, we had three customers and one customer, respectively, that contributed 10% or more of our total revenues. This customer accounted for 17%During fiscal year 2020, Lumentum Operations LLC, Acacia Communications, Inc. and Infinera Corporation contributed 19%, 10% and 10%, respectively, of our total revenues. During fiscal year 2019, Lumentum Operations LLC contributed 20% of our total revenues, respectively, during such fiscal years.revenues. Dependence on a small number of customers means that a reduction in orders from, a loss of, or other adverse actions by any one of these customers would reduce our revenues and could have a material adverse effect on our business, financial condition and operating resultsresults. For example, in the six months ended June 26, 2020, we experienced some order cancelations and share price.continual uncertainty in global economies,the impact of the U.S.-China trade dispute, and the impactsimpact of Brexit. Certain of our customers have gone out of business, declared bankruptcy, been acquired, or announced their withdrawal from segments of the optics market. We generate significant accounts payable and inventory for the services that we provide to our customers, which could expose us to substantial and potentially unrecoverable costs if we do not receive payment from our customers.Reliancethoseour customers substantial purchasing power and leverage in negotiating contracts with us. In addition, although we enter into master supply agreements with ourmaywill continue and mayto adversely affect our business, financial condition and operating results in several ways. Consolidation among our customers and their customers may result in a smaller number of large customers whose size and purchasing power give them increased leverage that may result in, among other things, decreases in our average selling prices. In addition toandor for our suppliers to deliver components allowing us to manufacture those products, require large expenditures to repair or replace our facilities, or create delays and inefficiencies in our supply chain. For example, the October and November 2011 flooding in Thailand forced us to temporarily shut down all of our manufacturing facilities in Thailand and cease production permanently at our Chokchai facility, in Thailand, which adversely affected our ability to meet our customers’ demands during fiscal year 2012. In some countries in which we mainly operate, including the PRC, the U.S. and Thailand, potential outbreaks of infectious diseases such as the wouldmight not be compensated by existing insurance. This in turn could have a material adverse effect on our business, financial condition and operating results.Our quarterly revenues, gross profit margins and operating results have fluctuated significantly and may continue to do so in the future, which may cause the market price of our ordinary shares to decline or be volatile.Our quarterly revenues, gross profit margins, and operating results have fluctuated significantly and may continue to fluctuate significantly in the future. For example, any of the risks described in this “Risk Factors” section and, in particular, the following factors, could cause our quarterly and annual revenues, gross profit margins, and operating results to fluctuate from period to period: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; andchanges in the relative mix in our revenues.Therefore, we believe that quarter-to-quarter comparisons of our operating results may not be useful in predicting our future operating results. You should not rely on our results for one quarter as any indication of our future performance. Quarterly variations in our operations could result in significant volatility in the market price of our ordinary shares.If we are unable to continue diversifying our precision optical and electro-mechanical manufacturing services across other markets within the optics industry, such as the semiconductor processing, biotechnology, metrology and material processing markets, or if these markets do not grow as fast as we expect, our business may not grow as fast as we expect, which could adversely impact our business, financial condition and operating results.We intend to continue diversifying across other markets within the optics industry, such as the semiconductor processing, biotechnology, metrology, and material processing markets, to reduce our dependence on the optical communications market and to grow our business. Currently, the optical communications market contributes the significant majority of our revenues. There can be no assurance that our efforts to further expand and diversify into other markets within the optics industry will prove successful or that these markets will continue to grow as fast as we expect. In the event that the opportunities presented by these markets prove to be less than anticipated, if we are less successful than expected in diversifying into these markets, or if our marginsin these markets prove to be less than expected, our growth may slow or stall, and we may incur costs that are not offset by revenues in these markets, all of which could harm our business, financial condition and operating results.We face significant competition in our business. If we are unable to compete successfully against our current and future competitors, our business, financial condition and operating results could be harmed.Our current and prospective customers tend to evaluate our capabilities against the merits of their internal manufacturing as well as the capabilities of other third-party manufacturers. We believe the internal manufacturing capabilities of current and prospective customers are our primary competition. This competition is particularly strong when our customers have excess manufacturing capacity, as was the case when the markets that we serve experienced a significant downturn in 2008 and 2009 that resulted in underutilized capacity. Should our existing and potential customers have excess manufacturing capacity at their facilities, it could adversely affect our business. In addition, as a result of the October and November 2011 flooding in Thailand, some of our customers began manufacturing products internally or using other third-party manufacturers that were not affected by the flooding. If our customers choose to manufacture products internally rather than to outsource production to us, or choose to outsource to a third-party manufacturer, our business, financial condition and operating results could be harmed.Competitors in the market for optical manufacturing services include Benchmark Electronics, Inc., Celestica Inc., Sanmina-SCI Corporation, Jabil Circuit, Inc., and Venture Corporation Limited. Our customized optics and glass operations face competition from companies such as Browave Corporation, Fujian Castech Crystals, Inc., Photop Technologies, Inc., and Research Electro-Optic, Inc. Our UK competitors for printed circuit board assemblies include STI Limited and Axiom Manufacturing Services Limited. Other existing contract manufacturing companies, original design manufacturers or outsourced semiconductor assembly and test companies could also enter our target markets. In addition, we may face more competitors as we attempt to penetrate new markets.Many of our customers and potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater resources than we have. These advantages may allow them to devote greater resources than we can to the development and promotion of service offerings that are similar or superior to our service offerings. These competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies or offer services that achieve greater market acceptance than ours. These competitors may also compete with us by making more attractive offers to our existing and potential employees, suppliers, and strategic partners. Further, consolidation in the optics industry could lead to larger and more geographically diverse competitors. New and increased competition could result in price reductions for our services, reduced gross profit margins or loss of market share. We may not be able to compete successfully against our current and future competitors, and the competitive pressures we face may harm our business, financial condition and operating results.Cancellations, delays or reductions of customer orders and the relatively short-term nature of the commitments of our customers could harm our business, financial condition and operating results.We do not typically obtain firm purchase orders or commitments from our customers that extend beyond 13 weeks. While we work closely with our customers to develop forecasts for periods of up to one year, these forecasts are not binding and may be unreliable. Customers may cancel their orders, change production quantities from forecasted volumes or delay production for a number of reasons beyond our control. Any material delay, cancellation or reduction of orders could cause our revenues to decline significantly and could cause us to hold excess materials. Many of our costs and operating expenses are fixed. As a result, a reduction in customer demand could decrease our gross profit and harm our business, financial condition and operating results.In addition, we make significant decisions, including production schedules, material procurement commitments, personnel needs and other resource requirements, based on our estimate of our customers’requirements. The short-term nature of our customers’ commitments and the possibility of rapid changes in demand for their products reduce our ability to accurately estimate the future requirements of our customers. Inability to forecast the level of customer orders with certainty makes it difficult to allocate resources to specific customers, order appropriate levels of materials and maximize the use of our manufacturing capacity. This could also lead to an inability to meet a spike in production demand, all of which could harm our business, financial condition and operating results.Our exposure to financially troubled customers or suppliers could harm our business, financial condition and operating results.We provide manufacturing services to companies, and rely on suppliers, that have in the past and may in the future experience financial difficulty, particularly in light of uncertainty in the credit markets and the overall economy that affected access to capital and liquidity. As a result, we devote significant resources to monitor receivables and inventory balances with certain of our customers. If our customers experience financial difficulty, we could have difficulty recovering amounts owed to us from these customers, or demand for our services from these customers could decline. If our suppliers experience financial difficulty, we could have trouble sourcing materials necessary to fulfill production requirements and meet scheduled shipments. Any such financial difficulty could adversely affect our operating results and financial condition by resulting in a reduction in our revenues, a charge for inventory write-offs, a provision for doubtful accounts, and an increase in working capital requirements due to increases in days in inventory and in days in accounts receivable. For example, in July 2014, one of our customers filed for bankruptcy protection under the Local Trade Court in France; however, the potential losses from this particular customer did not have a significant effect on our consolidated financial statements.Fluctuations in foreign currency exchange rates and changes in governmental policies regarding foreign currencies could increase our operating costs, which would adversely affect our operating results.Volatility in the functional and non-functional currencies of our entities and the U.S. dollar could seriously harm our business, financial condition, and operating results. The primary impact of currency exchange fluctuations is on our cash, receivables, and payables of our operating activities. We may experience significant unexpected losses from fluctuations in exchange rates.Our customer contracts generally require that our customers pay us in U.S. dollars. However, the majority of our payroll and other operating expenses are paid in Thai baht. As a result of these arrangements, we have significant exposure to changes in the exchange rate between the Thai baht and the U.S. dollar, and our operating results are adversely impacted when the U.S. dollar depreciates relative to the Thai baht and other currencies. We have experienced such depreciation in the U.S. dollar as compared with the Thai baht, and our results have been adversely impacted by this fluctuation in exchange rates. As of June 30, 2017, the U.S. dollar had depreciated approximately 4% against the Thai baht since June 24, 2016. Further, while we attempt to hedge against certain exchange rate risks, we typically enter into hedging contracts with maturities of up to 12 months, leaving us exposed to longer term changes in exchange rates.Also, we have significant exposure to changes in the exchange rate between the Chinese Renminbi (“RMB”) and pound sterling (“GBP”) and the U.S. dollar. The expenses of our subsidiaries located in the PRC and the United Kingdom are denominated in RMB and GBP, respectively. Currently, RMB are convertible in connection with trade- and service-related foreign exchange transactions, foreign debt service, and payment of dividends. The PRC government may at its discretion restrict access in the future to foreign currencies for current account transactions. If this occurs, our PRC subsidiary may not be able to pay us dividends in U.S. dollars without prior approval from the PRC State Administration of Foreign Exchange. In addition, conversion of RMB for most capital account items, including direct investments, is still subject to government approval in the PRC. This restriction may limit our ability to invest the earnings of our PRC subsidiary. As of June 30, 2017, the U.S. dollar had appreciated approximately 3% against the RMB since June 24, 2016. There remains significantinternational pressure on the PRC government to adopt a substantially more liberalized currency policy. GBP are convertible in connection with trade- and service-related foreign exchange transactions and foreign debt service. As of June 30, 2017, the U.S. dollar had depreciated approximately 0.5% against the GBP since September 14, 2016, the date we acquired Exception EMS Ltd. Any appreciation in the value of the RMB and GBP against the U.S. dollar could negatively impact our operating results.We purchase some of the critical materials used in certain of our products from a single source or a limited number of suppliers. Supply shortages have in the past, and could in the future, impair the quality, reduce the availability or increase the cost of materials, which could harm our revenues, profitability and customer relations.We rely on a single source or a limited number of suppliers for critical materials used in a significant number of the products we manufacture. We generally purchase these single or limited source materials through standard purchase orders and do not maintain long-term supply agreements with our suppliers. We generally use a rolling 12 month forecast based on anticipated product orders, customer forecasts, product order history, backlog, and warranty and service demand to determine our materials requirements. Lead times for the parts and components that we order vary significantly and depend on factors such as manufacturing cycle times, manufacturing yields, and the availability of raw materials used to produce the parts or components. Historically, we have experienced supply shortages resulting from various causes, including reduced yields by our suppliers, which prevented us from manufacturing products for our customers in a timely manner. Our revenues, profitability and customer relations could be harmed by a stoppage or delay of supply, a substitution of more expensive or less reliable parts, the receipt of defective parts or contaminated materials, an increase in the price of supplies, or an inability to obtain reductions in price from our suppliers in response to competitive pressures.We continue to undertake programs to strengthen our supply chain. Nevertheless, we are experiencing, and expect for the foreseeable future to continue to experience, strain on our supply chain, and periodic supplier problems. We have incurred, and expect to continue to incur for the foreseeable future, costs to address these problems.Managing our inventory is complex and may require write-downs due to excess or obsolete inventory, which could cause our operating results to decrease significantly in a given fiscal period.Managing our inventory is complex. We are generally required to procure material based upon the anticipated demand of our customers. The inaccuracy of these forecasts or estimates could result in excess supply or shortages of certain materials. Inventory that is not used or expected to be used as and when planned may become excess or obsolete. Generally, we are unable to use most of the materials purchased for one of our customers to manufacture products for any of our other customers. Additionally, we could experience reduced or delayed product shipments or incur additional inventory write-downs and cancellation charges or penalties, which would increase costs and could harm our business, financial condition and operating results. While our agreements with customers are structured to mitigate our risks related to excess or obsolete inventory, enforcement of these provisions may result in material expense, and delay in payment for inventory. If any of our significant customers becomes unable or unwilling to purchase inventory or does not agree to such contractual provisions in the future, our business, financial condition and operating results may be harmed.We conduct operations in a number of countries, which creates logistical and communications challenges for us and exposes us to other risks that could harm our business, financial condition and operating results.The vast majority of our operations, including manufacturing and customer support, are located primarily in the Asia-Pacific region. The distances between Thailand, the PRC and our customers and suppliers globally, create a number of logistical and communications challenges for us, including managing operations across multiple time zones, directing the manufacture and delivery of products across significant distances, coordinatingthe procurement of raw materials and their delivery to multiple locations and coordinating the activities and decisions of our management team, the members of which are based in different countries.Our customers are located throughout the world. Total revenues from the bill-to-location of customers outside of North America accounted for 53.4%, 46.2%, and 52.1% of our total revenues for fiscal year 2017, fiscal year 2016 and fiscal year 2015, respectively. We expect that total revenues from the bill-to-location of customers outside of North America will continue to account for a significant portion of our total revenues. Our customers also depend on international sales, which further exposes us to the risks associated with international operations. In addition, our international operations and sales subject us to a variety of domestic and foreign trade regulatory requirements.Political unrest and demonstrations, as well as changes in the political, social, business or economic conditions in Thailand, could harm our business, financial condition and operating results.The majority of our assets and manufacturing operations are located in Thailand. Therefore, political, social, business and economic conditions in Thailand have a significant effect on our business. In March 2017, Thailand was assessed as a medium-high political risk by AON Political Risk, a risk management, insurance and consulting firm. Any changes to tax regimes, laws, exchange controls or political action in Thailand may harm our business, financial condition and operating results.Thailand has a history of political unrest that includes the involvement of the military as an active participant in the ruling government. In recent years, political unrest in the country has sparked political demonstrations and, in some instances, violence. In May 2014, the Thai military took over the government in a coup, and it continues to rule the country today. It is unknown how long it may take for the current political situation to be resolved and for democracy to be restored, or what effects the current political situation may have on Thailand and the surrounding region. Most recently, in October 2016, Thailand’s King Bhumibol Adulyadej died at the age of 88. Any succession crisis in the Kingdom of Thailand could cause new or increased political instability, which could prevent shipments from entering or leaving the country and disrupt our ability to manufacture products in Thailand, and we could be forced to transfer our manufacturing activities to more stable, and potentially more costly, regions.Further, the Thai government may raise the minimum wage standards for labor and could repeal certain promotional certificates that we have received or tax holidays for certain export and value added taxes that we enjoy, either preventing us from engaging in our current or anticipated activities or subjecting us to higher tax rates. A new regime could nationalize our business or otherwise seize our assets and any other future political instability could harm our business, financial condition and operating results.We expect to continue to invest in our manufacturing operations in the PRC, which will continue to expose us to risks inherent in doing business in the PRC, any of which risks could harm our business, financial condition and operating results.We anticipate that we will continue to invest in our customized optics manufacturing facilities located in Fuzhou, China. Because these operations are located in the PRC, they are subject to greater political, legal and economic risks than the geographies in which the facilities of many of our competitors and customers are located. In particular, the political and economic climate in the PRC (both at national and regional levels) is fluid and unpredictable. In March 2017, AON Political Risk assessed the PRC as a medium political risk. A large part of the PRC’s economy is still being operated under varying degrees of control by the PRC government. By imposing industrial policies and other economic measures, such as control of foreign exchange, taxation, import and export tariffs, environmental regulations, land use rights, intellectual property and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the development of the PRC economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental and are expected to change further. Any changes to thepolitical, legal or economic climate in the PRC could harm our business, financial condition and operating results.Our PRC subsidiary is a “wholly foreign-owned enterprise” and is therefore subject to laws and regulations applicable to foreign investment in the PRC, in general, and laws and regulations applicable to wholly foreign-owned enterprises, in particular. The PRC has made significant progress in the promulgation of laws and regulations pertaining to economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, the promulgation of new laws, changes in existing laws and abrogation of local regulations by national laws may have a negative impact on our business and prospects. In addition, these laws and regulations are relatively new, and published cases are limited in volume and non-binding. Therefore, the interpretation and enforcement of these laws and regulations involve significant uncertainties. Laws may be changed with little or no prior notice, for political or other reasons. These uncertainties could limit the legal protections available to foreign investors. Furthermore, any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management’s attention.Our business and operations would be adversely impacted in the event of a failure of our information technology infrastructure and/or cyber security attacks.We rely upon the capacity, availability and security of our information technology hardware and software infrastructure. For instance, we use a combination of standard and customized software platforms to manage, record, and report all aspects of our operations and, in many instances, enable our customers to remotely access certain areas of our databases to monitor yields, inventory positions, work-in-progress status and vendor quality data. We are constantly expanding and updating our information technology infrastructure in response to our changing needs. Any failure to manage, expand and update our information technology infrastructure or any failure in the operation of this infrastructure could harm our business.Despite our implementation of security measures, our systems are vulnerable to damages from computer viruses, natural disasters, unauthorized access and other similar disruptions. Any system failure, accident or security breach could result in disruptions to our operations. To the extent that any disruptions, cyber-attack or other security breach results in a loss or damage to our data, or inappropriate disclosure of confidential information, it could harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.Volatilitydisruptioncontinuing global economic downturn and uncertainty due to the effects ofdepressed consumer confidence, and negative global economic conditions have negatively affected levels of business and consumer spending. Concerns about the increasing possibility of a global depression and potential default of various national bonds and debt backed by individual countries, as well as the politics impacting these, could negatively impact the U.S. and global economies and adversely affect our financial results. In particular, Brexit andthe economic uncertainty in Europe disruption caused byportfolios. Brexit could also lead to economicportfolios and legal uncertainty, including significant volatility in global stock markets and currency exchange rates, and increasingly divergent laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. Any of these effects of Brexit, among others, could adversely affect our financial results. If economic conditions in Europe do not recover or if they continue to deteriorate, our operating results could be harmed.condition and operating results.If we fail to adequately expand our manufacturing capacity, we will not be able to grow our business, which would harm our business, financial condition and operating results. Conversely, if we expand too much or too rapidly, we may experience excess capacity, which would harm our business, financial condition and operating results.We may not be able to pursue many large customer orders or sustain our historical growth rates if we do not have sufficient manufacturing capacity to enable us to commit to provide customers with specified quantities of products. If our customers do not believe that we have sufficient manufacturing capacity, they may: (1) outsource all of their production to another source that they believe can fulfill all of their production requirements; (2) look to a second source for the manufacture of additional quantities of the products that we currently manufacture for them; (3) manufacture the products themselves; or (4) otherwise decide against using our services for their new products.Most recently, we expanded our manufacturing capacity with a new manufacturing facility in Chonburi, Thailand. We may continue to devote significant resourcescondition.expansion of our manufacturing capacityunprecedented and any such expansion will be expensive, will require management’s timerapidly changing social and may disrupt our operations. In the event global economic impacts associated with are unsuccessful in our attempts to expand our manufacturing capacity, our business, financial condition and operating results could be harmed.However, if we expand our manufacturing capacity and are unable to promptly utilizepredict or estimate the additional space due to reduced demand for our services, an inability to win new projects, new customers or penetrate new markets, or if the optics industry does not grow as we expect, we may experience periods of excess capacity, which could harmultimate impact on our business or business prospects. The ultimate significance ofcondition and operating results.ISO/TS16949IATF16949 for Automotive Industry Quality Certification; ISO13485 for Medical Devices Industry Quality Certification; AS9100 for Aerospace Industry Quality Certification; NADCAP (National Aerospace and Defense Contractors Accreditation Program) for Quality Assurance throughout the Aerospace and Defense Industries; and OHSAS18001 for Occupational Health and Safety Management Systems. We also maintain compliance with various additional standards imposed by the U.S. Food and Drug Administration or FDA,(“FDA”) with respect to the manufacture of medical devices.including Mr. David T. Mitchell, our Chairman and Chief Executive Officer, and other key management and technical personnel, each of whom would be difficult to replace. Although we have key person life insurance policies on some of our executive officers, the loss of any of our executive officers or key personnel or the inability to continue to attract qualified personnel could harm our business, financial condition and operating results.“conflict” minerals“conflict minerals” mined from the Democratic Republic of Congo and adjoining countries in the products we manufacture for our customers. Compliance with these rules has resulted in additional cost and expense, including for due diligence to determine and verify the sources of any conflict minerals used in the products we manufacture, and may result in additional costs of remediation and other changes to processes or sources of supply as a consequence of such verification activities. These rules may also affect the sourcing and availability of minerals used in the products we manufacture, as there may be only a limited number of suppliers offering “conflict free” metals that can be used in the products we manufacture for our customers.OurAs of June 26, 2020, our U.S. federal and state tax returns remain open to examination for the tax years 20142015 through 2016.2018. In addition, tax returns that remain open to examination in Thailand, the PRC and the United KingdomU.K. range from the tax years 20122015 through 2016.2019. The results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and tax liability.United KingdomU.K. and the United States.U.S. We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments in lieu of taxes. Under the current laws of the Cayman Islands, we are not subject to tax in the Cayman Islands on income or capital gains until March 6, 2039.currentlyavailable to us through June 2026. Similar preferential tax treatment was available to us through June 2020 onwith respect to products manufactured at our Pinehurst campus. After June 2020, 50% of our income generated from the manufacture of products manufactured at our Pinehurst Building 6.campus will be exempted from tax through June 2025. Such preferential tax treatment is contingent on various factors, including the export of our customers’ products out of Thailand and our agreement not to move our manufacturing facilities out of our current province in Thailand for at least 15 years from the date on which preferential tax treatment was granted (i.e., at least until June 2020).granted. We will lose this favorable tax treatment in Thailand unless we comply with these restrictions, and as a result we may delay or forego certain strategic business decisions due to these tax considerations.taxationtax authorities are successful in challenging our financing or transfer pricing policies, our income tax expense may be adversely affected and we could become subject to interest and penalty charges, which may harm our business, financial condition and operating results.We may encounter difficulties completing or integrating acquisitions, asset purchases and other types of transactions that we may pursue in the future, which could disrupt our business, cause dilution to our shareholders and harm our business, financial condition and operating results.We have grown and may continue to grow our business through acquisitions, asset purchases and other types of transactions, including the transfer of products from our customers and their suppliers. Most recently, we acquired Exception EMS Ltd. in September 2016. Acquisitions and other strategic transactions typically involve many risks, including the following: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; orwe may become subject to litigation.Acquisitions are inherently risky, and we can provide no assurance that the acquisition of Exception EMS or any future acquisitions will be successful or will not harm our business, financial condition and operating results.WeHowever, we operate in a market however, that makes our prospects difficult to evaluate. It is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs. If this occurs, we may need additional financing to execute on our current or future business strategies.wereare able to assert in this Annual Report on Form30, 2017,26, 2020, we cannot predict the outcome of our testing in future periods. If we are unable to assert in any future reporting periods that our internal control over financial reporting is effective (or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our share price.United States,U.S., control deficiencies may periodically occur. For example, following an internal investigation by the Audit Committeeaudit committee of our Boardboard of Directorsdirectors in September 2014 concerning various accountingWe are subject to governmental export and import controls in several jurisdictions that could subject us to liability or impair our ability to compete in international markets.We are subject to governmental export and import controls in Thailand, the PRC, the United Kingdom and the United States that may limit our business opportunities. Various countries regulate the import of certain technologies and have enacted laws that could limit our ability to export or sell the products we manufacture. The export of certain technologies from the United States, the United Kingdom and other nations to the PRC is barred by applicable export controls, and similar prohibitions could be extended to Thailand, thereby limiting our ability to manufacture certain products. Any change in export or import regulations or related legislation, shift in approach to the enforcement of existing regulations, or change in the countries, persons or technologies targeted by such regulations, could limit our ability to offer our manufacturing services to existing or potential customers, which could harm our business, financial condition and operating results.debt-to-equitymaximum total leverage ratio, minimum debt service coverage ratio (earnings before interest and depreciation and amortization plus cash on hand minus short-term debt), a minimum tangible net worth and a minimum quick ratio, which may restrict our ability to incur additional indebtedness and limit our ability to use our cash. In the event of our default on these loans or a breach of a covenant, the lenders may immediately cancel the loan agreement, deem the full amount of the outstanding indebtedness immediately due and payable, charge us interest on a monthly basis on the full amount of the outstanding indebtedness and, if we cannot repay all of our outstanding obligations, sell the assets pledged as collateral for the loan in order to fulfill our obligation. We may also be held responsible for any damages and related expenses incurred by the lender as a result of any default. Any failure by us or our subsidiaries to comply with these agreements could harm our business, financial condition and operating results.marketable securitiesshort-term investments as of June 30, 201726, 2020 are primarily investments in a fixed income portfolio, including certificates of deposit, time deposits, corporate bonds and commercial paper,papers, U.S. agency and U.S. Treasury securities, and sovereign and municipal securities. Our investment portfolio may become impaired by deterioration of the capital markets. We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer, as well as our maximum exposure to various asset classes. The policy also provides that we may not invest in marketable securitiesshort-term investments with a maturity in excess of three years.30, 2017,26, 2020, we did not record any impairment charges associated with our investment portfolio of marketable securities,short-term investments, and although we believe our current investment portfolio has little risk of material impairment, we cannot predict future market conditions or market liquidity, or credit availability, and can provide no assurance that our investment portfolio will remain materially unimpaired.or PFIC,(“PFIC”) for U.S. federal income tax purposes for the taxable year 20172020 or for the foreseeable future. However, despite our expectations, we cannot assure you that we will not be a PFIC for the taxable year 20172020 or any future year because our PFIC status is determined at the end of each year and depends on the composition of our income and assets during such year. If we are a PFIC, our U.S. investors will be subject to increased tax liabilities under U.S. tax laws and regulations and to burdensome reporting requirements.United States.U.S. Therefore, you may have more difficulty in protecting your interests than would shareholders of a corporation incorporated in a jurisdiction in the United States,U.S., due to the comparatively less developed nature of Cayman Islands law in this area.this is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.United States,U.S., providing rights to receive payment in cash for the judicially determined value of the shares. This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation or to require that the offeror give you additional consideration if you believe the consideration offered is insufficient.United States. In addition, someU.S. Given our domicile and the location of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets, of these persons is located outside of the United States. As a result, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in U.S. courts judgments obtained against us in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who are not resident in the United States and the substantial majority of whose assets are located outside of the United States.laws. In addition, there is uncertainty as to whether the courts of the Cayman Islands, Thailand or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United StatesU.S. or any state. In particular, a judgment in a U.S. court would not be recognized and accepted by Thai courts without aor such persons predicated upon the securities laws of the United StatesU.S. or any state.United Kingdom,U.S., the United StatesU.K., Israel and the Cayman Islands that are used for manufacturing and/or general administration purposes. The following table presents the approximate square footage of our principal facilities as of June 30, 2017:26, 2020: Owned 1,005,0001,042,000 square feet Owned 557,000573,000 square feet 300,000 square feet Owned 72,000 square feet 71,000 square feet 28,000 square feet 23,000 square feet (4) 1,700 square feet The lease periods for the buildingsSeptember 30, 2018,various dates: September 30, 2020, and March 31, 2021, respectively.or September 30, 2023.2020.2025.2018.2022. currently no material claims or actions pending or threatened against us. The following table sets forth, for the time periods indicated, the highest and lowest intraday sales prices of our ordinary shares as reported on the New York Stock Exchange. High Low $ 46.23 $ 32.30 $ 49.19 $ 34.01 $ 46.13 $ 34.75 $ 44.88 $ 34.17 High Low $ 39.05 $ 29.78 $ 30.91 $ 21.29 $ 24.53 $ 17.88 $ 20.98 $ 17.71 The equity compensation plan information required by this item, which includes a summary of the number of outstanding equity awards granted to employees and directors, as well as the number of securities remaining available for future issuance, under our equity compensation plans as of June 30, 2017, is incorporated by reference to our Proxy Statement for our 2017 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of our fiscal year ended June 30, 2017.11, 2017,7, 2020, there were approximately 85 shareholders of record of our ordinary shares. Because many of our ordinary shares are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.None.
Shares Purchased
Paid
Per Share
Part of Publicly
Announced Program
Approximate
Dollar Value
of Shares
That May Yet Be
Purchased
Under the Program — $ — — $ 41,499,413 — $ — — $ 41,499,413 — $ — — $ 41,499,413 — $ — — $ 41,499,413 on June 29, 2012 in Fabrinet’s ordinary shares and on a month-end basis in each of the indices discussed above including reinvestment of dividends.on June 26, 2015, and that all dividends were reinvested. Historic stock performance is not necessarily indicative of future stock price performance.
and June 26, 2015 are derived from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected financial data as of June 26, 2015, June 27, 2014 and June 28, 2013, and for the fiscal years ended June 27, 2014 and June 28, 2013 are derived from the audited consolidated financial statements not included in this Annual Report on Form Years Ended (amount in thousands, except per share data) June 30,
2017 (fiscal
year 2017) June 24, 2016
(fiscal year
2016) June 26, 2015
(fiscal year
2015) June 27, 2014
(fiscal year
2014) June 28, 2013
(fiscal year
2013) Selected Consolidated Statements of Operations Data: $ 1,420,490 $ 976,747 $ 773,587 $ 677,854 $ 641,542 (1,249,030 ) (857,224 ) (685,814 ) (603,621 ) (572,124 ) 171,460 119,523 87,773 74,233 69,418 (65,626 ) (49,753 ) (39,460 ) (27,664 ) (23,787 ) — 36 — 44,748 27,211 — — (1,153 ) — (2,052 ) 105,834 69,806 47,160 91,317 70,790 1,977 1,535 1,253 1,793 1,083 (3,321 ) (1,569 ) (616 ) (713 ) (1,010 ) (1,142 ) (1,916 ) (19 ) (24 ) 354 509 376 (152 ) 797 692 103,857 68,232 47,626 93,170 71,909 (6,742 ) (6,335 ) (3,984 ) (1,439 ) (2,940 ) 97,115 61,897 43,642 91,731 68,969 (939 ) 635 (44 ) — — $ 96,176 $ 62,532 $ 43,598 $ 91,731 $ 68,969 $ 2.63 $ 1.73 $ 1.23 $ 2.63 $ 2.00 $ 2.57 $ 1.68 $ 1.21 $ 2.58 $ 1.98 36,927 35,857 35,354 34,938 34,557 37,852 36,872 35,984 35,589 34,846 As of (amount in thousands) June 30, 2017 June 24, 2016 June 26, 2015 June 27, 2014 June 28, 2013 Selected Consolidated Balance Sheet Data: $ 133,825 $ 142,804 $ 112,978 $ 233,477 $ 149,716 $ 151,450 $ 141,709 $ 142,866 $ — $ — $ 3,312 $ — $ — $ — $ — $ 287,752 $ 205,592 $ 150,246 $ 130,885 $ 130,298 $ 1,033,075 $ 855,857 $ 672,503 $ 564,557 $ 463,579 $ 71,103 $ 60,407 $ 40,500 $ 16,500 $ 28,911 $ 351,501 $ 301,438 $ 193,559 $ 137,721 $ 138,261 $ 681,574 $ 554,419 $ 478,944 $ 426,836 $ 325,318
2020)
2019)
2018)
2017)
2016)
Operations Data: $ 1,641,836 $ 1,584,335 $ 1,371,925 $ 1,420,490 $ 976,747 (1,455,731 ) (1,405,111 ) (1,218,513 ) (1,249,030 ) (857,224 ) 186,105 179,224 153,412 171,460 119,523 (68,374 ) (55,067 ) (57,812 ) (65,626 ) (49,753 ) — — — — 36 (329 ) (1,516 ) (1,776 ) — — 117,402 122,641 93,824 105,834 69,806 7,592 6,699 3,925 1,977 1,535 (3,044 ) (5,381 ) (3,606 ) (3,321 ) (1,569 ) (3,797 ) 1,406 (6,587 ) (1,142 ) (1,916 ) 1,089 868 473 509 376 119,242 126,233 88,029 103,857 68,232 (5,763 ) (5,278 ) (3,862 ) (6,742 ) (6,335 ) 113,479 120,955 84,167 97,115 61,897 1,239 (1,129 ) (909 ) (939 ) 635 $ 114,718 $ 119,826 $ 83,258 $ 96,176 $ 62,532 $ 3.07 $ 3.29 $ 2.26 $ 2.63 $ 1.73 $ 3.01 $ 3.23 $ 2.21 $ 2.57 $ 1.68 36,908 36,798 37,257 36,927 35,857 37,665 37,415 38,035 37,852 36,872 $ 225,430 $ 180,839 $ 158,102 $ 133,825 $ 142,804 $ 262,693 $ 256,493 $ 174,269 $ 151,450 $ 141,709 $ 7,402 $ — $ 3,331 $ 3,312 $ — $ 330,848 $ 296,597 $ 284,440 $ 287,752 $ 205,592 $ 1,381,387 $ 1,255,318 $ 1,088,018 $ 1,033,075 $ 855,857 $ 51,670 $ 60,938 $ 64,188 $ 71,103 $ 60,407 $ 406,978 $ 392,219 $ 347,079 $ 351,501 $ 301,438 $ 974,409 $ 863,099 $ 740,939 $ 681,574 $ 554,419 Years Ended (amount in thousands) June 30, 2017 June 24, 2016 June 26, 2015 June 27, 2014 June 28, 2013 Selected Consolidated Statements of Cash Flow Data: $ 70,934 $ 47,088 $ 52,629 $ 66,550 $ 48,750 $ (90,556 ) $ (39,603 ) $ (195,499 ) $ 26,988 $ (5,862 ) $ 13,432 $ 22,862 $ 22,537 $ (8,171 ) $ (9,128 ) $ (6,190 ) $ 30,347 $ (120,333 ) $ 85,367 $ 33,760 $ 150,660 $ 147,394 $ 138,080 $ 70,934 $ 47,088 $ (71,248 ) $ (98,067 ) $ (58,649 ) $ (90,556 ) $ (39,603 ) $ (35,305 ) $ (23,223 ) $ (54,106 ) $ 13,432 $ 22,862 $ 44,107 $ 26,104 $ 25,325 $ (6,190 ) $ 30,347 increasedecrease compared with the portion of those revenues for fiscal year 2017;2020;20182021 selling, general and administrative (“SG&A”) expenses will increase on an absolute dollar basis and decrease as a percentage of revenue compared withto our fiscal year 2017;2020 SG&A expenses;forward lookingforward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report onthesesuch forward-looking statements. “We,” “us” and “our” refer to Fabrinet and its subsidiaries as a group.We provide advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers (“OEMs”)complex products such as optical communication components, modules and sub-systems, industrial lasers, medical devices and sensors. We offer 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 test. Although we focus primarily on low-volume production of a wide variety of high complexity products, which we refer to as “low-volume, high-mix,” we also have the capability to accommodate high-volume production. Based on our experience with and positive feedback we have received from our customers, we believe we are a global leader in providing these services to the optical communications, industrial lasers and automotive markets.Our customer base includes companies in complex industries that require advanced precision manufacturing capabilities such as optical communications, industrial lasers, automotive and sensors. The products that we manufacture for our OEM customers include selective switching products; tunable transponders and transceivers; active optical cables; solid state, diode-pumped, gas and fiber lasers; and sensors. In many cases, we are the sole outsourced manufacturing partner used by our customers for the products that we produce for them.We also design and fabricate application-specific crystals, lenses, prisms, mirrors, laser components, and substrates (collectively referred to as “customized optics”) and other custom and standard borosilicate, clear fused quartz, and synthetic fused silica glass products (collectively referred to as “customized glass”). We incorporate our customized optics and glass into many of the products we manufacture for our OEM customers, and we also sell customized optics and glass in the merchant market.Business acquisitionOn September 14, 2016, we acquired Global CEM Solutions Ltd. and all of its subsidiaries (collectively, “Exception EMS”), a privately-held group located in Wiltshire, United Kingdom, for cash consideration of approximately $13.0 million, net of cash acquired. Exception EMS provides contract electronics manufacturing services primarily to the European electronics market with innovative solutions, adding value to the design, manufacture and testing of printed circuit board assemblies. Its customers include industrial, energy, aerospace and defense companies, with approximately 80% of its revenue derived from customers in Europe. See Note 9—Business acquisition to the consolidated financial statements for further details.years20172020 ended on June 30, 201726, 2020 and consisted of 5352 weeks. Fiscal year 2016 and fiscal year 20152019 ended on June 24, 201628, 2019 and June 26, 2015, respectively, and each consisted of 52 weeks.will enablehave enabled us to help our OEM customers reduce their manufacturing costs while maintaining or improving the design, quality, reliability, and delivery times offor their products.the respective periods were as follows: Years Ended June 30, 2017 June 24, 2016 June 26, 2015 17 % 20 % 20 % * (1) * (1) 10 % (1)Less than 10% of total revenue.increaseddecreased from 46.2%52.3% in fiscal year 20162019 to 53.4%49.4% in fiscal year 2017,2020, which was partially due to an increasea decrease in sales to our customers in Europe due toAsia-Pacific by 4.7%. Based on the acquisition of Exception EMS in September 2016. Weshort- and medium-term indications and forecasts from our customers, we expect that the portion of our future revenues attributable to customers in regions outside of North America will continue to increasedecrease as compared with the portion of revenues attributable to such customers during fiscal year 2017. Years Ended June 30, 2017 June 24, 2016 June 26, 2015 46.6 % 53.8 % 47.9 % 38.0 35.9 40.1 15.4 10.3 12.0 100.0 % 100.0 % 100.0 % 50.6 % 47.7 % 46.9 % 33.7 38.4 37.8 15.7 13.9 15.3 100.0 % 100.0 % 100.0 % RMBChinese Renminbi (“RMB”) and GBPPound Sterling (“GBP”) against our functional currency, the U.S. dollar, and our ability to retain our employees. We expect our employee costs to increase as wages continue to increase in Thailand and the PRC. Wage increases may impact our ability to sustain our competitive advantage and may reduce our profit margin. We seek to mitigate these cost increases through improvements in employee productivity, employee retention and asset utilization.campusand Chonburi campuses in Thailand, and capital equipment located at each of our manufacturing locations.year 2017, fiscal year 2016years 2020, 2019 and fiscal year 2015,2018, discretionary merit-based bonus awards were made to our$3.2$4.6 million, $2.8$3.9 million and $2.4$3.5 million for fiscal year 2017, fiscal year 2016years 2020, 2019 and fiscal year 2015,2018, respectively.$5.3$6.1 million, $2.0$5.7 million and $1.5$6.8 million for fiscal year 2017, fiscal year 2016years 2020, 2019 and fiscal year 2015,2018, respectively.2018,2021, we expect our SG&A expenses will increase on an absolute dollar basis and decrease as a percentage of revenue compared with our fiscal year 2017.20172020 executive incentive plan with quantitative objectives based solely on achieving certain revenue targets and grossour fiscal year ended June 30, 2017.2020. Bonuses under ourthe fiscal year 20172020 executive incentive plan are payable after the end of fiscal year 2017.2020. In fiscal year 2016,2019, the compensation committee approved a fiscal year 20162019 executive incentive plan with quantitative objectives that were based solely on achieving certain revenue targets and non-GAAP earnings per shareour fiscal year ended June 24, 2016, as well as qualitative objectives, based on achieving individual performance goals.2019. In the three months ended September 30, 2016,29, 2019, the compensation committee awarded bonuses to our executive employees for Company and individual achievements of performance under our fiscal 20162019 executive incentive plan. Discretionary merit-based bonus awards wereare also available to ourwere payable as of June 30, 2017.$4.4$4.1 million, $4.7$3.7 million and $3.6$0.5 million for fiscal year 2017, fiscal year 2016years 2020, 2019 and fiscal year 2015,2018, respectively.$21.2$16.1 million, $7.9$11.5 million and $6.6$15.8 million for fiscal year 2017, fiscal year 2016years 2020, 2019 and fiscal year 2015,2018, respectively.ratesrate between the Thai baht and the U.S. dollar havehas fluctuated substantially in recent years and may continue to fluctuate substantially in the future. We report our financial results in U.S. dollars and our results of operations have been and may continue tocould in the future be negatively impacted owing to appreciation ofif the Thai baht appreciates against the U.S. dollar. Smaller portions of our expenses are incurred in a variety of other currencies, including RMB, GBP, Canadian dollars, Euros, and Japanese yen, the appreciation of which may also negatively impact our financial results. currency forward or put option contracts to manage foreign currency exposures associated with certain assets and liabilities and other forecasted foreign currency transactions and may designate these instruments as hedging instruments. The forward and put option contracts generally have maturities of up to 12 months. All foreign currency exchange contracts are recognized in the consolidated balance sheet as other current assets and accrued expensessheets at fair value. Gain or loss on our forward and put option contracts generally offset the assets, liabilities, and transactions economically hedged. As of June 30, 2017 As of June 24, 2016 (amount in thousands, except percentages) Currency $ % Currency $ % 395,123 $ 11,628 47.3 834,536 $ 23,594 91.3 26,965 3,980 16.2 14,835 2,255 8.7 6,896 8,982 36.5 — — — $ 24,590 100.0 $ 25,849 100.0 1,875,338 $ 55,189 82.7 1,517,782 $ 42,912 92.0 28,451 4,200 6.3 24,654 3,748 8.0 5,625 7,326 11.0 — — — $ 66,715 100.0 $ 46,660 100.0
Currency
Currency 667,955 $ 21,617 41.8 664,860 $ 21,628 60.0 158,060 22,402 43.3 53,393 7,767 21.5 6,220 7,726 14.9 5,270 6,682 18.5 $ 51,745 100.0 $ 36,077 100.0 2,102,392 $ 68,039 89.5 1,961,972 $ 63,825 90.0 42,586 6,036 8.0 26,373 3,836 5.4 1,545 1,919 2.5 2,598 3,294 4.6 $ 75,994 100.0 $ 70,955 100.0 30, 2017 and June 24, 2016,26, 2020, there was $1.0 million and $84.5$126.0 million in foreign currency forward contracts respectively,and option contracts outstanding on the Thai baht payables.30, 201726, 2020 and June 24, 2016,28, 2019, we did not have any derivative contracts denominated in RMB. primarily represent cash, trade accounts receivable, inventory and property, plant and equipment, net.equipment. The GBP liabilities primarily represent short-term loans, trade accounts payable and other payables. As of June 30, 2017,26, 2020 and June 28, 2019, we did not have any derivative contracts denominated in GBP.year 2017years 2020 and fiscal year 2016,2019, we recorded an unrealized loss of $0.02$1.2 million and $1.8an unrealized gain of $4.8 million, respectively, for the changes in fair value ofrelated to derivatives that are not designated as hedging instruments in the consolidated statements of operations and comprehensive income.or State Administration of Foreign Exchange (“SAFE”), on August 29, 2008, or Circular 142.gains. We have received this undertaking for a 20-year period ending August 24, 2019, and after the expiration date, we may request a renewal with the office of the Clerk of the Cabinet for another 20 years.is currently available to us through June 2020 on income generated from projects to manufacture certain products at our Chonburi campus is currently available to us through June 2026. Similar preferential tax treatment was available to us through June 2020 with respect to products manufactured at our Pinehurst campus. After June 2020, 50% of our income generated from products manufactured at our Pinehurst campus will be exempted from tax through June 2025. Such preferential tax treatment is contingent on various factors, including the export of our customers’ products out of Thailand and our agreement not to move our manufacturing facilities out of our current province in Thailand for at least 15 years from the date on which preferential tax treatment was granted (i.e., at least until June 2020). In March 2016, the Thailand Revenue Department announced a permanent decrease of corporate income tax rates to 20% for tax periods beginning on or after January 1, 2016. As a result,granted. Currently, the corporate income tax rate for our Thai subsidiary is expected20%.remain at 20% fromour U.S. subsidiaries, the Tax Cuts and Jobs Act (“Tax Reform Act”) enacted on December 22, 2017 provided for significant changes to U.S. tax law. Among other provisions, the Tax Reform Act reduced the U.S. corporate income tax rate to 21%, which is the current rate for our U.S. subsidiaries.2017 onward.circumstances, thecircumstances. The evaluation results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Because the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our consolidated financial statements, as their application places the most significant demands on our management’s judgment.when it is realized or realizable and earned. We consider revenue realized or realizable and earned when there is persuasive evidencerelating to contracts that depict the transfer of an arrangement, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Delivery does not occur until products have been shippedpromised goods or services have been provided, risk of loss has transferred andto customers in cases where formal acceptance is required, customer acceptance has been obtained or customer acceptance provisions have lapsed. In situations where a formal acceptance is required butan amount reflecting the acceptance only relatesconsideration to whether the product meets its published specifications, revenue is recognized upon shipment provided all other revenue recognition criteria are met. The sales price is not consideredwhich we expect to be fixedentitled in exchange for such goods or determinable until all contingencies relatedservices. In order to meet this requirement, we apply the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the sale have been resolved.We reduceperformance obligations in the contract, and (5) recognize revenue for rebates and other similar allowances.when a performance obligation is satisfied. Revenue is recognized only if these estimates can be reliably determined. Our estimates are based on historical results taking into consideration the typenet of customer, the type of transaction, and the specifics of each arrangement.In additionany taxes collected from customers, which is subsequently remitted to governmental authorities.aforementioned general policies, certaincustomer. In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligation is distinct within the context of the contract at contract inception. The majority of our contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises under the contracts and, therefore, is not distinct.purchased by them at the Company’s warehouse.our warehouse where customers bear risks of loss themselves. In these instances, we receive a written request from the customer asking us to hold the inventory at our warehouse and refrain from using the ordered goods are segregated in our warehouse from other inventory and cannot be used to fulfilfulfill other customer orders. In these situations, revenue is only recognized when persuasive evidence of the sales arrangement exists, thecompleted goods are completed and ready for shipment pricingand transferred to our warehouse.collection is reasonable assured, and title and risk of loss have passeduntil all contingencies related to the customer.its carrying amount to the projected undiscounted cash flows the property and equipment are expected to generate. If such assets are considered to be impaired, the impairment loss recognized, if any, is the amount by which the carrying amount of the property and equipment exceeds its fair value.20172020 and fiscal year 2016,2019, a change of 10% for excess and obsolete materials, based on product demand and production requirements from our customers, would have affected our net income by approximately $0.3$0.2 million and $0.2 million, respectively.carryforwards.carry forwards. Based on estimates, the carrying value of our net deferred tax assets assumes that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions to realize these deferred income tax assets. Our judgments regarding future profitability may change owing todepending on future market conditions, changes in U.S. or international tax laws, or other factors. If these estimates and related assumptions change in the future, we may be required to increase or decrease our valuation allowance against the deferred tax assets, resulting in additional or lesser income tax expense. During fiscal year 2018, one of our subsidiaries in the U.S. generated taxable income sufficient for the utilization of loss carryforwards due to better operating performance and effective control of operating expenses and management determined that it was more likely than not that future taxable income would be sufficient to allow the benefit of the loss to be realized. As of June 30, 2017 and29, 2018, we reversed certain deferred tax assets valuation allowance as management expected it was more likely than not that we would realize profits in subsequent fiscal years so that the loss carryforwards could be partially utilized. Consequently, as of June 24, 2016,28, 2019, we have determinedassessed and set up a partial valuation allowance for the deferred tax assets at the same level as in fiscal year 2018. However, in fiscal year 2020, such subsidiary in the U.S. generated net operating loss and management expected that such subsidiary would continue to have net operating losses in the foreseeable future; therefore, management believes it is more likely than not that all of the deferred tax asset attributable toassets of such subsidiary will not be utilized. Thus, a full valuation allowance of $2.1 million for the deferred tax assets was set up as of June 26, 2020.United States will not be realized, primarily due to uncertainties related to the subsidiary’s ability to utilize itsU.K. also generated net operating loss carryforward before they expire. As of June 30, 2017 and June 24, 2016, we assessed all of our deferred tax assets asmanagement expected that such subsidiary would continue to have net operating losses in the foreseeable future; therefore, management believes it is more likely than not to be realizable and, accordingly, recognized a valuation allowance forthat all of the deferred tax assets of $6.4such subsidiary will not be utilized. Thus, a full valuation allowance of $1.6 million and $4.9 million, respectively.basisstandard (i.e., a likelihood greater than 50 percent), in accordance with the authoritative guidance, and recognize a tax provision in the consolidated financial statements for an uncertain tax position that would not be sustained.Exception EMS,our UK subsidiary, we allocated the fair value of purchase consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The allocation of consideration to the individual net assets has been finalized. Years Ended June 30, 2017 June 24, 2016 June 26, 2015 $ 1,420,490 $ 976,747 $ 773,587 (1,249,030 ) (857,224 ) (685,814 ) 171,460 119,523 87,773 (65,626 ) (49,753 ) (39,460 ) — 36 — — — (1,153 ) 105,834 69,806 47,160 1,977 1,535 1,253 (3,321 ) (1,569 ) (616 ) (1,142 ) (1,916 ) (19 ) 509 376 (152 ) 103,857 68,232 47,626 (6,742 ) (6,335 ) (3,984 ) 97,115 61,897 43,642 (939 ) 635 (44 ) $ 96,176 $ 62,532 $ 43,598 $ 1,641,836 $ 1,584,335 $ 1,371,925 (1,455,731 ) (1,405,111 ) (1,218,513 ) 186,105 179,224 153,412 (68,374 ) (55,067 ) (57,812 ) (329 ) (1,516 ) (1,776 ) 117,402 122,641 93,824 7,592 6,699 3,925 (3,044 ) (5,381 ) (3,606 ) (3,797 ) 1,406 (6,587 ) 1,089 868 473 119,242 126,233 88,029 (5,763 ) (5,278 ) (3,862 ) 113,479 120,955 84,167 1,239 (1,129 ) (909 ) $ 114,718 $ 119,826 $ 83,258 Years Ended June 30, 2017 June 24, 2016 June 26, 2015 100.0 % 100.0 % 100.0 % (87.9 ) (87.8 ) (88.6 ) 12.1 12.2 11.4 (4.6 ) (5.1 ) (5.1 ) — (0.0 ) — — — (0.2 ) 7.5 7.1 6.1 0.1 0.2 0.2 (0.2 ) (0.1 ) (0.1 ) (0.1 ) (0.2 ) (0.0 ) 0.0 0.0 (0.0 ) 7.3 7.0 6.2 (0.5 ) (0.7 ) (0.5 ) 6.8 6.3 5.6 (0.1 ) 0.1 (0.0 ) 6.7 % 6.4 % 5.6 % 100.0 % 100.0 % 100.0 % (88.7 ) (88.7 ) (88.8 ) 11.3 11.3 11.2 (4.2 ) (3.5 ) (4.2 ) (0.0 ) (0.1 ) (0.1 ) 7.1 7.7 6.9 0.5 0.4 0.3 (0.2 ) (0.3 ) (0.3 ) (0.2 ) 0.1 (0.5 ) 0.1 0.0 0.1 7.3 7.9 6.5 (0.4 ) (0.3 ) (0.3 ) 6.9 7.6 6.2 0.1 0.0 (0.1 ) 7.0 % 7.6 % 6.1 % Years Ended (amount in thousands) June 30, 2017 June 24, 2016 June 26, 2015 $ 1,108,637 $ 727,580 $ 553,245 311,853 249,167 220,342 $ 1,420,490 $ 976,747 $ 773,587 $ 1,248,174 $ 1,184,936 $ 1,000,256 393,662 399,399 371,669 �� $ 1,641,836 $ 1,584,335 $ 1,371,925 We utilize a 52-53 week fiscal year ending on the Friday in June closest to June 30. Fiscal year 2017 ended on June 30, 2017 and consisted of 53 weeks. Fiscal year 2016 and fiscal year 2015 ended on June 24, 2016 and June 26, 2015, respectively, and each consisted of 52 weeks.20172020 with Fiscal Year 2016$443.7$57.5 million, or 45.4%3.6%, to $1.4$1.64 billion for fiscal year 2017,2020, compared with $976.7 million$1.58 billion for fiscal year 2016.2019. This increase was primarily due to (1) an increase in customers’ demand for both optical and non-optical communicationcommunications manufacturing services, particularly telecom manufacturing services, for fiscal year 2017; and (2) the positive impact from an additional week of revenue during fiscal year 2017.2020. Revenues from optical communications products represented 78.0%76.0% of our total revenues for fiscal year 2017,2020, compared with 74.5%74.8% for fiscal year 2016.$391.8$50.6 million, or 45.7%3.6%, to $1.3$1.46 billion, or 87.9%88.7% of total revenues, for fiscal year 2017,2020, compared with $857.2 million,$1.41 billion, or 87.8%88.7% of total revenues, for fiscal year 2016.2019. The increase in cost of revenues was primarily due to a proportional increase in sales volume. The increase in cost of revenues also included an increase of $3.3 million in share-based compensation expenses, primarily due to a higher number of restricted and performance share units granted to our executives when compared to the prior period.$51.9$6.9 million, or 43.5%3.8%, to $171.5$186.1 million, or 12.1%11.3% of total revenues, for fiscal year 2017,2020, compared with $119.5$179.2 million, or 12.2%11.3% of total revenues, for fiscal year 2016.$15.9$13.3 million, or 31.9%24.2%, to $65.6$68.4 million, or 4.6%4.2% of total revenues, for fiscal year 2017,2020, compared with $49.8$55.1 million, or 5.1%3.5% of total revenues, for fiscal year 2016.2019. Our SG&A expenses increased in absolute dollars during fiscal year 2017,2020, compared with fiscal year 2016,2019, mainly due to by (1) an increase in share-based compensation expenses of $13.2$4.6 million, partially due to the recognitionincluding $3.2 million from an increase in awards of $4.3performance share units and $1.4 million from an increase in awards of restricted share units; (2) a goodwill impairment loss related to accelerated vestingour UK subsidiary of equity awards held by executives during fiscal year 2017; (2) $2.8 million of SG&A expenses from companies we acquired in September 2016; and$3.5 million; (3) an increase in new businessrelateddue to mergera change in labor protection law in Thailand in May 2019 that increased the required severance payment compensation for employees with 20 years of service from 300 days of wage to 400 days of wage; and acquisition activities.increaseddecreased by $36.0$5.2 million to $105.8 million, or 7.5% of total revenues, for fiscal year 2017, compared with $69.8$117.4 million, or 7.1% of total revenues, for fiscal year 2016.$0.4$0.9 million to $2.0$7.6 million for fiscal year 2017,2020, compared with $1.5$6.7 million for fiscal year 2016. The increase was primarily due to an increase in our average outstanding cash and marketable securities balances and interest rates.Interest expense.Our interest expense increased by $1.8 million to $3.3 million for fiscal year 2017, compared with $1.6 million for fiscal year 2016.2019. The increase was primarily due to an increase in the average balance of our outstanding bank borrowings.$103.9$119.2 million for fiscal year 2017,2020, compared with $68.2$126.2 million for fiscal year 2016.5.5%4.1% and 4.6% for fiscal year 2017, compared with an effective tax rate of 6.7% for2020 and fiscal year 2016.2019, respectively. The decrease was primarily due to the fact that we had higherlower income not subject to tax duringin fiscal year 20172020, as compared withto fiscal year 2016.$97.1$113.5 million, or 6.8%6.9% of total revenues, for fiscal year 2017,2020, compared with net income of $61.9$121.0 million, or 6.3%7.6% of total revenues, for fiscal year 2016. income. We recorded.$0.9$1.1 million or 0.1% of total revenues, for fiscal year 2017, compared with other comprehensive income of $0.6 million, or 0.1% of total revenues, for fiscal year 2016.20162019 with Fiscal Year 2015$203.2$212.4 million, or 26.3%15.5%, to $976.7 million$1.58 billion for fiscal year 2016,2019, compared with $773.6 million$1.37 billion for fiscal year 2015.2018. This increase was primarily due to (1) an increase in customers’ demand for both optical and non-optical communicationcommunications manufacturing services, particularly telecom manufacturing services, for fiscal year 2016 and (2) our inability to recognize $16.5 million of consignment revenue during fiscal year 2015 because of certain consignment revenue recognition issues previously disclosed that resulted in lower revenue in fiscal year 2015.2019. Revenues from optical communications products represented 74.5%74.8% of our total revenues for fiscal year 2016,2019, compared with 71.5%72.9% for fiscal year 2015.$171.4$186.6 million, or 25.0%15.3%, to $857.2 million,$1.41 billion, or 87.8%88.7% of total revenues, for fiscal year 2016,2019, compared with $685.8 million,$1.22 billion, or 88.6%88.8% of total revenues, for fiscal year 2015.2018. The increase in cost of revenues on an absolute dollar basis was primarily due to ana proportional increase in sales volume, which was partially offset by a more favorable product mix. Cost of revenues also included non-cash share-based compensation expense of $2.0 million for fiscal year 2016, compared with $1.5 million for fiscal year 2015.$31.8$25.8 million, or 36.2%16.8%, to $119.5$179.2 million, or 12.2%11.3% of total revenues, for fiscal year 2016,2019, compared with $87.8$153.4 million, or 11.4%11.2% of total revenues, for fiscal year 2015.2018. The increase in gross profit margin duringpercentage in fiscal year 2016, compared with fiscal year 2015,2019 was primarily relateddue to an increase in sales volumehigher revenue and more favorable product mix during fiscal year 2016.increaseddecreased by $10.3$2.7 million, or 26.1%4.7%, to $49.8$55.1 million, or 5.1%3.5% of total revenues, for fiscal year 2016,2019, compared with $39.5$57.8 million, or 5.1%4.2% of total revenues, for fiscal year 2015.2018. Our SG&A expenses increased in absolute dollarsdecreased during fiscal year 2016,2019, compared with fiscal year 2015,2018, mainly due to (1) a decrease in share-based compensation expenses of $4.3 million because we did not expect to achieve the$4.6$2.4 million in expenses relatingexecutive cash bonuses under our fiscal year 2019 executive incentive plan due to our new manufacturing facilityexpectation that certainthe United States which commenced operations during the third quarterseverance payment of fiscal year 2015; (2) the recognition of $1.4$1.0 million in severance and related benefit costs to executives who left the Company during fiscal year 2016;connection with$1.3 million in sales and marketing expenses;$0.6 million; and (4) an increase in severance liability expense of $1.0$0.4 million due to an increase in executive and management bonuses, salaries, and other benefits.Other income relatedheadcount as well as a change in labor protection law in Thailand that increased the required severance payment compensation for employees with 20 or more years of service from 300 days of wage to flooding. In fiscal year 2016, we recognized other income related to flooding400 days of $0.04 million, which consistedwage.$22.6$28.8 million to $69.8$122.6 million, or 7.1%7.7% of total revenues, for fiscal year 2016,2019, compared with $47.2$93.8 million, or 6.1%6.9% of total revenues, for fiscal year 2015.$0.3$2.8 million to $1.5$6.7 million for fiscal year 2016,2019, compared with $1.3$3.9 million for fiscal year 2015. This2018. The increase mainly was primarily due to increasesthe higher weighted average interest rate compared to the same period in the amount on which interest is earned as well aslast year and an increase in interest rates.$1.0$1.8 million to $1.6$5.4 million for fiscal year 2016,2019, compared with $0.6$3.6 million for fiscal year 2015. This2018. The increase was due to increases(1) unrealized loss of $2.6 million fromaveragefixed interest rate from interest rate swap. The increase was offset by (1) the amortization and the write off of deferred debt issuance costs from loan balances resultingborrowing paid up in fiscal year 2018 of $1.0 million; and (2) a decrease in loan commitment fee of $0.3 million.drawdownreceipts and payments of revolving loans during the year.$68.2$126.2 million for fiscal year 2016,2019, compared with $47.6$88.0 million for fiscal year 2015.6.7%4.6% for fiscal year 2016, compared with an effective tax rate of 6.3%2019 and 5.0% for fiscal year 2015. The increase was primarily due to the fact that we had higher taxable income during fiscal year 2016 as compared with fiscal year 2015.$61.9$121.0 million, or 6.3%7.6% of total revenues, for fiscal year 2016,2019, compared with net income of $43.6$84.2 million, or 5.6%6.2% of total revenues, for fiscal year 2015.income (loss). We recordedloss.income of $0.6loss increased by $0.2 million or 0.1% of total revenues,to $1.1 million for fiscal year 2016,2019 compared with other comprehensive loss of $0.04$0.9 million or 0.01% of total revenues, for fiscal year 2015.operationsoperating activities. As of June 30, 201726, 2020 and June 24, 2016,28, 2019, we had cash, cash equivalents, and marketable securitiesshort-term investments of $285.3$488.1 million and $284.5$437.3 million, respectively, and outstanding debt of $71.1$51.7 million and $60.4$60.9 million, respectively.2017,2020, fiscal year 20162019 and fiscal year 20152018 was 0.6%1.8%, 0.7%1.9% and 0.7%0.8%, respectively.Audit Committeeaudit committee of our Boardboard of Directors.directors. In general, our investment policy requires that securities purchased be rated A1, securities value in the consolidated balance sheets.value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on these securities are recorded as other comprehensive income (loss) income and are reported as a separate component of shareholders’ equity.2017,2020, (1) we borrowed a revolving loan of $27.5 million and repaidpaid off a term loan of $18.1$60.9 million under our syndicated seniorprevious credit facility agreement (“Facility Agreement”).with Bank of America, (2) our subsidiary in Thailand drew down a new term loan of $60.9 million under a new credit facility agreement with the Bank of Ayudhya Public Company Limited, and (3) we repaid $9.1 million of the new term loan under the new credit facility agreement. As a result, as of June 30, 2017,26, 2020, we had a long-term borrowing of $36.4 million and short-term borrowing of $34.0$51.7 million under our Facility Agreement.new credit facility agreement. (See Note 16 for further details.) We anticipate that our internally generated working capital, along with our cash and cash equivalents will be adequate to repay these obligations. To better manage our cash on hand, we also held short-term investments in short-term marketable securities of $151.5$262.7 million as of June 30, 2017.marketable securities,short-term investments, cash flow from operations, and funds available through our credit facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. months following the filing of this Annual Report on FormIn December 2015, we began construction of a new manufacturing facility at our campus in Chonburi, Thailand, which we substantially completed in the first quarter of fiscal year 2017. begin our operations at this new facility in the fourth quarter of fiscal year 2017. Wealso believe that our current manufacturing capacity is sufficient to meet our anticipated production requirements for at least the next few quarters. We maintain a long-term loan associated with construction of production facilities at our Pinehurst campus in Thailand that will come due within the next 12 months. Years Ended (amount in thousands) June 30, 2017 June 24, 2016 June 26, 2015 $ 70,934 $ 47,088 $ 52,629 $ (90,556 ) $ (39,603 ) $ (195,499 ) $ 13,432 $ 22,862 $ 22,537 $ (6,190 ) $ 30,347 $ (120,333 ) $ 142,804 $ 112,978 $ 233,477 $ 137,137 $ 142,804 $ 112,978 $ 150,660 $ 147,394 $ 138,080 $ (71,248 ) $ (98,067 ) $ (58,649 ) $ (35,305 ) $ (23,223 ) $ (54,106 ) $ 44,107 $ 26,104 $ 25,325 $ 188,241 $ 161,433 $ 137,137 $ 232,832 $ 188,241 $ 161,433 $23.8$3.3 million, or 50.6%2.2%, to $70.9$150.7 million for fiscal year 2017,2020, compared with net cash provided by operating activities of $47.1$147.4 million for fiscal year 2016.2019 due to better working capital management. This increase in cash was primarily due to (1) an increase in share-based compensation of $5.0 million; (2) goodwill impairment loss in fiscal 2020 of $3.5 million; (3) an increase in cash receipts related to the timing of collection of trade accounts receivable of $1.2 million; and (4) an increase in depreciation and amortization of $0.9 million. These increases in cash were offset by a decrease in net income of $7.5 million.$35.2$36.8 million from revenue growth, depreciation and amortization of $6.4 million from additional investmentsa decrease in equipmentcash paid to support our new facility in Chonburi, Thailand, and share-based compensation of $16.6 million mainly related to additional grants of equity awards to employees during the year. These were offset with decreases in movement of tradesettle accounts payable and other current and non-current liabilities of $18.0 million and $14.6 million, respectively.Net cash provided by operating activities decreased by $5.5 million, or 10.5%, to $47.1 million for fiscal year 2016, compared with net cash provided by operating activities of $52.6 million for fiscal year 2015. This decrease was due to an increase in net income of $18.3 million, a decrease of $35.8 million$35.3 million. These increases in cash payment to vendors,were offset by a decrease of $27.2 million in cash receipts related to the timing of collection from customersof trade accounts receivable of $31.3 million, an increase in gain on exchange rate and fair value of derivative instruments of $11.2 million, an increase in ending inventories intended for sale in future quarters of $24.6 million and a decrease in share-based compensation of $44.2 million in inventory as a result of higher customer demand during fiscal year 2016; as well as a decrease of $9.1 million in other current and non-current liabilities mainly from payable related to the new manufacturing facility in Thailand.increaseddecreased by $50.9$26.8 million, or 128.7%,27.3 %, to $90.6$71.2 million for fiscal year 2017,2020, compared with net cash used in investing activities of $39.6$98.1 million for fiscal year 2016.2019. The decrease was primarily due to a net decrease in investment in short-term investments of $74.7 million, offset by funds providedana net increase in investment in short-term investments of $27.6$56.0 million, offset by a decrease of $16.5 million in the purchase of property, plant and equipment primarily for our new facility in Chonburi, Thailand, a net increase of $11.4 million in marketable securities and the net payment of $9.9 million in connection with the acquisition of Exception EMS.investingfinancing activities decreasedincreased by $155.9$12.1 million, or 79.7%52.0%, to $39.6$35.3 million for fiscal year 2016,2020, compared with net cash used in investingfinancing activities of $195.5$23.2 million for fiscal year 2015. The decrease2019. This increase was primarily due to a net(1) an increase in available-for-sales securitiescash paid for the repurchase of $144.6ordinary shares of $15.3 million; (2) an increase of $5.9 million duringin net repayments of loans to banks; and (3) an increase in debt issuance costs payment of $0.2 million. These were offset by a decrease in cash paid for withholding tax related to net share settlement of restricted share units of $5.8 million and the release of restricted cash in connection with a business acquisition of $3.5 million in fiscal year 2016.Financing Activitiesprovided byused in financing activities decreased by $9.4$30.9 million, or 41.2%57.1%, to $13.4$23.2 million for fiscal year 2017,2019, compared with net cash provided byused in financing activities of $22.9$54.1 million for fiscal year 2016.2018. This$50.0ordinary shares of $37.0 million and a decrease in proceeds fromcash paid for long-term bank loans and an increase of $12.1 million in the repayment of long-term bank loans.$8.0 million. These were offset by (1) an increase in cash paid for withholding tax related to net share settlement of restricted share units of $5.1 million, (2) a net increase ofdecrease in cash received from short-term loanloans from bank of $50.8$5.0 million, and (3) the release of restricted cash in connection with a business acquisition of $3.5 million.Net cash provided by financing activities increased by $0.3 million, or 1.4%, to $22.9 million for fiscal year 2016, compared with net cash provided by financing activities of $22.5 million for fiscal year 2015. This increase was primarily due to an increase of $38.0 million in proceeds from bank loans and an increase of $4.6 million in proceeds from the issuance of ordinary shares under our employee share option plans, offset by an increase of $41.5 million from the repayments of loans.30, 2017: Payments Due by Period (amount in thousands) Total Less than 1
year 1-3 years 3-5 years More than 5
years $ 36,400 $ 13,600 $ 22,800 $ — $ — 1,761 1,084 676 1 — 1,368 344 919 105 — 5,328 1,744 2,108 956 520 8,488 680 1,042 1,318 5,448 3,312 — 3,312 — — 2,049 — 1,335 710 4 $ 58,706 $ 17,452 $ 32,192 $ 3,090 $ 5,972
1 year
5 years $ 51,797 $ 12,188 $ 27,421 $ 12,188 $ — 1,760 751 876 133 — 100 100 — — — 8,448 2,313 4,514 1,464 157 54,218 1,284 3,183 4,726 45,025 1,459 1,008 6 286 159 $ 117,782 $ 17,644 $ 36,000 $ 18,797 $ 45,341 30, 2017.26, 2020. The interest rates ranged between 3.05%1.7% and 3.56%2.8%. For further discussion of long-term and short-term debt obligations, see Note 1316 of our audited consolidated financial statements.30, 201726, 2020 are determined based on management assumptions seeand calculated as expected future cash flows basis. See Note 1417 of our audited consolidated financial statements.30, 2017, our long-term debt obligations consisted26, 2020, the Company was in compliance with all of approximately $36.4 million outstandingits financial covenants under a loan agreement. the Term Loan Agreement. loan prescribes maximum ratios of debt to equity and minimum levels of debt service coverage ratios (i.e., earnings before interest expenses and depreciation and amortization plus cash on hand minus short-term debts divided by current portion of long-term debts plus interest expenses). These financial ratio covenants could restrict our ability to incur additional indebtedness and limit our ability to use our cash. Our long-term debt obligation also includes customary events of default.30, 2017, we were in compliance with our long-term loan agreements. Nonetheless, in the event26, 2020, $51.7 million of a default on these loans or a breach of a financial ratio covenant, the lenders may immediately cancel the loan agreements, deem the full amount of the outstanding indebtedness immediately due and payable; charge us interest on a monthly basis on the full amount of the outstanding indebtedness and, if we cannot repay all of our outstanding obligations, sell the assets pledged as collateral for the loans in order to fulfill our obligations to the lenders. We may also be held responsible for any damages and related expenses incurred by the lender as a result of any default.We entered into the Facility Agreement with a consortium of banks on May 22, 2014. The Facility Agreement, led by Bank of America, provides 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. The revolving loan facility containsan accordion feature permitting us to request an increase in the facility up to $100.0 million subject to customary terms and conditions and provided that no default or event of default exists at the time of request. The revolving loan facility terminates and all amounts outstanding are due and payable in full on May 22, 2019. The principal amount of any drawn term loans must be repaid according to the scheduled quarterly amortization payments, with final payment of all amounts outstanding, plus accrued interest, being due May 22, 2019.On February 26, 2015, we entered into the Second Amendment to the Facility Agreement. The amendment extended the availability period for draws on the term loan facility from May 21, 2015 to July 31, 2015. It also allows us, upon the satisfaction of certain conditions, to designate from time to time one or more of Fabrinet’s subsidiaries as borrowerswas outstanding under the Credit Facility Agreement. On July 31, 2015, we entered into the Third Amendment to the Facility Agreement. The amendment extended the availability period for draws on the term loan facility from July 31, 2015 to July 31, 2016.30, 2017, we had $36.4 million of long-term borrowing and $34.0 million of revolving borrowing outstanding under the Facility Agreement; as a result, there were available credit facilities of $116.0 million.In connection with our acquisition of Exception EMS, we assumed lease agreements for certain machine and equipment, which are accounted for as capital leases. As of June 30, 2017, we included approximately $1.9 million of capital lease assets and $1.4 million of capital lease liability in our consolidated balance sheets associated with these acquired lease agreements.As of June 30, 2017,26, 2020, we also had certain operating lease arrangements in which the lease payments are calculated using the straight-line method. Our rental expenses under these leases were $2.1 million, $1.9 million $1.2 million and $1.1$1.8 million for fiscal year 2017,2020, fiscal year 20162019 and fiscal year 2015,2018, respectively. Years Ended (amount in thousands) June 30, 2017 June 24, 2016 June 26, 2015 $ 56,194 $ 55,166 $ 56,130 $ 51,317 $ 20,834 $ 30,535 2017,2020, fiscal year 20162019 and fiscal year 20152018 principally related to investment in our new facilities in Thailand and the United States.U.S.. During fiscal year 2017,2020, we purchased equipment and entered into an agreement to purchase a parcel of land in Chonburi, to support the expansion of our manufacturing operationsfacilities in Thailand, the PRC and Israel. During fiscal year 2019, we purchased additional equipment to continue to support the expansion of our manufacturing facilities in Thailand. During fiscal year 2016,2018, we purchased a parcel of land and began constructionadditional equipment to continue to support the expansion of our Chonburi campus.manufacturing facilities in Thailand and the U. K. During fiscal year 2015,2021, we purchased a building and associated land in Santa Clara, California. Duringexpect our capital expenditures to increase compared to fiscal year 2018, we expect2020 mainly related to purchase additional equipment for ourinvestment in existing and new manufacturing facilities in the United States and Thailand.30, 2017,26, 2020, we did not have any off-balance sheet arrangements as definedhad an outstanding standby letter of credit of 6.0 million Euros related to our support of a customer with the transfer of certain manufacturing operations from Berlin, Germany to our facilities in Item 303(a)(4)(ii)Thailand. As of SEC Regulation S-K.marketable securitiesshort-term investments totaling $285.3$488.1 million, $284.5$437.3 million and $255.8$332.4 million, as of June 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 2015,29, 2018, respectively. We have interest rate risk exposure relating to the interest income generated by excess cash invested in highly liquid investments with maturities of three months or less from the original dates of purchase. The cash, cash equivalents, and marketable securitiesshort-term investments are held for working capital purposes. We have not used derivative financial instruments in our investment portfolio. We have not been exposed nor do we anticipate being exposed to material risks due to changes in market interest rates. Declines in interest rates, however, will reduce future investment income. If overall interest rates had declined by 10 basis points during fiscal year 2017,2020, fiscal year 20162019 and fiscal year 2015,2018, our interest income would have decreased by approximately $0.4 million, $0.3 million $0.1 million and $0.1$0.3 million, respectively, assuming consistent investment levels.(LIBOR)(“LIBOR”), plus an additional margin, depending on the lending institution. If the LIBOR had increased by 100 basis points during fiscal year 2017,2020, fiscal year 20162019 and fiscal year 2015,2018, our interest expense would have increased by approximately $0.8 million, $0.1 million, $0.6 million and $0.1$0.6 million, respectively, assuming consistent borrowing levels.United Kingdom.U. K. Therefore, a substantial portion of our payroll as well as certain other operating expenses are paid in Thai baht, RMB orand GBP. The significant majority of our revenues are denominated in U.S. dollars because our customer contracts generally provide that our customers will pay us in U.S. dollars. audited consolidated financial statements. Consequently, increases and decreases in the value of the U.S. dollar compared with such foreign currencies will affect our reported results of operations and the value of our assets and liabilities on our audited consolidated balance sheets, even if our results of operations or the value of those assets and liabilities has not changed in its original currency. Theseeighteentwelve months in duration, leaving us exposed to longer term changes in exchange rates. DuringWe designated the year ended June 30, 2017. We recognized foreign exchange losscurrency forward contracts used to hedge fluctuations in the U.S. dollar value of $1.0 million, $1.6 million and $0.02 millionforecasted transactions denominated in Thai baht as cash flow hedges, as they qualified for hedge accounting because the hedges are highly effective. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings. From December 28, 2019, any gains or losses related to these outstanding foreign currency forward contracts will be recorded in accumulated other comprehensive income in the consolidated statementsbalance sheets, with subsequent reclassification to the same statement of operations and comprehensive income during fiscalline item as the earnings effect of hedge items when settled. We recorded unrealized loss of $1.2 million and unrealized gain of $4.8 million for the year 2017, fiscal year 2016ended June 26, 2020 and fiscal year 2015, respectively.June 28, 2019, respectively, related to derivatives that are not designated as hedging instruments. As foreign currency exchange rates fluctuate relative to the U.S. dollar, we expect to incur foreign currency translation adjustments and may incur foreign currency exchange losses. For example, a 10% weakening in the U.S. dollar against the Thai baht, the RMB and the GBP would have resulted in a decrease in our net dollar position of approximately $4.8$2.7 million and $2.3$0.4 million as of June 30, 201726, 2020 and June 24, 2016,28, 2019, respectively. We cannot give any assurance as to the effect that future changes in foreign currency rates will have on our consolidated financial position, operating results or cash flows.30, 2017 and June 24, 2016,26, 2020, our cash and cash equivalents were held in deposits and highly liquid investment products with maturities of three months or less with banks and other financial institutions having credit ratings of A minus or above. AsOur short-term investments as of June 30, 2017 and June 24, 2016, our marketable securities were26, 2020 are held in various financial institutions with a maturity limit not to exceed three years, and all securities wereare rated A1, 5662 5765 5866 5967 6068 6270 30, 201726, 2020 and June 24, 201628, 2019 98In our opinion, cash flows present fairly, in all material respects, the financial position of Fabrinet and its subsidiaries (the “Company”) at June 30, 2017 and June 24, 2016, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 201726, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of June 26, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).30, 2017,26, 2020, based on criteria established in Internal Control - Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO.thesethe Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.PricewaterhouseCoopers ABAS Ltd.23, 2017(in thousands of U.S. dollars, except share data) June 30,
2017 June 24,
2016 Assets $ 133,825 $ 142,804 151,450 141,709 264,349 196,145 238,665 181,499 — 1,358 6,306 3,114 4,159 6,662 798,754 673,291 3,312 — 216,881 178,410 5,840 499 3,806 — 2,905 1,806 1,577 1,851 234,321 182,566 $ 1,033,075 $ 855,857 $ 48,402 $ 24,307 215,262 172,052 8,141 20,628 344 — 1,976 2,010 13,852 12,300 9,227 8,072 14,068 16,356 311,272 255,725 22,701 36,100 1,981 854 1,024 — 3,312 — 8,488 6,684 2,723 2,075 40,229 45,713 351,501 301,438 — — 373 362 133,293 102,325 (348 ) 591 548,256 451,141 681,574 554,419 $ 1,033,075 $ 855,857 Years Ended (in thousands of U.S. dollars, except per share data) June 30,
2017 June 24,
2016 June 26,
2015 $ 1,420,490 $ 976,747 $ 773,587 (1,249,030 ) (857,224 ) (685,814 ) 171,460 119,523 87,773 (65,626 ) (49,753 ) (39,460 ) — 36 — — — (1,153 ) 105,834 69,806 47,160 1,977 1,535 1,253 (3,321 ) (1,569 ) (616 ) (1,142 ) (1,916 ) (19 ) 509 376 (152 ) 103,857 68,232 47,626 (6,742 ) (6,335 ) (3,984 ) 97,115 61,897 43,642 (471 ) 443 (44 ) (158 ) 192 — (310 ) — — (939 ) 635 (44 ) $ 96,176 $ 62,532 $ 43,598 $ 2.63 $ 1.73 $ 1.23 $ 2.57 $ 1.68 $ 1.21
(thousands of shares) 36,927 35,857 35,354 37,852 36,872 35,984 $ 1,641,836 $ 1,584,335 $ 1,371,925 (1,455,731 ) (1,405,111 ) (1,218,513 ) 186,105 179,224 153,412 (68,374 ) (55,067 ) (57,812 ) (329 ) (1,516 ) (1,776 ) 117,402 122,641 93,824 7,592 6,699 3,925 (3,044 ) (5,381 ) (3,606 ) (3,797 ) 1,406 (6,587 ) 1,089 868 473 119,242 126,233 88,029 (5,763 ) (5,278 ) (3,862 ) 113,479 120,955 84,167 538 2,043 (1,019 ) 570 (1 ) (1 ) 528 (2,537 ) — (397 ) (634 ) 111 1,239 (1,129 ) (909 ) $ 114,718 $ 119,826 $ 83,258 $ 3.07 $ 3.29 $ 2.26 $ 3.01 $ 3.23 $ 2.21
(thousands of shares) 36,908 36,798 37,257 37,665 37,415 38,035 (in thousands of U.S. dollars, except share data) Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings Shares Amount Total 35,152,772 352 80,882 — 345,602 426,836 — — — — 43,642 43,642 — — — (44 ) — (44 ) — — 8,027 — — 8,027 284,882 2 833 — — 835 — — (352 ) — — (352 ) 35,437,654 354 89,390 (44 ) 389,244 478,944 — — — — 61,897 61,897 — — — 635 — 635 — — 9,927 — — 9,927 718,792 8 5,471 — — 5,479 — — (2,463 ) — — (2,463 ) 36,156,446 362 102,325 591 451,141 554,419 — — — — 97,115 97,115 — — — (939 ) — (939 ) — — 26,507 — — 26,507 1,184,050 11 5,886 — — 5,897 — — (1,425 ) — — (1,425 ) 37,340,496 373 133,293 (348 ) 548,256 681,574
share data)
Shares
Other
Comprehensive 37,340,496 373 133,293 — (348 ) 548,256 681,574 — — — — — 84,167 84,167 — — — — (909 ) — (909 ) — — 22,581 — — — 22,581 383,237 4 1,432 — — — 1,436 — — — (42,401 ) — — (42,401 ) — — (5,509 ) — — — (5,509 ) 37,723,733 377 151,797 (42,401 ) (1,257 ) 632,423 740,939 — — — — — 120,955 120,955 — — — — (1,129 ) — (1,129 ) 1,205 — — 17,157 — — — 17,157 507,020 5 (6 ) — — — (1 ) — — — (5,378 ) — — (5,378 ) — — (10,649 ) — — — (10,649 ) 38,230,753 382 158,299 (47,779 ) (2,386 ) 754,583 863,099 — — — — — 113,479 113,479 — — — — 1,239 — 1,239 — — 22,203 — — — 22,203 241,214 3 (3 ) — — — — — — — (20,722 ) — — (20,722 ) — — (4,889 ) — — — (4,889 ) 38,471,967 385 175,610 (68,501 ) (1,147 ) 868,062 974,409 Years Ended (in thousands of U. S. dollars) June 30,
2017 June 24,
2016 June 26,
2015 $ 97,115 $ 61,897 $ 43,642 23,793 17,357 12,947 (30 ) (73 ) (42 ) 822 194 120 (193 ) 798 985 1,396 758 527 — (828 ) — — 272 — (1 ) (17 ) 13 1,884 1,905 671 26,507 9,927 8,027 754 864 (878 ) 2,173 1,744 1,722 42 (521 ) 397 — 233 — (64,142 ) (61,013 ) (33,797 ) (53,802 ) (50,598 ) (6,440 ) (2,231 ) (5,901 ) (283 ) 38,293 56,308 20,466 (67 ) 573 446 (1,379 ) 13,209 4,106 70,934 47,088 52,629 (122,778 ) (108,341 ) (203,407 ) 39,578 41,836 29,036 72,361 67,113 30,356 (9,917 ) — — (68,262 ) (40,616 ) (51,398 ) — 34 — 230 194 48 (1,768 ) (379 ) (134 ) — 556 — (90,556 ) (39,603 ) (195,499 ) — (654 ) (1,946 ) 27,500 18,000 30,000 (157 ) (41,500 ) — — 50,000 — (18,100 ) (6,000 ) (6,000 ) 5,890 5,479 835 (276 ) — — (1,425 ) (2,463 ) (352 ) 13,432 22,862 22,537 $ (6,190 ) $ 30,347 $ (120,333 ) Years Ended (in thousands of U. S. dollars) June 30,
2017 June 24,
2016 June 26,
2015 $ 142,804 $ 112,978 $ 233,477 (6,190 ) 30,347 (120,333 ) 523 (521 ) (166 ) $ 137,137 $ 142,804 $ 112,978 $ 1,924 $ 1,091 $ 590 $ 5,218 $ 5,473 $ 2,841 $ 1,753 $ 1,049 $ 749 $ 8,434 $ 20,628 $ 6,026
2020
2019
2018 $ 113,479 $ 120,955 $ 84,167 30,875 29,944 29,087 329 (4 ) 18 — 149 447 3,514 — — (96 ) 135 364 (508 ) (592 ) (506 ) 26 — 994 240 36 (23 ) 1,963 (6,980 ) 4,222 1,672 2,591 — (1,220 ) — — 22,203 17,157 22,581 1,262 879 (2,074 ) (619 ) (450 ) 332 (12,260 ) (13,494 ) 17,852 (809 ) (2,570 ) — (16,174 ) (44,598 ) (19,868 ) (182 ) (2,777 ) (4,464 ) (5,990 ) 38,807 3,502 (683 ) 2,239 — 442 1,092 (1,267 ) 2,802 3,343 1,801 10,394 1,532 915 150,660 147,394 138,080 (196,373 ) (233,080 ) (152,908 ) 48,808 99,142 61,795 142,508 54,215 67,417 (24,310 ) — — (42,327 ) (18,661 ) (33,825 ) (1,180 ) (282 ) (1,577 ) 1,626 599 449 (71,248 ) (98,067 ) (58,649 )
2020
2019
2018 sumsums to the total of the same amounts shown in the consolidated statements of cash flows: As of (amount in thousands) June 30,
2017 June 24,
2016 June 26,
2015 $ 133,825 $ 142,804 $ 112,978 3,312 — — $ 137,137 $ 142,804 $ 112,978
2020
2019
2018 $ 225,430 $ 180,839 $ 158,102 7,402 7,402 3,331 $ 232,832 $ 188,241 $ 161,433 Description of Businesstest.testing. The Company focuses primarily on the production ofException EMS Ltd.Fabrinet UK Limited (“Fabrinet UK”).20172020 ended on June 30, 201726, 2020 and consisted of 5352 weeks. Fiscal year 2016 and fiscal year 20152019 ended on June 24, 201628, 2019 and June 26, 2015, respectively, and each consisted of 52 weeks.Where necessary, comparative figures have been reclassified to conform to the current period accounting policies and presentation adopted.On September 14, 2016, the Company acquired Global CEM Solutions, Ltd. and all of its subsidiaries (collectively, “Exception EMS”), a privately-held group located in Wiltshire, United Kingdom. The consolidated financial statements of the Company include the financial position, results of operations and the cash flows of Exception EMS commencing as of the acquisition date. See Note 9—Business acquisition for further details on the accounting for this transaction.acquisition,acquisitions, 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 differbe different from actual results, adjustments will be made in subsequent periods to reflect more current information.
reported
reclassifiedother income (expense) or foreign exchange gain (loss) in the accompanying consolidated statements of operations and comprehensive income..marketable securitiesshort-term investments with maturities of three months or less at the date of purchase.Marketable securities reevaluates marketable securitiesshort-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 marketable securitiesshort-term investments generally range from three months to three years. The Company’s marketable securitiesshort-term investments, which consist of investmentinvestments in U.S. Treasury, and fixed income securities, liquidity funds that invest in short-term debt securities and certificates of deposit and time deposits, have been classified and accounted for asaccumulated other comprehensive income, net of tax,AOCI in the Company’s consolidated balance sheets. Changes in the fair value ofmarketable securitiesshort-term investments on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. The Company considers factors such as the length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issue and the Company’s intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s amortized cost basis. If the Company believes that an other-than-temporary decline exists in one of these securities, the Company will write down these investments to fair value.theits allowances for doubtful accounts.Payments made under operatingCapital The Company does not account for leaseCertain machine and equipment held under capital components (e.g., fixed payments including rent) separately from theclassified as property, plant and equipment andaccounted for in a manner similar to financed purchases. Theusing the straight-line method over the terms ofto amortization expense. Interest expense is recorded in connection with the lease contracts. The related obligations from the capital lease are recorded as liabilities in the consolidated balance sheets. 10 years 7 5 Shorter of useful life or lease term operatingother income in the consolidated statements of operations and comprehensive income.testsreviews long-lived assets or asset groups for recoverability whenon a quarterly basis for any events or changes in circumstances that indicate that their carrying amount may not be recoverable. Recoverability of long-livedproperty and equipmentlong-lived assets exceeds its fair value.Business acquisitionFor the acquisition of Exception EMS, the Company allocated the fair value of purchase consideration to theacquired and liabilities assumed based on their fair values at the acquisition date. The allocation of consideration to the individual net assets was finalized in the fourth quarter of fiscal year 2017.The acquired intangible assets, which consist of customer relationships and backlog, are recorded as intangibles in the consolidated balance sheets. The fair value of the acquired intangible assets was determined based on the multi-period excess earnings method. The Company reviews intangiblesreviewed for impairment quarterly or more frequently whenever changes or circumstances indicate the carrying amount of related assets may not be recoverable.In connection with the business acquisition, $3.3 million of cash for deferred consideration, net of foreign currency translation adjustment, was placed into an escrow account which is under the Company’s control. However, the Company has contractually agreed to remit this deferred consideration to the sellers of Exception EMS, subject to the resolution of claims that the Company may make against the funds with respect to indemnification and other claims within 24 months from the closing date of the transaction. The cash is presented as restricted cash in the consolidated balance sheets within non-current assets and the related liability is presented within non-current liabilities for the deferred consideration. the acquisition is primarily attributable to the ability to expand future products and services and the assembled workforce. Goodwill is reviewed annually for impairment or more frequently whenever changes or circumstances indicate that the carrying amount of a reporting unit may exceed its fair value. The impairment charge is based on that difference and is limited to the amount of goodwill allocated to that unit. The Company conducts impairment testing for goodwill at the reporting unit level. Reporting units may be operating segments as a whole, or an operation one level below an operating segment, referred to as a component. The Company has determined that its reporting unit is Fabrinet UK.be recoverable.andcontract assets, trade accounts payable, and contract liabilities, approximate their fair values due to their short maturities. The carrying amounts of borrowings approximate their fair values as the applicable interest rate is based on market interest rates. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.derivativesderivative assets and liabilities are measured at fair value and recognized on the consolidated balance sheets by offset fair value amounts under master netting arrangements. For presentation in consolidated balance sheets, the Company may choose not to separate a derivative into its current andother current assets or accrued expensesfollows:measured at fair value.currency contracts.contracts and interest rate swap. In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative is initially recorded in AOCI while any ineffective portion is recognized directly in earnings, as a component of other income (expense). The portion ofthe consolidated balance sheets, gain or loss on the derivative instrument remainsis reclassified into earnings in AOCI until the same period or periods during which the hedged forecasted transaction is recognizedaffects earnings. The reclassified amounts are presented in earnings.The Company also enters into derivative contracts that are intended to economically hedge certainthe same income statement line item as the earnings effect of the Company’s risks. The changes in the fair value of the derivatives are recorded directly in earnings as a component of other income (expense). hedged item.marketable securities,short-term investments, derivatives, accounts receivable and accounts receivable.marketable securitiesshort-term investments are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these depositsall marketable securities that the Company invests in are rated A1, total revenues primarily from the assembly of products under supply agreements with its customers and the fabrication of customized optics and glass. Revenues represent the invoiced value of products, net of trade discounts and allowances, and exclude goods and services tax. The Company recognizes revenuesrevenue relating to realizeda performance obligation is satisfied. Revenue is recognized net of any taxes collected from customers, which is subsequently remitted to governmental authorities.realizableservice to the customer. In contracts with multiple performance obligations, the Company identifies each performance obligation and earned. considers revenues realized or realizable and earned when theremanufactures products that are customized to customers’ specifications; however, control of the products is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Delivery does not occur until products have been shipped or services have been provided to the customer, risk of loss hastypically transferred to the customer and customer acceptance has been obtained, customer acceptance provisions have lapsed, orat the Company has objective evidence that the criteria specifiedpoint in the customer acceptance provisions have been satisfied. In situations where a formal acceptance is required but the acceptance only relates to whether the product meets its published specifications, revenues are generally recognized upon shipment provided all other revenue recognition criteria are met. The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved. The Company reduces revenues for rebates and other similar allowances. Revenues are recognized only if these estimates can be reasonably and reliably determined. The Company bases its estimates utilizing historical results taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. In addition to the aforementioned general policies, the following are the specific revenue recognition policies for each major category of revenues.ServicesThe Company provides services for its customers that range from process design to product manufacturing. The Company recognizes service revenues when the services have been performed. The related costs are expensed as incurred.Services revenue of $75.4 million, $31.7 million and $32.3 million were recognized in the consolidated statements of operations and comprehensive income for the years ended June 30, 2017, June 24, 2016 and June 26, 2015, respectively.Sales of goodsRevenues from sales of goods are generally recognized whentime the product is either shipped or delivered, depending on the terms of the arrangement, as the criteria for over time recognition are not met. On evaluation of the contracts, the Company identified that there were no contractual rights to bill profit for work in progress in the event of a contract termination, which is expected to be infrequent. Further, in limited circumstances, contracts provide for substantive acceptance by the customer, and when there are no unfulfilled obligations that affectwhich results in the customer’s finaldeferral of revenue until formal notice of acceptance ofis received from the arrangement. Any cost of warranties and remaining obligations that are inconsequential or perfunctory are accrued when the corresponding revenues are recognized.purchased by them at the Company’s warehouse.warehouse where customers bear risks of loss themselves. In these instances, the Company receives a written request from the customer asking the Company to hold the inventory at the Company’s warehouse and refrain from using the ordered goods are segregated in the Company’s warehouse from other inventory and cannot be used to fulfill other customer orders. In these situations, revenue is only recognized when persuasive evidence of the sales arrangement exists, thecompleted goods are completed and ready for shipment pricingand transferred to the Company’s warehouse.collection is reasonably assured, and title and risk of loss have passeduntil all contingencies related to the sale have been resolved. The Company recognized revenue net of rebates and other similar allowances. Revenues are recognized only if these estimates can be reasonably and reliably determined. The Company bases its estimates on historical results taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.$1.0$0.02 million, $0.1$0.07 million and $0.03$(0.02) million were recognized in the consolidated statements of operations and comprehensive income for the years ended June 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 2015,29, 2018, respectively.Shipping and handling costsThe Company records costs related to shipping and handling in cost of revenues for all periods presented.10 months400 days of salary unless otherwise agreed upon in an employee’s employment contract. For employees of other subsidiaries who have a specific termination date, the entitlement to severance pay is determined according to their employment tenure, until their designated termination date.basisvaluation using the Projected Unit Credit Method, usingwhich apply the long-term Thai government bond yield as a discount rate. There are no separate plan assets held in respect ofto these liabilities. they accrue to Company has determinedvaluation allowance shall be sufficient to reduce the deferred tax asset to the amount that it is more likely than not to be realized. The valuation allowance shall be monitored and considered from all available evidence, both positive and negative, to determine whether, based on the weight of that deferred tax asset attributable to a subsidiary in the United States will not be realized, primarily due to uncertainties related to its ability to utilize its net operating loss carryforward before they expire. Accordingly, the Company has establishedevidence, a valuation allowance for such deferred tax asset. If there is a change in the Company’s ability to realize its deferred tax assets for which a valuation allowance has been established, then its tax provision may decrease in the period in which it determines that realization is more likely than not. Likewise, if the Company determines that it is not more likely than not that its deferred tax assets will be realized, then a valuation allowance may be established for such deferred tax assets and the Company’s tax provision may increase in the period in which it makes the determination. (i.e., a likelihood greater than 50 percent) to be sustained upon examination by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The accounting interpretation also provides guidance on measurement methodology, derecognition thresholds, financial statement classification and disclosures, recognition of interest and penalties, and accounting for the cumulative-effect adjustment at the date of adoption. $ 1,746 1,342 1,219 1,172 230 $ 5,709 “Intangibles—This amendment modifiedASU its 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. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.In January 2017, the FASB issuedThis ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 Emerging Issues Task Force (“EITF”) Meetings.” The amendment provides guidance towill be effective for the Company in relation to the disclosure of the impact that ASU 2014-09, ASU 2016-02 and ASU 2016-13 will have on the Company’s financial statements when adopted. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.In January 2017, the FASB issued ASU 2017-01, “Business Combination (Topic 805): Clarifying the Definition of a Business.” This amendment clarifies the definition of a business to assist entities when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or business. For public companies, this ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted for the transactions that occur before the issuance date or effective date of the amendment, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. The Company does not expect that the adoption of this update will have a material impact to its consolidated financial statements.In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).” The amendments in this ASU provide guidance on the presentation of certain cash receipts and cash payments in the statement of cash flows in order to reduce diversity in existing practice. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, for public companies. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging (Topic 815),” to clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815, does not, in and of itself, require a de-designation of the hedging relationship, provided that all other hedge accounting criteria continue to be met. This guidance is effective for public entities for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.In February 2016, the FASB issued ASU 2016-02, “Lease (Topic 842).” The core principle of Topic 842 is that a lessee should recognize the lease assets and liabilities that arise from leases in the statement of financial position. For public business entities, this update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This new guidance requirescertain equity investments to be measured at fair value, use of the exit price notion and separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. The ASU on recognition and measurement will take effect for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this update on its consolidated financial statements.In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606), issued as a new Topic, Accounting Standards Codification.” The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update is effective for public companies, as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application of this guidance is permitted, but not before the original date of December 15, 2016, which can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. Subsequently, in March 2016 and April 2016, the FASB issued ASU 2016-08 and ASU 2016-10, respectively, to clarify the implementation guidance on principle versus agent considerations and address the potential diversity in practice at initial application and cost; and the complexity of applying Topic 606, both at transition and on an ongoing basis related to identification of performance obligations and licensing arrangements; and ASU 2016-12 and ASU 2016-20, in May 2016 and December 2016, respectively, to improve in certain aspects of Topic 606, with the same effective date as ASU 2015-14. The Company is continuing to assess the impact of adopting this new guidance on its consolidated financial statements, including whether the effect will be material. The Company has not decided on the method of adoption. Additionally, as the Company continues to assess the new standard along with industry trends and additional interpretive guidance, the Company may adjust its implementation plan accordingly. The process is still ongoing and the Company expects to make significant progress in the coming quarters.New Accounting Pronouncements—adopted by the CompanyIn November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents and restricted cash or restricted cash equivalents. The Company has early adopted this update in the second quarter of fiscal year 2017 on a retrospective basis but there was no impact to the presentation of the comparative period in the consolidated financial statements.In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes,” which will require entities to present deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) as non-current in a classified balance sheet. The ASU simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current and non-current in a classified balance sheet. The Company has early adopted this update in the first quarter of fiscal year 2017.2021. The Company early adopted this update on a prospective basis and did not change the presentation of the comparative period.In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” which require an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The Company adopted this update in the firstfourth quarter of fiscal year 2017 and applied it on a prospective basis. See Footnote 9—Business acquisition, for further disclosure on measurement period adjustments recorded in the year ended June 30, 2017.In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” The update provides the guidance that an entity, that measured inventory by using first-in, first-out or average cost, should measure inventory at the lower of cost and net realizable value. Subsequent measurement is unchanged for inventory measured using last-in, first-out or the retail inventory method.The Company adopted this update in the first quarter of fiscal year 20172020 with no impact to the Company’s consolidated financial statements.In April 2015,FASB issued ASU 2015-03, “Interest—ImputationCompany has recognized revenues prior to an invoice for payment. Contract assets are classified separately on the consolidated balance sheets and transferred to accounts receivable when rights to payment become unconditional. No impairment for contract assets was recorded for the years ended June 26, 2020 and June 28, 2019. $ 12,447 73,476 (72,667 ) $ 13,256 $ — 9,877 112,739 (110,169 ) $ 12,447 $ 2,239 9,278 (9,961 ) $ 1,556 $ — 4,458 (2,219 ) $ 2,239 recognized debt liability be presented in particular geographic area based onbalance sheet as a direct deduction from bill-to-location ofcarrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. Additionally, in August 2015, the FASB issued ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” to amend ASU 2015-03.Company’s customers. The Company adopted this amendment retrospectivelyoperates primarily in the first quarter of fiscal year 2017. As of June 30, 2017three geographic regions: North America, Asia-Pacific and June 24, 2016, debt issuance costs of $0.3 million and $0.6 million, respectively, related to a recognized debt liability are presented in the balance sheet as a direct reduction of the carrying amount of the related debts.In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” ASU No. 2015-02 amended the process that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. In the first quarter of fiscal year 2017, the Company adopted this update with no impact to the consolidated financial statements.In January 2015, the FASB issued ASU 2015-01, “Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement PresentationEurope.Eliminating the Concept of Extraordinary Items.” geographic regions:
of Total
Revenues
of Total
Revenues $ 830,888 50.6 % $ 756,278 47.7 % 552,923 33.7 608,386 38.4 258,025 15.7 219,671 13.9 $ 1,641,836 100.0 % $ 1,584,335 100.0 % objective of this amendment is to reduce the complexity in accounting standardsfollowing table sets forth revenues by eliminating the concept of extraordinary items from U.S. GAAP. To meet for extraordinary classification the underlying event or transaction should (a) possess a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity and (b) not reasonably be expected to recur in the foreseeable future. In the first quarter of fiscal year 2017, the Company adopted this update with no impact to the consolidated financial statements.end market.
of Total
Revenues
of Total
Revenues $ 1,248,174 76.0 % $ 1,184,936 74.8 % 393,662 24.0 399,399 25.2 $ 1,641,836 100.0 % $ 1,584,335 100.0 % 3.gains. Fabrinet has received this undertaking for a 20-year period ending August 24, 2019, and after the expiration date, Fabrinet can make a request for renewal with the office of the Clerk of the Cabinet for another 20 years.$64.2$101.9 million, $41.0$104.6 million and $27.0$58.4 million infor the years ended June 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 2015,29, 2018, respectively. was not subject to tax for the period from July 2010 through June 2015 on income generated from the manufacture of products at Pinehurst Building 5, and is6. 6, and is not subject to tax from July 2018 through June 2026 on income generated from the manufacture of products at its Chonburi campus.among other things,various factors, including the export of the Company’sour customers’ products out of Thailand and the Company’sour agreement not to move itsour manufacturing facilities out of itsour current province in Thailand for at leastgranted i.e., at least until June 2020. Additionally, in March 2016,granted. Currently, the Thailand Revenue Department announced the permanent decrease of corporate income tax rates to 20%rate for tax periods beginning on or after January 1, 2016. As a result, corporate income tax rates for Fabrinet Thailand remain at 20% from fiscal year 2017 onwards. Years Ended (amount in thousands) June 30, 2017 June 24, 2016 June 26, 2015 $ 6,299 $ 5,413 $ 4,191 443 922 (207 ) $ 6,742 $ 6,335 $ 3,984
2020
2019
2018 $ 6,274 $ 4,384 $ 5,457 (511 ) 894 (1,595 ) $ 5,763 $ 5,278 $ 3,862 Years Ended (amount in thousands) June 30,
2017 June 24,
2016 June 26,
2015 $ 103,857 $ 68,232 $ 47,626 20,771 13,646 9,525 1,469 1,573 1,134 (17,212 ) (10,493 ) (7,094 ) 1,058 741 1,263 — 894 (221 ) 667 375 (365 ) (226 ) (145 ) (102 ) 215 (256 ) (156 ) $ 6,742 $ 6,335 $ 3,984
2020
2019
2018 $ 119,242 $ 126,233 $ 88,029 23,848 25,247 17,606 577 977 2,657 (20,797 ) (21,161 ) (12,824 ) 1,221 1,260 1,007 — — 423 382 603 (134 ) (1,228 ) (649 ) (454 ) (641 ) (229 ) 277 — — (3,224 ) 2,446 — (1,587 ) (45 ) (770 ) 115 $ 5,763 $ 5,278 $ 3,862 (1) (2) 56 and Building 6.the Company’s Chonburi campus. Income not subject to tax per ordinary share on a diluted basis (in dollars) was $0.18, $0.06$0.55, $0.57, and $0.20$0.34 for the years ended June 30, 2017,26, 2020, June 24, 201628, 2019, and June 26, 2015,29, 2018, respectively.(3)The balances were effect of different tax rate in relation to the rate recognized deferred taxes during the fiscal year and the rate when deferred taxes will be utilized in the following fiscal years. Years Ended (amount in thousands) June 30,
2017 June 24,
2016 $ 1,674 $ 1,679 1,127 955 1,046 1,363 496 — 10 — $ 4,353 $ 3,997 Years Ended (amount in thousands) June 30,
2017 June 24,
2016 $ (944 ) $ — (2,485 ) (1,687 ) (3,429 ) (1,687 ) $ 924 $ 2,310
2020
2019 $ 1,219 $ 1,957 2,958 2,012 1,405 1,485 — 1,616 321 13 $ 5,903 $ 7,083
2020
2019 $ (336 ) $ (590 ) (4,620 ) (4,123 ) — (252 ) (4,956 ) (4,965 ) $ 947 $ 2,118
deferred tax assets $ 6,399 (5,234 ) 1,165 126 1,291 2,437 $ 3,728 30, 201729, 2018, such subsidiary in the U.S. reversed certain deferred tax assets valuation allowance as management expected it was more likely than not that such subsidiary would realize profits in subsequent fiscal years so that the loss carryforwards could be partially utilized. Consequently, as of June 28, 2019, such subsidiary have assessed and June 24, 2016,set up a partial valuation allowance for the Company recognizeddeferred tax assets at the same level as in fiscal year 2018. However, in fiscal year 2020, such subsidiary in the U.S. generated net operating loss and management expected that such subsidiary would continue to have net operating losses in the foreseeable future; therefore, management believes it is more likely than not that all of the deferred tax assets of $6.4such subsidiary will not be utilized. Thus, a full valuation allowance of $ 2.1 million and $4.9 million, respectively, fromfor the deferred tax onassets was set up as of June 26, 2020.carrying forward of Fabrinet West. Utilization of the taxand management expected that such subsidiarycarrying forward may be subject to substantial limitations according to the subsidiary’s future operation, which may result in the reduced utilization of a portionforeseeable future; therefore, management believes it is more likely than not that all of the Company’s net operating losses.$97.3$112.3 million and $68.8$109.7 million as of June 30, 201726, 2020 and June 24, 2016,28, 2019, respectively. Unrecognized deferred tax liabilities for such unremitted earnings were $5.2$7.0 million and $4.2$6.9 million as of June 30, 201726, 2020 and June 24, 2016,28, 2019, respectively.$0.8$1.1 million and $0.7$1.3 million have been established for withholding tax on the unremitted earnings of Casix for the yearyears ended June 30, 2017,26, 2020 and June 28, 2019, respectively, which are included inasin the consolidated balance sheets.$0.6$0.5 million and $0.4$0.8 million of accrued interest and penalties related to uncertain income tax positions on the consolidated balance sheets as of June 30, 201726, 2020 and June 24, 2016,28, 2019, respectively. The Company$0.3$0.1 million, $0.2$(0.1) million and $0.1$0.3 million for the years ended June 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 2015,29, 2018, respectively, in the consolidated statements of operations and comprehensive income. With regard to the Thailand jurisdiction, tax years 20122015 through 20162019 remain open to examination by the local authorities.30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 201529, 2018 included in other(amount in thousands) As of
June 30, 2017 As of
June 24, 2016 As of
June 26, 2015 $ 1,420 $ 1,420 $ 868 — — 552 — — — $ 1,420 $ 1,420 $ 1,420 4.Earnings per ordinary share
2020
2019
2018 $ 1,323 $ 1,445 $ 1,420 157 235 25 (510 ) (357 ) — $ 970 $ 1,323 $ 1,445 Years Ended (amount in thousands except per share amounts) June 30,
2017 June 24,
2016 June 26,
2015 $ 97,115 $ 61,897 $ 43,642 36,927 35,857 35,354 925 1,015 630 37,852 36,872 35,984 $ 2.63 $ 1.73 $ 1.23 $ 2.57 $ 1.68 $ 1.21 — — 39,544
2020
2019
2018 $ 113,479 $ 120,955 $ 84,167 36,908 36,798 37,257 757 617 778 37,665 37,415 38,035 $ 3.07 $ 3.29 $ 2.26 $ 3.01 $ 3.23 $ 2.21 99 401 284 (1) optionsunits were not included in the computation of diluted earnings per ordinary share because they are not expected to vest based on the exercise priceCompany’s current assessment of the options was greater than the average market price of the underlying shares.related performance obligations.5.marketable securitiesshort-term investmentsmarketable securities can be analyzedshort-term investments by category is as follows: Fair Value (amount in thousands) Carrying
Cost Unrealized
(Loss)/Gain Cash and
Cash
Equivalents Marketable
Securities $ 131,240 $ — $ 131,240 $ — 2,585 — 2,585 — 98,247 27 — 98,274 50,768 (102 ) — 50,666 2,507 3 — 2,510 $ 285,347 $ (72 ) $ 133,825 $ 151,450 Fair Value (amount in thousands) Carrying
Cost Unrealized
Gain Cash and
Cash
Equivalents Marketable
Securities $ 136,754 $ — $ 136,754 $ — 6,050 — 6,050 — 112,128 394 — 112,522 28,028 2 — 28,030 1,154 3 — 1,157 $ 284,114 $ 399 $ 142,804 $ 141,709
Gain/
(Loss)
Cash
Equivalents
Securities
Investments $ 218,117 $ — $ 218,117 $ — $ — 7,313 — 7,313 — — 41,051 — — — 41,051 11,800 — — — 11,800 159,220 948 — 160,168 — 49,130 544 — 49,674 — $ 486,631 $ 1,492 $ 225,430 $ 209,842 $ 52,851 $ 178,019 $ — $ 178,019 $ — $ — 2,820 — 2,820 — — 20,552 — — — 20,552 35,028 — — — 35,028 130,959 297 — 131,256 — 69,552 105 — 69,657 — $ 436,930 $ 402 $ 180,839 $ 200,913 $ 55,580 0.6%1.8% and 0.7%1.9% per annum for the years ended June 30, 201726, 2020 and June 24, 2016,28, 2019, respectively.30, 201726, 2020 and June 24, 2016, 66%28, 2019, 63% and 58%, respectively, of our cash and cash equivalents were held by the Parent Company.marketable securitiesshort-term investments classified as30, 2017:(amount in thousands) Carrying Cost Fair Value $ 14,369 $ 14,363 133,634 133,574 3,519 3,513 $ 151,522 $ 151,450
Cost
Cost $ 76,127 $ 76,196 $ 69,746 $ 69,830 132,223 133,646 130,765 131,083 $ 208,350 $ 209,842 $ 200,511 $ 200,913 30, 2017, the net realized loss from changes in fair value of marketable securities recognized by26, 2020, the Company was $0.8 million.30, 201726, 2020 and June 24, 2016,28, 2019, the Company considered the declinesdecline in market value of its marketable securities investmentshort-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 policyNoNaN impairment losses were recorded for the years ended June 30, 201726, 2020 and June 24, 2016.As of June 30, 2017 and June 24, 2016, cash, cash equivalents, and marketable securities included bank deposits of $40.0 million held in various financial institutions located28, 2019.United Statesprincipal or most advantageous market for the asset or liability in orderan orderly transaction between market participants on the measurement date. A fair value hierarchy is established, which requires an entity to supportmaximize the availabilityuse of observable inputs and minimize the use of unobservable inputs for the valuation of an asset or liability as of the Facility Agreement and comply with covenants. Undermeasurement date. The three levels of inputs that may be used to measure fair value are defined as follows:terms and conditions ofassets or liabilities have a specified (contractual) term, Level 2 inputs must be observable for substantially the Facility Agreement, the Company shall maintain cash, cash equivalents and/or marketable securities in an aggregate amount not less than $40.0 million in unencumbered deposits, and/or securities in accounts located in the United States at all times during thefull term of assets or liabilities.Facility Agreement. As discussed in Note 13,reporting entity to develop its own valuation techniques and assumptions.Company must comply with this covenant frommarket approach to measure fair value for its financial assets and after the effective date of the Facility Agreement.6.Fair Value Fair Value Measurements at Reporting Date
Using (amount in thousands) Level 1 Level 2 Level 3 Total $ — $ 2,585 $ — $ 2,585 — 98,274 — 98,274 — 50,666 — 50,666 — 2,510 — 2,510 — 15 (1) — 15 $ — $ 154,050 $ — $ 154,050 $ — $ — $ — $ — $ — $ — $ — $ — Fair Value Measurements at Reporting Date
Using (amount in thousands) Level 1 Level 2 Level 3 Total $ — $ 6,050 $ — $ 6,050 — 112,522 — 112,522 — 28,030 — 28,030 — 1,157 — 1,157 — 158 (2) — 158 $ — $ 147,917 $ — $ 147,917 $ — $ 1,754 (3) $ — $ 1,754 $ — $ 1,754 $ — $ 1,754
Using $ — $ 7,313 $ — $ 7,313 — 41,051 — 41,051 — 11,800 — 11,800 — 160,168 — 160,168 — 49,674 — 49,674 — 2,230 (1) — 2,230 $ — $ 272,236 $ — $ 272,236 $ — $ 5,273 (2) $ — $ 5,273 $ — $ 5,273 $ — $ 5,273
Using $ — $ 2,820 $ — $ 2,820 — 20,552 — 20,552 — 35,028 — 35,028 — 131,256 — 131,256 — 69,657 — 69,657 — 2,201 (3) 2,201 $ — $ 261,514 $ — $ 261,514 $ — $ 2,591 (4) $ — $ 2,591 $ — $ 2,591 $ — $ 2,591 (1) (2) (3) $1.0$72.0 million and Canadian dollars 0.6of $0.6 million.(2)(4)Foreign currency forward contract$7.0$64.2 million.(3)Foreign currency forward contract with notional amount of $77.5 million and Canadian dollars 0.6 million.Financial Instrumentschange.fluctuate. The Company uses foreign currency forward and option contracts to manage the foreign exchange risk associated with certaina portion of its foreign currency denominated assets and liabilities and other foreign currency transactions. The Company minimizesenters into foreign currency forward and option contracts to hedge fluctuations in the credit riskU.S. dollar value of forecasted transactions denominated in derivative instruments by limiting its exposure to any single counterpartyThai baht and by entering into derivative instruments onlyCanadian dollars with counterparties that meet the Company’s minimum credit quality standard. As of June 30, 2017, therecognized the fair value ofmay enter into foreign currency forward contracts $0.02 million as derivative assetsconsolidated balance sheets under other current assets. As of June 24, 2016, the Company recognized the fairU.S. dollar value of foreign currencyforecasted transactions denominated in Thai baht, including inventory purchases, payroll and other operating expenses. The Company considers these forward contracts as dual-purpose hedges, that hedge both the foreign exchange fluctuation (i) from inception through the forecasted expenditure, and (ii) any subsequent revaluation of $0.2 million as derivative assets and$1.7 million as derivative liabilities in the consolidated balance sheets under other current assets and accrued expenses, respectively.As of June 30, 2017,account payable or accrual. The Company may designate the Company had no foreign currency forward contracts designatedthat hedge the foreign exchange fluctuation from inception through the forecasted expenditure as cash flow hedges. DuringThe gain or loss on a derivative instrument designated and qualified as a cash flow hedging instrument is recorded as a component of other comprehensive income and reclassified into earnings in the year ended June 30, 2017,same period or periods during which the hedged forecasted transaction affects earnings. The reclassified amounts are presented in the same income statement line item as the earnings effect of the hedged item. Once the forecasted transactions are recorded, the Company discontinued cash flow hedgeswillrecognized a gain from unwinding foreign currency forward contracts of $0.3 million asrecording subsequent changes in fair value through contract maturity to foreign exchange gain (loss), net in the consolidated statements of operations and comprehensive income as a natural hedge against the Thai baht denominated assets and liabilities.24, 2016,26, 2020, the Company hedged forecastedhad 125 outstanding U.S. dollar foreign currency transactions related to the construction costs of a new manufacturing building at the Company’s Chonburi Campus with certain forward contracts designated as cash flow hedges. The Company had two outstanding forward contractsagainst Thai baht with an aggregate notional amount of $125.0 million, one foreign currency contract with notional amount of $7.0Canadian dollars 0.6 million and 1 foreign currency option contract with notional amount of $1.0 million with maturity dates ranging from July 2020 through January 2021.mature during August 2016designated for hedge accounting had been tested to be highly effective based on the performance of retrospective and September 2016. Theprospective regression testing. During the year ended June 26, 2020, the Company includedrecorded an unrealized gain$0.2 $1.1 instrumentinstruments, in AOCI in the consolidated balance sheets. As of June 24, 2016, gain of $0.01 million in AOCI is expected to be reclassified as earning within the next 12 months. During the year ended June 24, 2016, there was no ineffective portion or discontinued cash flow hedges recognizedother comprehensive income in the consolidated statements of operations and comprehensive income.30, 2017,26, 2020, the amount in AOCI that is expected to be reclassified into earnings within 12 months as245 outstanding foreign currency forward contracts with an aggregate notional amount of $1.0$72.0 million and one foreign currency forward contract with notional amount of Canadian dollars dollar2017.2019. 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 and Canadian dollars. During the year30, 2017,28, 2019, the Company included unrealized$0.02$the consolidated statements of operations and comprehensive income.As of June 24, 2016, the Company had 14 outstandingearnings as foreign currency forward contracts with notional amount of $77.5 million and Canadian dollars 0.6 million, which matured during July to December 2016. 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 and Canadian dollar. During the year ended June 24, 2016, the Company included unrealized loss of $1.8 million from changes in fair value of foreign currency contractsexchange gain (loss), net in the consolidated statements of operations and comprehensive income.7.Trade accounts receivable, net(amount in thousands) As of
June 30,
2017 As of
June 24,
2016 $ 264,389 $ 196,178 (40 ) (33 ) $ 264,349 $ 196,145 30, 2017, trade accounts receivable28, 2019, the Company had 0 foreign currency forward contracts designated as cash flow hedges.$3.0 million were securedthe Company’s debt obligations. As of June 26, 2020, the Company had 2 outstanding interest rate swap agreements with an aggregate notional amount of $125.1 million. As of June 28, 2019, the Company had 1 outstanding interest rate swap agreement with a notional amount of $64.2 million.short-term loans from bankeffectively convert the floating interest rate of its term loan under the credit facility agreement with Bank of America (the “BofA Facility Agreement”) to a fixed interest rate13)16).8.Inventory(amount in thousands) As of
June 30,
2017 As of
June 24,
2016 $ 88,640 $ 58,199 105,732 94,762 33,998 21,593 13,025 9,381 241,395 183,935 (2,730 ) (2,436 ) $ 238,665 $ 181,499 9.Business acquisition14, 2016,3, 2019, the Company acquired 100% shareholdingdrew down a term loan under a new Credit Facility Agreement with the Bank of Ayudhya Public Company Limited (the “Bank”) (see Note 16) and on September 10, 2019, repaid in Exception EMSfull the outstanding term loan under the BofA Facility Agreement (see Note 16). In conjunction with the funding of the new term loan, the Company entered into a second interest rate swap agreement. Thecash considerationthe Company’s term loan under the Credit Facility Agreement with the Bank. The combination of approximately $13.0 million, net of $0.5 million cash acquired. Exception EMS provides contract electronics manufacturing services tothese two interest rate swaps qualified for hedge accounting based on a regression testing result which proved the global electronics industry with innovative solutions, adding value to the design, manufacture and testing of printed circuit board assemblies. Pursuant to the acquisition agreement,hedges are highly effective. In addition, the Company has placed $3.3 million of cash, net of foreign currency translation adjustment, for deferred consideration in an escrow account which is underdesignated and documented contemporaneously the Company’s control. However,hedging relationships involving these interest rate swaps. At least quarterly, the Company has contractually agreedperforms a qualitative effectiveness test on the interest rate swaps to remit this deferred considerationsupport the continued application of hedge accounting. As of June 26, 2020, the hedging relationship was determined to be highly effective based on the sellersperformance of Exception EMS, subject to the resolution of claims thata qualitative effectiveness testing. While the Company may make againstintends to continue to meet the funds with respect to indemnification and other claims within 24 months fromconditions for hedge accounting, if hedges do not qualify as highly effective, the closing date ofchanges in the transaction.The Company has accounted for this acquisition under the provisions of business combinations accounting, in accordance with Accounting Standards Codification Topic 805—Business Combinations. Accordingly, the estimated fair value of the acquisition consideration was allocatedderivatives used as hedges would be reflected in earnings. From September 27, 2019, any gains or losses related to these interest rate swaps will be recorded in AOCI in the assets acquired and the liabilities assumedconsolidated balance sheets, with a portion reclassified from AOCI into earnings at each reporting period based on their respective fair values oneither the acquisition date. The Company has made certain estimatesaccrued interest amount or the interest payment.assumptions in determining the allocation of the acquisition consideration.The allocation of consideration to the individual net assets acquired was finalizedall changes in the fourth quarterfair value of fiscal year 2017. As the functional currency of Exception EMS is pound sterling (“GBP”), forthese interest rate swaps were reflected in earnings. During the year30, 2017,26, 2020 and June 28, 2019, the Company recognized a $0.3recorded unrealized loss of $1.7 million lossand $2.6 million, respectively, from foreign currency translation adjustmentchanges in itsthe fair value of these interest rate swaps as interest expense in the consolidated statements of operations and comprehensive income.Duringyear ended June 30, 2017,impact of derivative gain (loss) of the Company’s foreign currency forward contracts and interest rate swaps which were designated as cash flow hedges on the consolidated statements of operations and other comprehensive income: Other comprehensive income $ 1,081 $ — Other comprehensive income (910 ) — $ 171 $ — Cost of revenues $ 2,512 $ — Selling, general and administrative expenses 105 — Foreign exchange gain (loss), net (998 ) — Interest expense (1,220 ) — $ 399 $ — $ 570 $ —
Assets
Liabilities
Assets
Liabilities $ 9 $ (611 ) $ 2,201 $ — — — — (2,591 ) 2,814 (83 ) — — — (5,172 ) — — 2,823 (5,866 ) 2,201 (2,591 ) (593 ) 593 — — $ 2,230 $ (5,273 ) $ 2,201 $ (2,591 ) a measurement period adjustment to recognized deferred tax liabilities of $1.2 million related to taxable temporary differences from intangibles and changes in the fair value of assets acquired. Therefore, goodwill which was previously reported at acquisition date of $2.7 million was changed to $3.9 million.The Company’s allocation of the total purchase price for the acquisition is summarized below:(amount in thousands) Purchase
price
allocation $ 474 4,064 3,490 427 5,678 4,492 3,883 516 (6,796 ) (1,148 ) (1,563 ) $ 13,517 $ 13,043 In connection with the Company’s acquisition of Exception EMS, the Company assumed lease agreements for certain machine and equipment, which are accounted for as capital leases. As of June 30, 2017, the Company included approximately $1.9 million of capital lease assets and $1.4 million of capital lease liabilityderivative financial instruments in the consolidated balance sheets associated with these acquired lease agreements.During the year ended June 30, 2017, the Company incurred approximately $1.5 million in transaction costs related to the acquisition, which primarily consisted of legal, accounting and valuation-related expenses. These expenses were recorded in selling, general and administrative expense in the accompanying consolidated statements of operations and comprehensive income.Pro forma results of operations for the acquisition have not been presented as they were not material to the Company’s results of operations.Identifiable intangiblesThe acquired identifiable intangible assets include customer relationships and backlog. The fair value of the identified intangible assets was determined based on the multi-period excess earnings method, which applied the following key assumptions:Risk free rate:
2020
2019 $ 273,001 $ 260,698 (336 ) (96 ) $ 272,665 $ 260,602
2020
2019 $ 141,522 $ 113,321 136,344 141,730 17,950 24,916 13,970 13,645 $ 309,786 $ 293,612
leases
June 28, 2019
June 29, 2019 $ — $ 5,370 $ 5,370 $ — $ 1,601 $ 1,601 $ — $ 3,769 $ 3,769 $ 2,313 2,314 2,200 1,176 288 157 8,448 (596 ) $ 7,852 (1) 30-year UK Government Bond adjusted by spot yield to reflect recent volatilityLong-term revenue growth:5.0% - 8.0%Churn rate:10%Operating margin:4.0% - 6.0%Customer relationships representfair valueCompany’s operating leases is recognized on a straight-line basis over the lease term. Rental expense for long-term leases for the year ended June 26, 2020, June 28, 2019 and June 29, 2018 was $2.1 million, $1.9 million and $1.8 million, respectively. Rental expense for short-term leases for the year ended June 26, 2020, June 28, 2019 and June 29, 2018 was $0.2 million, $0.1 million and de minimis amount, respectively.estimated saleacquisition of products to existing customersFabrinet UK, the Company assumed the finance lease commitments for certain equipment, with various expiration dates through September 2020. The equipment can be purchased atacquired company. The fair value of $4.4 million will be amortized over an estimated useful life of ten years.Backlog represents the fair value of sales orders backlog as of the valuation date. The fair valueCompany had finance lease liabilities of $0.1 million, will be amortized over an estimated useful life of three years.GoodwillGoodwill arising fromwhich were recorded under other payables in the acquisition is primarily attributableconsolidated balance sheets.abilityCompany’s operating leases and finance leases:
June 26, 20203.3 0.3 3.7 % 4.1 % expand future productsoperating and services and the assembled workforce. Goodwill is not deductible for tax purposes. $ 2,326 $ 400 $ 8,068 $ 80 10.(amount in thousands) Land and
Land
Improvements Building and
Building
Improvements Manufacturing
Equipment Office
Equipment Motor
Vehicles Computers Construction
and
Machinery
Under
Installation Total $ 39,096 $ 138,578 $ 127,085 $ 7,688 $ 534 $ 19,642 $ 6,058 $ 338,681 (2 ) (31,881 ) (72,130 ) (4,163 ) (376 ) (13,248 ) — (121,800 ) $ 39,094 $ 106,697 $ 54,955 $ 3,525 $ 158 $ 6,394 $ 6,058 $ 216,881 $ 39,048 $ 95,386 $ 96,041 $ 5,826 $ 443 $ 15,578 $ 23,248 $ 275,570 — (25,438 ) (56,564 ) (3,500 ) (366 ) (11,292 ) — (97,160 ) $ 39,048 $ 69,948 $ 39,477 $ 2,326 $ 77 $ 4,286 $ 23,248 $ 178,410 During the year ended June 30, 2017, property, plant and equipment, net included $5.0 million in assets acquired from the acquisition
Land
Improvements
Improvements
Equipment
Equipment
Vehicles
and
Machinery
Under
Installation $ 45,099 $ 145,912 $ 198,036 $ 5,600 $ 939 $ 16,766 $ 12,657 $ 425,009 (17 ) (51,393 ) (127,397 ) (4,135 ) (678 ) (12,273 ) — (195,893 ) — — (840 ) — — (2 ) — (842 ) $ 45,082 $ 94,519 $ 69,799 $ 1,465 $ 261 $ 4,491 $ 12,657 $ 228,274 $ 45,080 $ 142,909 $ 163,795 $ 5,029 $ 870 $ 13,987 $ 10,815 $ 382,485 (11 ) (44,736 ) (110,980 ) (3,656 ) (658 ) (10,900 ) — (170,941 ) — — (856 ) — — (2 ) — (858 ) $ 45,069 $ 98,173 $ 51,959 $ 1,373 $ 212 $ 3,085 $ 10,815 $ 210,686 abovein manufacturing equipment comprise certain machine and equipment from capitalfinance lease agreements assumed from the acquisition of Exception EMS.(amount in thousands) As of
June 30, 2017 $ 2,725 (856 ) $ 1,869 $22.5$$17.3$$12.9$30, 2017,24, 2016 26, 2015,havehas been allocated between cost of revenues and selling, general and administrative expenses in the consolidated statements of operations and comprehensive income.30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 201529, 2018 amounted to $5.4$2.9 million, $2.0 million and $1.1$3.5 million, respectively.30, 201726, 2020, June 28, 2019 and June 24, 2016,29, 2018, the Company capitalized $0.5 million and $0.1 million ofhad 0 borrowing costs in construction in progress of its new manufacturing building at Chonburi Campus. The Company stopped capitalizing borrowing costs in the third quarter of fiscal year 2017 upon the completion of this campus.11.(amount in thousands) Gross
Carrying
Amount Accumulated
Amortization Foreign
Currency
Translation
Adjustment Net $ 5,944 $ (3,850 ) $ — $ 2,094 4,373 (606 ) (88 ) 3,679 119 (51 ) (1 ) 67 $ 10,436 $ (4,507 ) $ (89 ) $ 5,840 (amount in thousands) Gross
Carrying
Amount Accumulated
Amortization Foreign
Currency
Translation
Adjustment Net $ 3,786 $ (3,287 ) $ — $ 499 — — — — — — — — $ 3,786 $ (3,287 ) $ — $ 499
Carrying
Amount
Amortization
Currency
Translation
Adjustment $ 8,317 $ (5,577 ) $ — $ 2,740 4,373 (2,691 ) (110 ) 1,572 119 (119 ) — — $ 12,809 $ (8,387 ) $ (110 ) $ 4,312
Carrying
Amount
Amortization
Currency
Translation
Adjustment $ 6,582 $ (4,868 ) $ — $ 1,714 4,373 (2,096 ) (104 ) 2,173 119 (119 ) — — $ 11,074 $ (7,083 ) $ (104 ) $ 3,887 Exception EMS,Fabrinet UK, the Company recorded $4.4 million of customer relationships and $0.1 million of backlog.backlog in the consolidated balance sheets. As of June 30, 2017,26, 2020 and June 28, 2019, the weighted-average remaining life of customer relationships and backlog was 6.94.6 years and 1.65.4 years, respectively.$0.1 million and $0.1$1.7 million for the years ended June 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 2015,29, 2018, respectively.As30, 2017,26, 2020, and assuming no future impairment of the underlying assets, the estimated future amortization of intangible assets during each fiscal year was as follows:(amount in thousand) $ 1,482 1,339 934 787 527 771 $ 5,840 $ 1,320 1,542 663 434 205 148 $ 4,312 12.As of June 30, 2017, the Company recorded $3.8 million of goodwill, inException EMS,Fabrinet UK, the Company recorded goodwill in the consolidated balance sheets.The the carrying amount of goodwill were as follows:(amount in thousands) Goodwill $ — 3,883 (77 ) $ 3,806 Goodwill is not deductible for tax purposes. Goodwill is reviewed annually for impairment or more frequently whenever changes or circumstances indicate the carrying amount of goodwill may not be recoverable. were as follows: $ 3,705 (3,514 ) (191 ) $ — 30, 2017,26, 2020, the Company performed the annual impairment test for goodwill. The impairment test includes both qualitative and quantitative factors to assess the likelihood of an impairment. The reportingunit’s carrying value used in an impairment test represents the assignment of various assets and liabilities. Qualitative factors include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit. The quantitative impairment test was performed by using an income approach. Fair value is estimated based on the discounted cash flow model that the subject assets can be expected to generate over their remaining useful life. Key assumptions used to determine projected cash flow were revenue growth rate, estimated costs and operating expenses and discount rates based on a reporting unit’s weighted average cost of capital. As a result of goodwill which indicated there was noimpairment testing, the carrying amount of the reporting unit exceeded its fair value, and the Company recognized goodwill impairment.13. Borrowingsrevolvingcurrent andfollowing (dollarsfollowing:: Conditions Maturity As of
June 30, 2017 As of
June 24, 2016 Repayable in July 2017 (2) $ 34,000 $ 6,500 Repayable based on
accounts receivable
1,003 — 13,600 18,100 48,603 24,600 (201 ) (293 ) $ 48,402 $ 24,307 Repayable in March 2017 $ — $ 4,500 Repayable in May 2019 36,400 $ 50,000 36,400 54,500 (13,600 ) (18,100 ) (99 ) (300 ) $ 22,701 $ 36,100 $ 12,188 $ 3,250 (32 ) — $ 12,156 3,250 Repayable in
quarterly installments
June 2023 $ — $ 60,938 Repayable in
quarterly installments
June 2024 51,797 — (12,188 ) (3,250 ) (95 ) — $ 39,514 $ 57,688 LIBOR is London Interbank Offered Rate.(2)In June 2017, the maturity date of this revolving borrowing was extended to mature in July 2017.loansborrowings were as follows for the years ended June 30, 201726, 2020 and June 24, 2016: Years ended (amount in thousands) June 30,
2017 June 24,
2016 $ 54,500 $ 10,500 — 50,000 (18,100 ) (6,000 ) $ 36,400 $ 54,500 $ 60,938 $ 64,188 60,938 — (70,079 ) (3,250 ) $ 51,797 $ 60,938 30, 2017,26, 2020, the future maturities of long-term debtborrowings during each fiscal year were as follows:(amount in thousand) $ 13,600 22,800 $ 36,400 $ 12,188 15,233 12,188 12,188 $ 51,797 facilities:(the “Facility Agreement”) with a consortium of banks on May 22, 2014. The Facility Agreement, led by Bank of America provides(the “BofA Facility Agreement”). The BofA 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. The revolving loan facility contains an accordion feature permitting Fabrinet to request an increase in the facility up to $100.0 million subject to customary terms and conditions and provided that no default or event of default exists at the time of request. The revolving loan facility terminates and all amounts outstanding are due and payable in full on May 22, 2019. The principal amount of any drawn term loans must be repaid according to the scheduled quarterly amortization payments, with final payment of all amounts outstanding, plus accrued interest, being due on May 22, 2019.On February 26, 2015, the Company entered into the Second Amendment to the Facility Agreement. The amendment extended the availability period for draws on the term loan facility from May 21, 2015 to July 31, 2015. It also allows the Company, upon the satisfaction of certain conditions, to designate fromone or more of its subsidiaries as borrowersthe Company amended the BofA Facility Agreement, before repaying all outstanding amounts under the Facility Agreement. On July 31, 2015,agreement and terminating such agreement on September 10, 2019.Company entered intorevolving commitments thereunder from $150.0 million to $25.0 million, (ii) refinanced the Third Amendment to the Facility Agreement. The amendment extended the availability period for draws on the term loan facility from July 31, 2015 to July 31, 2016. The Company fully drew down the term loan facility of $50.0 million in fiscal year 2016. As of June 30, 2017, $34.0 million of revolving borrowing and $36.4 million of term loan borrowing was outstanding under the Facility Agreement, resulting in available credit facilities of $116.0 million. Borrowingsamounts under the revolving credit facility are classified as current liabilitiesloan and term loan facilities into a $65.0 million term loan which was to be repaid in the audited consolidated balance sheet as the Company has the periodic option to renew or pay, all or a portion of, the outstanding balance at the end of the maturity date, which is in the range of one to six months, without premium or penalty, upon notice to the administrative agent. Subsequent to the balance sheet date, the Company sent a notice to the bank to renewquarterly installments through the maturity date of this revolving borrowing.June 4, 2023, and (iii) reduced the interest rate margins and commitment fees. The bank approved the notice and extended the maturity to July 2017.Loans under the Facility Agreement bearterm loan bore interest, at Fabrinet’sthe Company’s option, at a rate per annum equal to a LIBOR rate plus a spread of 1.75%1.50% to 2.50%2.25%, or a base rate determined in accordance with the Facility Agreement, plus a spread of 0.75%0.50% to 1.50%,1.25%. During the yeareach caseconnection with such spread determined based on Fabrinet’s consolidated total leverage ratio forthis term loan.preceding four fiscal quarter period. Interest is dueCompany fully repaid $61.0 million in principal, accrued interest and payable quarterly in arrears for loans bearing interest at the base rate and at the end of an interest period (or at each three-month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the LIBOR rate.Fabrinet’s obligationsother fees under the Facility Agreement are guaranteed by certainagreement. The early termination of its existing and future direct material subsidiaries. In addition, the Facility Agreement is secured by Fabrinet’s present and future accounts receivable, deposit accounts and cash, and a pledgethis agreement did not trigger any early termination fees. A the capital stock of certain of Fabrinet’s direct subsidiaries. Fabrinet is required to maintain at least $40.0 million of cash, cash equivalents, and marketable securities at financial institutions located in the United States. Further, Fabrinet is required to maintain any of its deposits accounts or securities accounts with balances in excess of $10.0 million in a jurisdiction where a control agreement, or the equivalentlocal law, can be effected. TheBofAgreement contains customary affirmative and negative covenants. Negative covenants include, among other things, limitations on liens, indebtedness, investments, mergers, sales Agreement. A assets, changes in the nature of the business, dividends and distributions, affiliate transactions and capital expenditures. The Facility Agreement contains financial covenants requiring Fabrinet to maintain: (i) a minimum tangible net worth ofnot less than $200.0plus 50% of quarterly net income, exclusive of quarterly losses; (ii) a minimum debt service coverage ratio of not less than 1.50:1.00; (iii) a maximum senior leverage ratio of not more than 2.50:1.00; and (iv) a minimum quick ratio of not less than 1.10:1.00. Each of these financial covenants is calculated on a consolidated basis for the consecutive four fiscal quarter period then ended. As of June 30, 2017, the Company was in compliance with all covenantsoutstanding under the Agreement.The Facility also contains customary events of default including, among other things, payment defaults, breaches of covenants or representations and warranties, cross-defaults with certain other indebtedness, bankruptcy and insolvency events and change in control of Fabrinet, subject to grace periods in certain instances. Upon an event of default, the lenders may terminate their commitments, declare all or a portion of the outstanding obligations payable by Fabrinet to be immediately due and payable and exercise other rights and remedies provided for under the Facility Agreement.Fabrinet intends to use the proceeds of the credit line to finance its future expansion in the United States and Thailand, and for general corporate purposes including mergers and acquisitions of complementary manufacturing businesses or technology, although Fabrinet has no current commitments with respect to any such acquisitions.Short-term borrowings from bankIn connection with the acquisition of Exception EMS, the Company assumed a secured borrowing agreement that is secured by trade accounts receivable of Exception EMS. As of June 30, 2017, the carrying amount of trade accounts receivable securedrelated to the loans was $3.0 million. The secured borrowing agreement contains certain covenants that Exception EMS is required to comply with: (1) the value of credit notes may not exceed 4% of the value of assigned debts measured on a monthly basis, and (2) rolling cash flow must be provided to the financial institution along with monthly management information. As of June 30, 2017, the subsidiary was in compliance with all covenants under the secured borrowing agreement.As of June 30, 2017, the Company drew down $1.0 million from this facility, which is recorded as short-term loans in the consolidated balance sheets. The agreement bears interest for discount charge at 1.85% per annum above Bank of England base rate.Undrawn available credit facilities classified by available period of future borrowing as of June 30, 2017 and June 24, 2016 were as follows:(amount in thousands) June 30,
2017 June 24,
2016 $ 1,965 $ 1,414 $ 116,000 $ 143,500 14.the information of theregarding severance liabilities:(amount in thousands) As of
June 30,
2017 As of
June 24,
2016 $ 6,684 $ 5,477 1,804 1,207 $ 8,488 $ 6,684
2020
2019 $ 15,473 $ 10,390 $ 1,907 $ 2,345 — 2,537 462 352 (48 ) (274 ) (117 ) 130 (4 ) (7 ) $ 17,673 $ 15,473 $ 317 $ 299 $ (34 ) $ (7 ) 18 36 — — (7 ) (11 ) $ 294 $ 317 $ (17,379 ) $ (15,156 ) wasand(amount in thousands) As of
June 30,
2017 As of
June 24,
2016 $ 8,488 $ 6,684 $ 8,488 $ 6,684
2020
2019 $ — $ 53 $ 17,379 $ 15,209 amount recognizedfollowing table provides information regarding accumulated benefit obligations:
2020
2019 $ 11,864 $ 10,208
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3) $ 294 $ 160 $ 134 $ 294 $ 160 $ 134
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3) $ 317 $ 183 $ 134 $ 317 $ 183 $ 134 consolidated statementsfollowing funds:
Total38 % 17 % 45 % operationsfunds; these have been treated as Level 2 fair value measurement.comprehensive income wasCorporate bonds, the returns of which are smoothed over time. These assets are considered as follows: Years Ended (amount in thousands) June 30,
2017 June 24,
2016 June 26,
2015 $ 1,451 $ 842 $ 360 213 203 203 — (11 ) (10 ) 140 173 471 $ 1,804 $ 1,207 $ 1,024 30, 201726, 2020 24, 201628, 2019 26,201529, 2018 1.93%0.4% - 3.6%3.1% 2.0%2.3% - 3.2% 4.0%2.5% - 3.7% 3.5% - 10.0% 4.1%3.5% - 10.0% 4.2%3.5% - 10.0% 2.3% - 3.2% 2.5% - 3.7% 1.9% - 3.6% 2.1% 1.6% 1.9% 15.30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 201529, 2018 was as follows: Years Ended (amount in thousands) June 30,
2017 June 24,
2016 June 26,
2015 $ — $ 16 $ 226 22,412 9,911 7,801 4,095 — — 26,507 9,927 8,027 — — — $ 26,507 $ 9,927 $ 8,027
2020
2019
2018 �� $ 16,555 $ 14,691 $ 17,143 5,648 2,466 5,438 22,203 17,157 22,581 — — — $ 22,203 $ 17,157 $ 22,581 Years Ended (amount in thousands) June 30, 2017 June 24, 2016 June 26, 2015 $ 5,318 $ 1,979 $ 1,450 21,189 7,948 6,577 $ 26,507 $ 9,927 $ 8,027
2020
2019
2018 $ 6,098 $ 5,656 $ 6,784 16,105 11,501 15,797 $ 22,203 $ 17,157 $ 22,581 not0t capitalize any share-based compensation expense as part of any asset costs during the years ended June 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 2015.As of June 30, 2017, there were no share options outstanding under Fabrinet’s Amended and Restated 1999 Share Option Plan (“1999 Plan”). Additional option grants may not be made under the 1999 Plan.As of June 30, 2017, there were an aggregate of 96,688 share options outstanding, 1,058,605 restricted share units outstanding and 227,268 performance share units outstanding under Fabrinet’s 2010 Performance Incentive Plan (“2010 Plan”). As of June 30, 2017, there were 1,111,573 ordinary shares available for future grant under Fabrinet’s 2010 Performance Incentive Plan (“2010 Plan”). The 1999 Plan and 2010 Plan are collectively referred to as the “Share Option Plans”.Share optionssubject to an option vest 12 months after the vesting commencement date and 1/48 of the underlying shares vest monthly over each of the subsequent 36 months. In the case of any additional grants to a grantee, 1/48 of the underlying shares subject to an option vest monthly over four years, commencing one month after the vesting commencement date.options activity: Number of
Shares Number of
Exercisable
Options Weighted-
Average
Exercise Price Weighted-
Average Grant
Date Fair Value 865,890 666,305 $ 16.27 — — — (56,968 ) $ 14.67 (8,347 ) $ 15.90 (8,556 ) $ 21.44 792,019 758,451 $ 16.33 — — — (325,530 ) $ 16.83 (755 ) $ 17.10 (1,400 ) $ 23.62 464,334 464,334 $ 15.95 — — — (367,641 ) $ 16.02 — — (5 ) $ 5.75 96,688 96,688 $ 15.70 96,688 $ 15.70
Exercisable
Options
Average
Exercise Price
Average Grant
Date Fair Value 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 201529, 2018 was nil, $0.2 million and $1.1 million, respectively.NaN. The total intrinsic value of options exercised during the years ended June 30, 201726, 2020, June 24, 201628, 2019 and June 26, 201529, 2018 was $8.9 million, $3.6 millionNaN, NaN and $0.2$2.0 million, respectively. In conjunction with these option exercises, there was no tax benefit realized by the Company due to the fact that it is exempted from income tax. The amount of cash received from the exercise of share options was $5.9 million during the year ended June 30, 2017.paying pay – optionee,optionholder, 1/48 of the underlying shares subject to an option vest monthly over four years, commencing one month after the vesting commencement date.The following table summarizes information for share options outstanding as of June 30, 2017 under the Share Option Plans: Number of
Shares
Underlying
Options Exercise
Price Per
Share Weighted Average
Remaining
Contractual Life
(years) Aggregate
Intrinsic Value
(amount in thousands) 25,238 $ 14.12 1.36 30,000 $ 15.05 0.35 6,100 $ 15.16 1.13 28,300 $ 16.83 0.29 5,550 $ 18.60 1.67 1,500 $ 25.50 0.54 96,688 0.72 $ 2,607 96,688 0.72 $ 2,607 96,688 0.72 $ 2,607 As of June 30, 2017, there was no unrecognized compensation cost under the Share Option Plans.are one type of share-based award that may beand performance share units have been granted under the 2010 Plan. Equity Incentive Restricted share units granted to employees generally vest in four equal installments over four years on each anniversary of the vesting commencement date. two-year The Company has entered into an employment agreement, as amended on August 12, 2016, with one executive2010 Plan: Number of
Shares Weighted-
Average Grant
Date Fair Value
Per Share 762,295 $ 14.23 666,582 $ 17.53 (247,593 ) $ 14.44 (40,357 ) $ 16.68 1,140,927 $ 16.03 654,589 $ 21.15 (507,621 ) $ 15.60 (106,493 ) $ 18.34 1,181,402 $ 18.34 861,356 $ 38.95 (853,535 ) $ 21.16 (130,618 ) $ 29.31 1,058,605 $ 31.59 1,024,706 $ 31.56
Shares
Average Grant
Date Fair Value
Per Share 1,058,605 $ 31.59 552,637 $ 35.95 (436,867 ) $ 27.81 (100,795 ) $ 33.62 1,073,580 $ 35.19 391,328 $ 50.02 (515,482 ) $ 34.18 (148,675 ) $ 38.42 800,751 $ 42.48 367,088 $ 50.87 (335,355 ) $ 40.98 (34,727 ) $ 44.59 797,757 $ 46.88 697,093 $ 46.81 2010 Plan: Number of
Shares Weighted-
Average Grant
Date Fair Value
Per Share — — 234,678 $ 40.48 — — (7,410 ) — 227,268 $ 40.48 227,268
Average Grant
Date Fair Value 227,268 $ 40.48 378,624 $ 37.16 — — — — 605,892 $ 38.41 201,994 $ 48.02 (227,268 ) $ 40.48 (32,118 ) $ 40.47 548,500 $ 40.97 242,310 $ 48.65 — — (350,670 ) $ 36.99 440,140 $ 48.37 378,928 $ 48.37 areis based on the market value of our ordinary shares on the date of grant.unitunits vested during the year30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 201529, 2018 was $18.1$13.7 million, $7.9$26.8 million and $3.6$12.2 million, respectively. The aggregate intrinsic value of restricted share units and performance share units outstanding as of June 30, 201726, 2020 was $45.2$73.5 million.30, 2017,26, 2020, there was $16.1$12.2 million and $5.1$5.6 million of unrecognized share-based compensation expense related to restricted share units and performance share units, respectively, under the 2010 PlanEquity2.462.4 years and 1.131.1 years, respectively.30, 201726, 2020 and June 24, 2016,28, 2019, the Company withheld an aggregate of 37,12694,141 shares and 114,359235,730 shares, respectively, upon the vesting of restricted share units, based upon the closing share price on the vesting date to settle the employees’ minimum statutory obligation for the applicable income and other employment taxes. For fiscal year 2017the years ended June 26, 2020 and fiscal year 2016,June 28, 2019, the Company then remitted cash of $1.4$4.9 million and $2.5$10.6 million, respectively, to the appropriate taxing authorities, and presented it as a financing activity within the consolidated statements of cash flows. The payment had the effect on shares16.defineddefi$3.6$5.5 million, $2.8$4.8 million and $2.3$4.2 million during the years ended June 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 2015,29, 2018, respectively.$0.6$0.7 million, $0.5$0.8 million and $0.3$0.7 million during the years ended June 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 2015,29, 2018, respectively.yearyears ended June 30, 2017,26, 2020 and June 28, 2019, the Company maintained an executive incentive plan with quantitative objectives, based on achieving certain revenue and For the years ended June 24, 2016 and June 26, 2015, the Company maintained an executive incentive plan with quantitative objectives, based on achieving certain revenue and non-GAAP earnings per share targets as well as qualitative objectives, based on achieving individual performance goals for the applicable fiscal year. During the years ended June 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 2015,29, 2018, discretionary merit-based bonus awards were also available to Fabrinet’s$7.5 million and $6.0$4.0 million for the years ended June 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 2015,29, 2018, respectively.17.30, 2017,26, 2020, Fabrinet issued 367,641241,214 ordinary shares upon the vesting of restricted share units and performance share units, net of shares withheld.$16.02$15.56 per share, and 816,409290,949 ordinary shares upon the vesting of restricted share units, net of shares withheld.For the year ended June 24, 2016, Fabrinet issued 325,530 ordinary shares upon the exercise of options, for cash consideration at a weighted average exercise price of $16.83 per share, and 393,262 ordinary shares upon the vesting of restricted share units, net of shares withheld.For the year ended June 26, 2015, Fabrinet issued 56,968 ordinary shares upon the exercise of options, for cash consideration at a weighted average exercise price of $14.67 per share, and 227,914 ordinary shares upon the vesting of restricted share units, net of shares withheld.18. by component for the years ended June 30, 201726, 2020 and June 24, 201628, 2019 were as follows:(amount in thousands) Unrealized net
(Losses)/Gains on
Marketable
Securities Unrealized net
(Losses)/Gains
on Derivative
Instruments Foreign
Currency
Translation
Adjustment Total $ (44 ) $ — $ — $ (44 ) 637 (298 ) — 339 (194 ) 490 — 296 — — — — 399 192 — 591 399 192 — 591 351 — (310 ) 41 (822 ) (158 ) — (980 ) — — — — (471 ) (158 ) (310 ) (939 ) $ (72 ) $ 34 $ (310 ) $ (348 )
Securities
on Derivative
benefit plan -
cost
Currency
Translation
Adjustment $ (1,091 ) $ 33 $ — $ (199 ) $ (1,257 ) 1,845 — (2,537 ) (634 ) (1,326 ) 198 (1 ) — — 197 — — — — — 2,043 (1 ) (2,537 ) (634 ) (1,129 ) 952 32 (2,537 ) (833 ) (2,386 ) 634 171 — (397 ) 408 (96 ) 399 528 — 831 — — — — — 538 570 528 (397 ) 1,239 $ 1,490 $ 602 $ (2,009 ) $ (1,230 ) $ (1,147 ) 30, 201726, 2020 and June 24, 2016, respectively (amounts in thousands). Years ended June 30,
2017 June 24,
2016 $ (822 ) $ (194 ) — 471 (158 ) 19 $ (980 ) $ 296
2020
2019 Interest income $ (96 ) $ 198 Cost of revenues 2,512 — Selling, general and administrative expenses 105 (1 ) Foreign exchange loss, net (998 ) — Interest expense (1,220 ) — Selling, general and administrative expenses 528 — $ 831 $ 197 19.Bank30, 201726, 2020 and June 24, 2016,28, 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. As of June 26, 2020 and June 28, 2019, the standby letter of credit was backed by cash collateral of $7.4 million.amounting to $1.5 expenses totaling $1.6 million $0.8 million, respectively.Operating lease commitmentsThe Company leasesthere were other bank guarantees given by a portionbank on behalf of its capital equipment, vehicle, and certain land and buildings for its facilitiesour subsidiaries in Thailand, Cayman Islands, China the United States and the United Kingdom under operating lease arrangements that expire in various years through 2023. Rental expense under these operating leases amountedU.K. to $1.7 million, $1.2support their operations of$1.1 million for the years ended June 30, 2017, June 24, 2016 and June 26, 2015,$25 thousand, respectively.As of June 30, 2017, the future minimum lease payments due under non-cancelable operating leases during each fiscal year were as follows:(amount in thousands) $ 1,744 1,162 946 540 416 520 $ 5,328 Capital lease commitmentsIn connection with the acquisition of Exception EMS, the Company assumed the capital lease commitments of several machines and equipment, with various expiration dates until September 2020. The equipment can be purchased at the determined prices upon expiration of such contracts.As of June 30, 2017, the future minimum lease payments under non-cancelable capital leases during each fiscal year were as follows:(amount in thousands) $ 466 479 422 105 1,472 (104 ) $ 1,368 Representing capital lease liabilities $ 344 1,024 $ 1,368 As of June 30, 2017, the present value of capital lease during each fiscal year were as follows:(amount in thousands) $ 344 510 409 105 $ 1,368 On December 23, 2016, the Company entered into an agreement to purchase a parcel of land in Chonburi, Thailand, to support the expansion of the Company’s production in Thailand. The aggregate purchase price is approximately $5.6 million, of which the first installment of $1.1 million was paid by the Company on January 10, 2017. The Company expects to pay the remaining balance of the purchase price on or before December 25, 2017.30, 2017,26, 2020, the Company had an outstanding commitment to third parties of $10.6 million, of which $4.5 million was from the commitment to purchase land in Chonburi, Thailand.20.componentscomp1nts of an enterprise that engage in business activities for which separatediscrete financial information is available that is evaluated regularly by the chief operating decision maker (the “CODM”) in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision makerCODM is Fabrinet’s chief executive officer.Chief Executive Officer. As of June 30, 2017,26, 2020, June 24, 201628, 2019 and June 26, 2015,29, 2018, the Company operated and internally managed a single operating segment. Accordingly, the Company does not accumulate discrete information with respect to separate product lines and does not have separate reportable segments. primarily in three geographic regions: North America, Asia-Pacific and Europe. Years Ended (amount in thousands) June 30,
2017 June 24,
2016 June 26,
2015 $ 661,267 $ 525,161 $ 370,836 539,317 351,033 309,941 219,906 100,553 92,810 $ 1,420,490 $ 976,747 $ 773,587
2020
2019
2018 $ 830,888 $ 756,278 $ 643,236 552,923 608,386 519,203 258,025 219,671 209,486 $ 1,641,836 $ 1,584,335 $ 1,371,925 30, 201726, 2020 and June 24, 2016,28, 2019, the Company had approximately $34.9$29.5 million and $34.7$31.4 million, respectively, of long-lived assets based in North America, with the substantial remainder of assets based in Asia-Pacific. Years Ended (amount in thousands) June 30,
2017 June 24,
2016 June 26,
2015 $ 1,108,637 $ 727,580 $ 553,245 311,853 249,167 220,342 $ 1,420,490 $ 976,747 $ 773,587
2020
2019
2018 $ 1,248,174 $ 1,184,936 $ 1,000,256 393,662 399,399 371,669 $ 1,641,836 $ 1,584,335 $ 1,371,925 Years Ended June 30,
2017 June 24,
2016 June 26,
2015 17 % 20 % 20 % * (1) * (1) 10 %
2020
2019
2018 19 % 20 % 16 % 10 % * * 10 % * * (1)*Lessrevenue.revenues.30, 201726, 2020 and June 24, 2016,28, 2019, respectively, were as follows: As of June 30, 2017 As of June 24, 2016 15 % 18 % 12 % * (1) 10 % * (1) * (1) 11 %
June 26,
2020
June 28,
2019 20 % 23 % 13 % 12 % (1)Less than 10% of total accounts receivable.21.Financial instrumentsmaturitymaturities of up to sixtwelve months. All foreign currency exchange contracts are recognized on the consolidated balance sheets at fair value. Gain or loss on the Company’s derivative instruments generally offset the assets, liabilities and transactions economically hedged.GBP.30, 201726, 2020 and June 24, 2016,28, 2019, the Company had outstanding foreign currency assets and liabilities as follows: As of June 30, 2017 As of June 24, 2016 (amount in thousands) Currency $ Currency $ 395,123 $ 11,628 834,536 $ 23,594 26,965 3,980 14,835 2,255 6,896 8,982 — — $ 24,590 $ 25,849 1,875,338 $ 55,189 1,517,782 $ 42,912 28,451 4,200 24,654 3,748 5,625 7,326 — — $ 66,715 $ 46,660 667,955 $ 21,617 664,860 $ 21,628 158,060 22,402 53,393 7,767 6,220 7,726 5,270 6,682 $ 51,745 $ 36,077 2,102,392 $ 68,039 1,961,972 $ 63,825 42,586 6,036 26,373 3,836 1,545 1,919 2,598 3,294 $ 75,994 $ 70,955 30, 2017 and June 24, 2016,26, 2020 there was $1.0were $126.0 million and $84.5 million inof foreign currency forward and option contracts respectively, outstanding on the Thai baht payables.income tax payable and other payables. As of June 30, 201726, 2020 and June 24, 2016,28, 2019, there were no0 derivative contracts denominated in RMB. primarily represent cash, trade accounts receivable, inventory and property, plant and equipment, net.equipment. The GBP liabilities primarily represent short-term loans, trade accounts payable and other payables.payable. As of June 30, 2017,26, 2020 and June 28, 2019, there were no0 derivative contracts denominated in GBP.20172020, fiscal year 2019, and fiscal year 2016,2018, the Company recorded unrealized loss of $0.02$1.2 million, unrealized gain of $4.8 million, and $1.8unrealized loss of $1.7 million, respectively, related to derivatives that are not designated as hedging instruments in its consolidated statements of operations and comprehensive income.monthsyears or less held with high quality financial institutions. The Company’s principal interest bearing liabilities are bank loans which bear interest at floating rates.22.Income related to floodingDuringweekprofile of August 10, 2015, the Company’s subsidiary in China temporarily suspended production in its manufacturing facility due to flooding caused by Typhoon Soudelor and resumed operations on August 15, 2015. Duringdebt obligation. The terms of the year ended June 24, 2016,Swap Agreements allow the Company recognized incometo effectively convert the floating interest rate to a fixed interest rate. This locks the variable in interest expenses associated with our floating rate borrowings and results in fixed interest expenses, which is unsusceptible to market rate increase. The Company designated the Swap Agreements as a cash flow hedge, and they qualify for hedge accounting because the hedges are highly effective. While the Company 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 flooding of $0.04 million, which consisted of a $0.9 million final payment from an insurer againstthese outstanding interest rate swaps will be recorded in accumulated other comprehensive income in the consolidated balance sheets, with subsequent reclassification to interest expense when settled.claim for flood damage, offset by expenses in relationboard of directors approved the repurchase of up to flood of $0.86 million, which mainly consisted of $0.6an additional $58.5 million of repaired cost of equipment and $0.2 million of inventory losses.23.Subsequent eventIn August 2017,Fabrinet’s outstanding ordinary shares, bringing the Company’s Board of Directors approved aaggregate authorization under Fabrinet’s existing share repurchase program to permit the Company to repurchase up to $30.0 million worth$168.5 million.30, 201726, 2020 and June 24, 2016: Three Months Ended (in thousands, except per share data) Jun 30,
2017 Mar 31,
2017 Dec 30,
2016 Sep 30,
2016 Jun 24,
2016 Mar 25,
2016 Dec 25,
2015 Sep 25,
2015 $ 370,454 $ 366,837 $ 351,156 $ 332,043 $ 276,388 $ 250,888 $ 233,038 $ 216,433 $ 44,760 $ 44,046 $ 43,046 $ 39,608 $ 33,842 $ 31,177 $ 28,493 $ 26,011 $ 27,401 $ 21,656 $ 25,292 $ 22,766 $ 19,669 $ 20,822 $ 19,803 $ 1,603 $ 0.73 $ 0.58 $ 0.69 $ 0.63 $ 0.55 $ 0.58 $ 0.55 $ 0.05 37,334 37,116 36,848 36,404 36,075 35,964 35,812 35,579 $ 0.72 $ 0.57 $ 0.67 $ 0.61 $ 0.53 $ 0.56 $ 0.54 $ 0.04 38,118 37,872 37,805 37,330 37,258 37,089 36,826 36,315 (in thousands, except per share data)
2020
2020
2019
2019
2019
2019
2018
2018 $ 405,113 $ 411,210 $ 426,217 $ 399,296 $ 405,127 $ 398,951 $ 403,080 $ 377,177 $ 46,624 $ 44,336 $ 49,158 $ 45,987 $ 46,626 $ 46,758 $ 45,564 $ 40,276 $ 28,024 $ 28,267 $ 31,231 $ 25,957 $ 32,957 $ 28,635 $ 31,513 $ 27,850 $ 0.76 $ 0.76 $ 0.84 $ 0.70 $ 0.89 $ 0.78 $ 0.86 $ 0.76 36,723 36,987 37,011 36,913 36,836 36,891 36,841 36,625 $ 0.75 $ 0.75 $ 0.83 $ 0.69 $ 0.88 $ 0.76 $ 0.84 $ 0.75 37,571 37,797 37,763 37,529 37,511 37,539 37,471 37,140 During the year ended June 30, 2017, we implemented formal controls and procedures over business combination accounting which we applied. that occurred during the quarterthree months ended June 30, 201726, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.30, 2017.26, 2020. In making this assessment, management used the criteria described inControl—IntegratedControl -Integrated Framework2017,2020, based on the criteria in Internal Control—Control — Integrated Framework (2013) issued by COSO. The effectiveness of our internal control over financial reporting as of June 30, 201726, 2020 has been audited by PricewaterhouseCoopers ABAS Ltd., an independent registered public accounting firm, as stated in their report which appears herein.20172020 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form (the “201720172020 Proxy Statement.20172020 Proxy Statement.20172020 Proxy Statement.ACCOUNTINGACCOUNTANT FEES AND SERVICES.20172020 Proxy Statement.on the accompanying Exhibit Index immediately following the signature pagein Item 15(b) of this Annual Report on Form(b) See Item 15(a)(3), above.
Number
No. 3.1 3.1 May 3, 2010 4.1 4.1 June 14, 2010 4.2 4.2 August 20, 2019 10.1.1+ 10.1 December 15, 2017 10.1.2+ 10.2 February 5, 2013 10.1.3+ 10.3 February 5, 2013 10.1.4+ 10.4 February 5, 2013 10.1.5+ 10.5 November 9, 2016 10.2.1+ 99.1.1 November 8, 2017 10.2.2+ 99.1.2 November 8, 2017 10.2.3+ 99.1.3 November 8, 2017 10.3.1+ 99.1 December 12, 2020 10.3.2+ 99.2 December 12, 2020 10.3.3+ 99.3 December 12, 2020 10.4+ 10.1 August 20, 2019 10.5+ 10.1 September 25, 2017
Number
No. 10.6+ 10.1 February 28, 2019 10.7+ 10.1 May 8, 2018 10.8+ 10.5 November 7, 2007 10.9+ 10.1 February 3, 2020 10.10+ 10.2 May 5, 2020 10.11+ N/A August 20, 2019 10.12+ N/A August 17, 2020 10.13+ 10.10 January 28, 2010 10.14 10.10 November 7, 2007 10.15 10.11 November 7, 2007 10.16 10.12 November 7, 2007 10.17 10.14 November 20, 2009
Number
No. 10.18 10.1 September 12, 2019 10.19 10.2 September 12, 2019 10.20† 10.27 January 19, 2010 21.1 21.1 August 20, 2019 23.1 24.1 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
Number
No. 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) + † (c) 23, 2017.18, 2020.By: TCOH-SENGSABA NSGVERHA Name: Toh-Seng NgTitle: David T. MitchellSeamus Grady and Toh-Seng NgCsaba Sverha and each of them, as his true and lawful DSAVIDEAMUS T. MGITCHELLRADYDavid T. Mitchell Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) and Director 23, 201718, 2020TCOH-SENGSABA NSGVERHAToh-Seng Ng Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 23, 201718, 2020Chairman of the Board of Directors 23, 201718, 2020Director 23, 201718, 2020 23, 201718, 2020 23, 201718, 2020EXHIBIT INDEX
Number 3.1 Amended and Restated Memorandum and Articles of Association S-1/A 3.1 May 3, 2010 333-163258 4.1 Specimen Ordinary Share Certificate S-1/A 4.1 June 14, 2010 333-163258 10.1.1+ Fabrinet 2010 Performance Incentive Plan, as amended 10-K 10.2.1 October 16, 2014 001-34775 10.1.2+ Form of Share Option Agreement under the Fabrinet 2010 Performance Incentive Plan 10-Q 10.2 February 5, 2013 001-34775 10.1.3+ Form of Restricted Share Agreement under the Fabrinet 2010 Performance Incentive Plan 10-Q 10.3 February 5, 2013 001-34775 10.1.4+ Form of Restricted Share Unit Agreement under the Fabrinet 2010 Performance Incentive Plan 10-Q 10.4 February 5, 2013 001-34775 10.1.5+ Form of Performance Share Unit Agreement under the Fabrinet 2010 Performance Incentive Plan 10-Q 10.5 November 9, 2016 001-34775 10.2.1+ Amended and Restated Employment Agreement, dated May 24, 2015, by and between David T. Mitchell and the registrant 10-K 10.3 August 19, 2013 011-34775 10.2.2+ Letter Agreement, dated August 12, 2016, by and between David T. Mitchell and the registrant 8-K 10.1 August 18, 2016 011-34775 10.3.1+ Amended and Restated Offer Letter, dated February 5, 2015, by and between Dr. Harpal Gill and Fabrinet USA, Inc. 8-K 10.1 February 12, 2015 001-34755 10.3.2+ Letter Agreement, dated August 12, 2016, by and between Dr, Harpal Gill and Fabrinet USA, Inc. 8-K 10.2 August 18, 2016 001-34755 10.4+ Employment Agreement, dated July 1, 2007, by and between Dr. Harpal Gill and Fabrinet Co., Ltd. S-1 10.5 November 7, 2007 333-147191 10.5+ Description of Fiscal 2016 Executive Incentive Plan 8-K, Item 5.02 N/A August 19, 2015 001-34755
Number 10.6+ Description of Fiscal 2017 Executive Incentive Plan 8-K, Item 5.02 N/A August 18, 2016 001-34755 10.7+ Description of Fiscal 2016 Long-Term Equity Plan 8-K, Item 5.02 N/A August 28, 2015 001-34755 10.8.1+ Offer Letter, dated November 5, 2015, between Hong Hou and Fabrinet USA, Inc. 10-Q 10.1 May 3, 2016 001-34755 10.8.2+ Letter Agreement, dated October 31, 2016, by and between Hong Hou and Fabrinet USA, Inc. 8-K 10.3 August 18, 2016 001-34755 10.9.1+ Amended and Restated Offer Letter, dated February 5, 2015, between the registrant and Toh-Seng Ng 8-K 10.2 February 12, 2015 001-34755 10.9.2+ Letter Agreement, dated August 12, 2016, by and between Toh-Seng Ng and Fabrinet USA, Inc. 8-K 10.3 August 18, 2016 001-34755 10.10+ Form of Indemnification Agreement S-1/A 10.10 January 28, 2010 333-163258 10.11 Manufacturing Agreement, dated May 29, 2005, by and between the registrant and FBN New Jersey Holdings Corp. S-1 10.10 November 7, 2007 333-147191 10.12 Manufacturing Agreement, dated January 2, 2000, by and between the registrant and Fabrinet Co., Ltd. S-1 10.11 November 7, 2007 333-147191 10.13 Administrative Services Agreement, dated January 2, 2000, by and between the registrant and Fabrinet USA, Inc. S-1 10.12 November 7, 2007 333-147191 10.14 Administrative Services Agreement, dated July 3, 2008, by and between the registrant and Fabrinet Pte. Ltd. S-1 10.14 November 20, 2009 333-163258 10.15.1 Credit Agreement, dated as of May 22, 2014, by and among Fabrinet, the guarantors from time to time party thereto, the lenders from time to time party thereto and Bank of America, N.A. as administrative agent. 8-K 10.1 May 22, 2014 001-34775
Number 10.15.2 First Amendment to Credit Agreement, effective as of September 25, 2014, by and among Fabrinet, the guarantors party thereto, the lenders party thereto and Bank of America, N.A. as administrative agent. 10-Q 10.1 November 5, 2014 001-34775 10.15.3 Second Amendment to Credit Agreement, dated as of February 26, 2015, by and among Fabrinet, the guarantors party thereto, the lenders party thereto and Bank of America, N.A. as administrative agent. 8-K 10.1 March 2, 2015 001-34775 10.15.4 Third Amendment to Credit Agreement, dated as of July 31, 2015, by and among Fabrinet, the designated borrowers party thereto, the guarantors party thereto, the lenders party thereto and Bank of America, N.A. as administrative agent. 8-K 10.1 August 5, 2015 001-34775 10.16 Security and Pledge Agreement, dated as of May 22, 2014, by and between Fabrinet and Bank of America, N.A. as administrative agent. 8-K 10.2 May 22, 2014 001-34775 10.17 Lease Agreement, dated July 1, 2013, by and between Donly Corporation and FBN New Jersey Manufacturing, Inc. DBA VitroCom 10-K 10.16 August 16, 2013 001-34775 10.18† Primary Contract Manufacturing Agreement, dated January 1, 2008, by and between JDS Uniphase Corporation and the registrant S-1/A 10.27 January 19, 2010 333-163258 10.19 Land Purchase Agreement, dated September 2, 2015, by and among Fabrinet Co., Ltd. and Hemaraj Land and Development Public Company Limited 10-Q 10.4 November 3, 2015 001-34775 10.20 Construction Contract, dated October 30, 2015, by and among Fabrinet Co., Ltd. and Standard Performance Co., Ltd. 10-Q 10.1 February 2, 2016 001-34775 ExhibitNumberDescriptionIncorporated by reference hereinFormExhibit No.Filing DateFile No. 21.1List of Subsidiaries 23.1Consent of PricewaterhouseCoopers ABAS Ltd. 24.1Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K) 31.1Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1Certifications 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 2002101.INSXBRL Instance101.SCHXBRL Taxonomy Extension Schema101.CALXBRL Taxonomy Extension Calculation Linkbase101.DEFXBRL Taxonomy Extension Definition Linkbase101.LABXBRL Taxonomy Extension Label Linkbase101.PREXBRL Taxonomy Extension Presentation Linkbase+Indicates management contract or compensatory plan.†Confidential treatment has been requested for portions of this exhibit.106