What changed in this filing

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Item 1. Financial Statements

2020-05-05 compared with 2020-02-04 · 394 added, 392 removed, 584 unchanged (57% of the section changed)

25 unchanged sentences

Contract liabilities

Capital lease liability, current portion

Operating lease liability, current portion

Operating lease liabilit ies

, current portion

Income tax payable

5 unchanged sentences

Deferred tax liability

Capital lease liability, non-current

Operating lease liabilit ies

, non-current

Operating lease liabilities, non-current

Severance liabilities

5 unchanged sentences

Preferred shares ( 5,000,000 shares authorized, $ 0.01 par value;

no shares issued and outstanding as of December 27, 2019 and June 28, 2019)

no shares issued and outstanding as of March 27, 2020 and June 28, 2019)

Ordinary shares ( 500,000,000 shares authorized, $ 0.01 par value;

38,408,890 shares and 38,230,753 shares issued at December 27, 2019 and June 28, 2019, respectively;

and 37,019,787 shares and 36,841,650 shares outstanding at December 27, 2019 and June 28, 2019, respectively)

38,460,931 shares and 38,230,753 shares issued as of

March 27, 2020 and June 28, 2019, respectively;

and 36,716,828 shares and 36,841,650 shares outstanding as of March

27, 2020 and June 28, 2019, respectively)

Additional paid-in

Treasury shares , at c ost

( 1,389,103 shares and 1,389,103 shares as of December 27, 2019 and June 28, 2019, respectively)

Treasury shares, at cost ( 1,744,103 shares and 1,389,103 shares as of March 27, 2020 and June 28, 2019, respectively)

Accumulated other comprehensive loss

2 unchanged sentences

Total Liabilities and Shareholders’ Equity

accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)

Three Months Ended

Nine Months Ended

(in thousands of U.S.

dollars, except per share data)

Three Months Ended

Six Months Ended

Cost of revenues

4 unchanged sentences

Interest expense

Foreign exchange (

Foreign exchange loss, net

Other income, net

2 unchanged sentences

Other comprehensive income (loss), net of tax:

Change in net unrealized (loss) gain on available-for-sale securities

Change in net unrealized (loss) gain on available-for-sale

Change in net unrealized loss on derivative instruments

1 unchanged sentence

Change in foreign currency translation adjustment

Total other comprehensive income, net of tax

Total other comprehensive (lo ss)

income, net of tax

Net comprehensive income

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

For the Three Months Ended December 27, 2019

Ordinary Shares

Comprehensive

For the Three Months Ended March 27, 2020

(in thousands of U.S.

dollars, except share data)

(Loss) Income

Balances at September 27, 2019

Other comprehensive income

Ordinary Shares

Comprehensive

Income (Loss)

Balances at December 27, 2019

Other comprehensive loss

Share-based compensation

Issuance of ordinary shares

Repurchase of 355,000 shares held as treasury shares

Tax withholdings related to net share settlement of restricted share units

Balances at December 27, 2019

For the Six Months Ended December 27, 2019

Ordinary Shares

Comprehensive

Balances at March 27, 2020

For the Nine Months Ended March 27, 2020

(in thousands of U.S.

dollars, except share data)

(Loss) Income

Ordinary Shares

Comprehensive

Income (Loss)

Balances at June 28, 2019

Other comprehensive income

Other comprehensive loss

Share-based compensation

Issuance of ordinary shares

Repurchase of 355,000 shares held as treasury shares

Tax withholdings related to net share settlement of restricted share units

Balances at December 27, 2019

Balances at March 27, 2020

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited) (Continued)

For the Three Months Ended December 28, 2018

Ordinary Shares

Comprehensive

For the Three Months Ended March 29, 2019

(in thousands of U.S.

dollars, except share data)

(Loss) Income

Balances at September 29, 2018

Ordinary Shares

Comprehensive

Income (Loss)

Balances at December 28, 2018

Other comprehensive income

1 unchanged sentence

Issuance of ordinary shares

Repurchase of 100,000 shares held as treasury shares

Tax withholdings related to net share settlement of restricted share units

Balances at December 28, 2018

For the Six Months Ended December 28, 2018

Ordinary Share

Comprehensive

Balances at March 29, 2019

For the Nine Months Ended March 29, 2019

(in thousands of U.S.

dollars, except share data)

(Loss) Income

Ordinary Shares

Comprehensive

Income (Loss)

Balances at June 29, 2018

3 unchanged sentences

Issuance of ordinary shares

Repurchase of 100,000 shares held as treasury shares

Tax withholdings related to net share settlement of restricted share units

Balances at December 28, 2018

Balances at March 29, 2019

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Six Months Ended

Nine Months Ended

(in thousands of U.S.

5 unchanged sentences

Loss on disposal of intangibles

(Gain) loss from sales and maturities of available-for-sale

Amortization of investment discount (premium)

Gain from sales and maturities of available-for-sale securities

Accretion of premiums on short-term investments

Amortization of deferred debt issuance costs

Allowance for doubtful accounts

(Reversal) allowance for doubtful accounts

Unrealized loss (gain) on exchange rate and fair value of foreign currency forward contracts

Unrealized loss (gain) on fair value of interest rate swaps

Amortization of interest rate swaps’ fair value at hedge inception

Unrealized loss on fair value of interest rate swaps

Amortization of fair value at hedge inception of interest rate swaps

Share-based compensation

Deferred income tax

Severance liabilities

Other non-cash

Other non-cash expenses

Changes in operating assets and liabilities

1 unchanged sentence

Contract assets

Other current assets and non-current

Other current assets and non-current assets

Trade accounts payable

1 unchanged sentence

Income tax payable

Severance liabilities

Other current liabilities and non-current

4 unchanged sentences

Proceeds from maturities of short-term investments

Other receivable provided to customer (Note 9)

provided to customer to support transfer of manufacturing operations (Note 9)

Purchase of property, plant and equipment

1 unchanged sentence

Proceeds from disposal of property, plant and equipment

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flows from financing activities

2 unchanged sentences

Repayment of long-term borrowings

Repayment of capital lease liability

Repayment of finance lease liabilities

Repurchase of ordinary shares

Release of restricted cash held in connection with business acquisition

35 unchanged sentences

Basis of presentation

The accompanying unaudited condensed consolidated financial statements for Fabrinet as of December 27, 2019 and for the three and six months ended December 27, 2019 and December 28, 2018 includes normal recurring adjustments necessary for a fair statement of the financial statements set forth herein, in accordance with accounting principles generally accepted in the United States of America (“U.S.

The accompanying unaudited condensed consolidated financial statements for Fabrinet as of March 27, 2020 and for the three and nine months ended March 27, 2020 and March 29, 2019 include normal recurring adjustments necessary for a fair statement of the financial statements set forth herein, in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”).

5 unchanged sentences

GAAP for complete financial statements.

The results for the three and six months ended December 27, 2019 may not be indicative of results for the year ending June 26, 2020 or any future periods.

Use of Estimates

The results for the three and nine months ended March 27, 2020 may not be indicative of results for the year ending June 26, 2020 or any future periods.

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S.

2 unchanged sentences

The Company’s reported financial position or results of operations may be materially different under different conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies, which are discussed below.

Significant assumptions are used in accounting for share-based compensation, allowance for doubtful accounts, income taxes, inventory obsolescence, goodwill and valuation of intangible assets related to business acquisition, among others.

Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.

In the event that estimates or assumptions prove to be different from actual results, adjustments will be made in subsequent periods to reflect more current information.

The Company utilizes a 52-53

The Company utilizes a 52 to

week fiscal year ending on the Friday in June closest to June 30.

The three months ended December 27, 2019 and December 28, 2018 each consisted of 13 weeks.

The six months ended December 27, 2019 and December 28, 2018 each consisted of 26 weeks.

The three months ended March 27, 2020 and March 29, 2019 each consisted of 13 weeks.

The nine months ended March 27, 2020 and March 29, 2019 each consisted of 39 weeks.

Fiscal year 2020 will be comprised of 52 weeks and will end on June 26, 2020.

Changes in Accounting Policies

Except for the adoption of the new lease accounting standard and the derivatives and hedging standard described below, the Company has consistently applied the accounting policies to all periods presented in these unaudited condensed consolidated financial statements.

Reclassifications

For presentation purposes, certain prior period amounts have been reclassified to conform to the current period presentation.

These reclassifications do not affect the Company’s net income, cash flows or stockholders’ equity.

Except for the adoption of the new lease accounting standard and the derivatives and hedging standard described below, the Company has consistently applied its

accounting policies to all periods presented in these unaudited condensed consolidated financial statements.

oncentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, short-term investments, derivatives, accounts receivable and contract assets.

Cash, cash equivalents and short-term investments are maintained with several financial institutions.

Deposits held with banks may exceed the amount of insurance provided on such deposits.

Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk.

The Company seeks to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring the risk profiles of these counterparties.

The Company limits its short-term investments in marketable securities to securities with a maturity not in excess of three years and securities that are rated A1, P-1,

F1, or better.

The Company enters into derivative contracts with financial institutions

with reputable

credit and monitors the credit profiles of these counterparties.

The Company performs ongoing credit evaluations for credit worthiness of its customers and usually does not require collateral from its customers.

Management has implemented a program to closely monitor near term cash collection and credit exposures to mitigate any material losses.

Adoption of new accounting standards

On June 29, 2019, the Company adopted the new lease accounting standard, Accounting Standards Codification Topic 842 (“ASC 842”), which provides guidance for the recognition and disclosure of lease arrangements.

On June 29, 2019, the Company adopted the new lease accounting standard, Accounting Standards Codification (“ASC”) Topic 842, which provides guidance for the recognition and disclosure of lease arrangements.

The Company adopted ASC 842 using the modified retrospective transition approach.

3 unchanged sentences

For periods prior to adoption of ASC 842, the Company is required to present disclosures in accordance with ASC Topic 840.

uture minimum lease payments due under non-cancelable

operating leases as of June 28, 2019 were as follows:

Future minimum lease payments due under non-cancelable operating leases as of June 28, 2019 were as follows:

(amount in thousands)

4 unchanged sentences

“Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities.

simplifies existing hedge accounting guidance in order to better portray in financial statements the economic impact of risk management activities in the financial statements, including eliminating the separate measurement and presentation of hedge ineffectiveness.

Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12

simplifies existing hedge accounting guidance in order to better portray the economic impact of risk management activities in the financial statements, including eliminating the separate measurement and presentation of hedge ineffectiveness.

Prior to the adoption of ASU 2017-12,

4 unchanged sentences

See Note 6 for further details.

Concentration of credit risk

Cash, cash equivalents and short-term investments are maintained with several financial institutions.

Deposits held with banks may exceed the amount of insurance provided on such deposits.

Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk.

The Company seeks to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring the risk profiles of these counterparties.

The Company limits its short-term investments in marketable securities to securities with a maturity not in excess of three years and securities that are rated A1, P-1,

F1, or better.

The Company enters into derivative contracts with financial institutions with reputable credit and monitors the credit profiles of these counterparties.

The Company performs ongoing credit evaluations for credit worthiness of its customers and usually does not require collateral from its customers.

Management has implemented a program to closely monitor near term cash collection and credit exposures to mitigate any material losses.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04,

“Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which temporarily simplifies the accounting for contract modifications, including hedging relationships, due to the transition from LIBOR and other interbank offered rates to alternative reference interest rates.

For example, entities can elect not to remeasure the contracts at the modification date or reassess a previous accounting determination if certain conditions are met.

Additionally, entities can elect to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain conditions are met.

The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.

This ASU was effective for the Company in the third quarter of fiscal 2020 with no impact to the Company’s unaudited condensed consolidated financial statements.

New accounting pronouncements – not yet adopted by the Company

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12,

In December 2019, the FASB issued ASU 2019-12,

“Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

” The amendments in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

Simplifying the Accounting for Income Taxes.” The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify U.S.

GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

2 unchanged sentences

The Company is currently evaluating the impact of the adoption of this update on its condensed consolidated financial statements.

In May 2019, the

FASB issued ASU 2019-05,

“Financial Instruments – Credit Losses (Topic 326):

Targeted Transition Relief .

” The amendments in ASU 2019-05

provide entities that have certain instruments within the scope of Subtopic 326-20

(“Financial Instruments—Credit Losses—Measured at Amortized Cost”) with an option to irrevocably elect the fair value option in Subtopic 825-10

(“Financial Instruments—Overall”), applied on an instrument-by-instrument

basis for eligible instruments, upon adoption of Topic 326.

The fair value option election does not apply to held-to-maturity

debt securities.

An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10

(“Fair Value Measurement—Overall”) and 825-10.

For public business entities, this update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

This ASU will be effective for the Company in the first quarter of fiscal 2021.

Early adoption is permitted.

The Company is currently evaluating the i mpact of the adoption of

its condensed consolidated financial statements.

In April 2019, the

FASB issued ASU 2019-04,

“Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The amendments in ASU 2019-04

apply to all reporting entities within the scope of the affected accounting guidance.

For public business entities, this update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

This ASU will be effective for the Company in the first quarter of fiscal 2021.

Early adoption is permitted.

The Company is currently evaluating the impact of the adoption of this update on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13,

2 unchanged sentences

The amendment modifies the disclosure requirements on transferring between level 1 and level 2 and valuation processes of level 3 fair value measurements.

This update is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, beginning after December 15, 2019.

This update is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

This ASU will be effective for the Company in the first quarter of fiscal 2021.

3 unchanged sentences

Simplifying the Test for Goodwill Impairment.” ASU 2017-04

modified the concept of impairment assessment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value.

modifies the concept of impairment assessment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value.

Public companies that are SEC filers should adopt the amendment for annual and any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

2 unchanged sentences

The Company does not expect this update will impact its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13,

“Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” which establishes a new credit impairment model for financial assets measured at amortized cost and available-for-sale

debt securities.

The FASB issued subsequent amendments to Topic 326, including ASU 2018-19,

and ASU 2020-02,

which provided further

guidance and transition relief.

For public business entities, this update

is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

This ASU will be effective for the Company in the first quarter of fiscal 2021.

Early adoption is permitted.

The Company is currently evaluating the impact of the adoption of this update on its condensed consolidated financial statements.

Revenues from contracts with customers

The Company derives total revenues primarily from the assembly of products under supply agreements with its customers and the fabrication of customized optics and glass.

The Company derives revenues primarily from the assembly of products under supply agreements with its customers and the fabrication of customized optics and glass.

The Company recognizes revenue relating to contracts with customers that depicts the transfer of promised goods or services to customers in an amount reflecting the consideration to which the Company expects to be entitled in exchange for such goods or services.

5 unchanged sentences

The majority of the Company’s 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.

The Company manufactures products that are customized to customers’ specifications, however, control of the products is typically transferred to the customer at the point in time the product is either shipped or delivered, depending on the terms of the arrangement, as the criteria for recognizing revenue over time are not met.

On the evaluation of the contracts the Company determined that it did not have contractual rights to bill profit for work in progress in the event of a contract termination, an event which is expected to be infrequent.

The Company manufactures products that are customized to customers’ specifications.

However, control of the products is typically transferred to the customer at the point in time the product is either shipped or delivered, depending on the terms of the arrangement, as the criteria for recognizing revenue over time are not met.

Based on a review of its contracts, the Company determined that it does not have contractual rights to bill profit for work in progress in the event of a contract termination, an event which is expected to be infrequent.

Further, in limited circumstances, substantive acceptance by the customer will result in the deferral of revenue until acceptance is formally received from the customer.

12 unchanged sentences

The Company generally provides a warranty of between one to five years on the product.

The Company has applied the practical expedient to not adjust the amount of revenue to be recognized due to the effects of a significant financing component when the Company expects, at contract inception, that the period between the transfer of goods and/or services and the payment for those goods and/or services will be less than one year.

Warranty provision

Provisions for estimated expenses relating to product warranties are made at the time the products are sold using historical experience.

Provisions for estimated expenses relating to pr o

duct warranties are made at the time the products are sold using historical experience.

Generally, this warranty is limited to workmanship, and the Company’s liability is capped at the price of the product.

3 unchanged sentences

Contract assets are classified separately within the unaudited condensed consolidated balance sheets and transferred to accounts receivable when rights to payment become unconditional.

During the six months ended December 27, 2019, the Company had no impairment for contract assets recognized.

During the nine months ended March 27, 2020, the Company had no impairment for contract assets recognized.

A contract liability is recognized when the Company has advance payment arrangements with customers.

The contract liabilities balance is normally recognized as revenue within six months.

The following tables summarize the activity in the Company’s contract assets and contract liabilities during the six

ended December 27, 2019:

The following tables summarize the activity in the Company’s contract assets and contract liabilities during the nine months ended March 27, 2020:

(amount in thousands)

Contract Assets

Beginning balance, June 28, 2019

1 unchanged sentence

Amounts collected or invoiced

Ending balance, December 27, 2019

Ending balance, March 27, 2020

(amount in thousands)

Beginning balance, June 28, 2019

dvance payment received during the period

Advance payment received during the period

Revenue recognized

Ending balance, December 27, 2019

Ending balance, March 27, 2020

Contract costs

Consistent with the guidance in ASC 340-40-25-1,

The incremental costs of obtaining a contract with a customer are recognized as an asset (not expensed as incurred) if such costs are expected to be recovered.

1 unchanged sentence

Costs that would have been incurred regardless of whether a customer contract was obtained (e.g., costs of pursuing the contact, legal advice, etc.) are expensed as incurred, unless such costs are explicitly chargeable to the customer.

During the six

ended December 27, 2019, the Company did no t have any incremental costs of obtaining a contract.

During the nine months ended

March 27, 2020, the Company did no t have any incremental costs of obtaining a contract.

Shipping and handling

7 unchanged sentences

North America, Asia-Pacific and Europe.

The following table s

present total revenues by geographic region:

The following tables present total revenues by geographic region

(amount in thousands, except percentages)

6 unchanged sentences

North America

The following table s

set forth our revenues by end market :

The following tables set forth our revenues by end market:

(amount in thousands, except percentages)

14 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(amount in thousands except per share amounts)

6 unchanged sentences

Outstanding performance share units excluded from the computation of diluted earnings per ordinary share (thousands of shares) (1)

These performance share units were no t included in the computation of diluted earnings per ordinary share because they are not expected to vest based on the Company’s current assessment of the related performance obligations.

These performance share units were not included in the computation of diluted earnings per ordinary share because they are not expected to vest based on the Company’s current assessment of the related performance obligations.

Cash, cash equivalents and short-term investments

The Company’s cash, cash equivalents, and short-term investments can be analyzed as follows:

The Company’s cash, cash equivalents, and short-term investments by category is as follows:

(amount in thousands)

As of December 27, 2019

As of March 27, 2020

Cash equivalents

1 unchanged sentence

Certificates of deposit and time deposits

Corporate bonds and commercial papers

Corporate debt securities

agency and U.S.

reasury securities

Treasury securities

As of June 28, 2019

2 unchanged sentences

Certificates of deposit and time deposits

Corporate bonds and commercial papers

Corporate debt securities

agency and U.S.

reasury securities

Treasury securities

All highly liquid investments with original maturities of three months or less at the date of purchase are classified as cash equivalents.

6 unchanged sentences

The following table summarizes the cost and estimated fair value of short-term investments classified as available-for-sale

securities based on stated effective maturities as of December 27, 2019:

December 27, 2019

securities based on stated effective maturities as of March 27, 2020:

March 27, 2020

June 28, 2019

(amount in thousands)

Carrying Cost

Due within one year

Due between one to five years

During the six months ended December 27, 2019, the Company recognized a realized gain of $ 79 thousand from sales and maturities of available-for-sale

As of December 27, 2019, the Company considered the decline

in market value of its short-term investments portfolio to be temporary in nature and did not consider any of its securities other-than-temporarily impaired.

During the nine months ended March 27, 2020, the Company recognized a realized gain of $ 0.1 million

from sales and maturities of available-for-sale

As of March 27, 2020, the Company considered the decline in market value of its short-term investments portfolio to be temporary in nature and did not consider any of its securities other-than-temporarily impaired.

The Company typically invests in highly-rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer.

2 unchanged sentences

When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s cost basis.

No impairment losses were recorded for the six months ended December 27, 2019.

No impairment losses were recorded for the nine months ended March 27, 2020.

Fair value of financial instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

A fair value hierarchy is established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs for the valuation of an asset or liability as of measurement date.

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:

6 unchanged sentences

The following table provides details of the financial instruments measured at fair value on a recurring basis, including:

Fair Value Measurements at Reporting Date

Fair Value Measurements at Reporting Date Using

(amount in thousands)

As of December 27, 2019

As of March 27, 2020

Cash equivalents

1 unchanged sentence

Certificates of deposit and time deposits

Corporate bonds and commercial papers

Corporate debt securities

agency and U.S.

reasury securities

Treasury securities

Derivative assets

6 unchanged sentences

Certificates of deposit and time deposits

Corporate bonds and commercial papers

Corporate debt securities

agency and U.S.

reasury securities

Treasury securities

Derivative assets

Derivative liabilities

Foreign currency forward contracts with a notional amount of $ 126.0 million

and Canadian dollars 0.4

Two interest rate swap agreements with an aggregate notional amount of

$ 125.1 million.

Foreign currency forward contracts with notional amount of $ 72.0 million and Canadian dollars 0.6 million.

Foreign currency forward and option contracts with a notional amount of $ 126.0 million and Canadian dollars of $ 0.7 million ,

and two interest rate swap agreements with an aggregate notional amount of $ 125.1 million.

Foreign currency forward contracts with notional amount of $ 72.0 million and Canadian dollars of $ 0.6 million.

Interest rate swap agreement with a notional amount of $ 64.2 million.

2 unchanged sentences

The Company minimizes the credit risk associated with its derivative instruments by limiting the exposure to any single counterparty and by entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard.

Foreign Currency Forward Contracts

Foreign currency forward and option contracts

As a result of foreign currency rate fluctuations, the U.S.

dollar equivalent values of the Company’s foreign currency denominated assets and liabilities also fluctuate.

The Company uses foreign currency contracts to manage the foreign exchange risk associated with certain foreign currency denominated assets and liabilities and other foreign currency transactions.

The Company enters into foreign currency forward contracts to hedge fluctuations in the U.S.

dollar value of forecasted transactions denominated in Thai baht and Canadian dollars.

As of December 27, 2019, the Company had 117

dollars foreign currency

forward contracts with an aggregate notional amount of

million and two outstanding Canadia n dollars foreign currency forward contracts with an aggregate notional amo u

with maturity dates from January 2020 through July 2020.

These foreign currency forward contracts were not designated for hedge accounting and were used to hedge fluctuations in the U.S.

dollar value of forecasted transactions denominated in Thai baht and Canadian dollars

During the six months ended December 27, 2019, the Company recorded an unrealized loss

million from changes in the fair value of foreign currency forward

contracts in earnings as foreign exchange ( loss

gain, net in the unaudited condensed consolidated statements of operations and comprehensive income.

As of December 28, 2018, the Company had four

outstanding U.S.

dollars foreign currency forward contracts with an aggregate notional amount of $ 8.0

million, three

outstanding U.S.

dollars foreign currency option contracts with an aggregate notional amount of $ 15.0

million and one outstanding Canadian dollars forward contract with a notional amount of $ 0.4

million with maturity dates from January through April 2019

These foreign currency forward contracts and option contracts were not designated for hedge accounting and were used to hedge fluctuations in the U.S.

dollar equivalent values of the Company’s foreign currency denominated assets and liabilities fluctuate.

The Company uses foreign currency contracts to manage the foreign exchange risk associated with a portion of its foreign currency denominated assets and liabilities and other foreign currency transactions.

The Company enters into foreign currency forward and option contracts to hedge fluctuations in the U.S.

dollar value of forecasted transactions denominated in Thai baht and Canadian dollars.

During the six months ended December 28, 2018, the Company recorded an unrealized gain of $ 2.6

million from changes in the fair value of foreign currency forward contracts in earnings as foreign exchange (loss) gain, net in the unaudited condensed consolidated statements of operations and comprehensive income.

Interest Rate Swap Agreements

The Company may enter into foreign currency forward contracts to hedge flu ctu

ations in the U.S.

dollar value of forecasted 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 the account payable or accrual.

The Company may designate the forward contracts that hedge the foreign exchange fluctuation from inception through the forecasted expenditure as cash flow hedges.

The gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument is recorded as a component of other comprehensive income and reclassified into earnings in the 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 will discontinue the hedging relationship by de-designating

the derivative instrument and recording subsequent changes in fair value through contract maturity to foreign exchange gain (loss), net in the unaudited condensed consolidated statements of operations and comprehensive income as a natural hedge against the Thai baht denominated assets and liabilities.

The Company may also enter into non-designated

foreign currency forward and option contracts to provide an offset to the re-measurement

of foreign currency denominated assets and liabilities and to hedge certain forecasted exposures.

Changes in the fair value of these non-designated

derivatives are recorded through foreign exchange gain (loss), net in the unaudited condensed consolidated statements of operations and comprehensive income.

As of March 27, 2020, the Company had 100 outstanding U.S.

dollar foreign currency forward contracts against Thai baht ,

with an aggregate notional amount of $ 101.0 million and

maturity dates ranging from April 2020 through October 2020 that were designated for cash flow hedge accounting.

he hedging relationship was determined to be highly effective based on the performance of retrospective and prospective regression testing.

During the three and nine months ended March 27, 2020, the Company recorded an unrealized loss of $ 6.6 million from changes in the fair value of these foreign currency forward contracts, designated as hedging instruments, in other comprehensive income in the unaudited condensed consolidated statements of operations and comprehensive income.

During the three and nine months ended March 27, 2020, the Company de-designated 20 foreign currency forward contracts against the Thai baht that had previously been designated as cash flow hedges and reclassified a loss of $ 1.7 million from accumulated other comprehensive income to foreign exchange loss, net, cost of revenues, and selling, general and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income.

As of March 29, 2019, the Company had no foreign currency forward contracts designated as cash flow hedges.

As of March 27, 2020, the Company had 20 outstanding U.S.

dollar foreign currency forward contracts with an aggregate notional amount of $ 24.0 million, one outstanding U.S.

dollar foreign currency option contract with a notional amount of $ 1.0 million ,

and one outstanding Canadian dollar foreign currency forward contract with a notional amount of $ 0.5 million, and

maturity dates ranging from June 2020 through July 2020, that were not designated for hedge accounting.

These foreign currency option and forward contracts were used to hedge fluctuations in the U.S.

dollar value of forecasted transactions denominated in Thai b

aht and Canadian dollar s

During the three and nine months ended March 27, 2020, the Company recorded an unrealized loss of $ 2.1 million and $ 4.0 million, respectively, from changes in the fair value of these foreign currency option and forward contracts in earnings as foreign exchange loss, net in the unaudited condensed consolidated statements of operations and comprehensive income.

As of March 29, 2019, the Company had 45 outstanding U.S.

dollar foreign currency forward contracts with an aggregate notional amount of $ 98.0 million, one outstanding U.S.

dollar foreign currency option contract with a notional amount of $ 5.0 million ,

and one outstanding Canadian dollar forward contract with a notional amount of $ 0.4 million , and

maturity dates ranging from April 2019 through August 2019, that were not designated for hedge accounting.

These foreign currency forward and option contracts were used to hedge fluctuations in the U.S.

dollar value of forecasted transactions denominated in Thai b

aht and Canadian dollar s

During the nine months ended March 29, 2019, the Company recorded an unrealized gain of $ 1.5 million from changes in the fair value of these foreign currency forward and option contracts in earnings as foreign exchange loss, net in the unaudited condensed consolidated statements of operations and comprehensive income.

As of March 27, 2020, the amount in a cc

umulated other comprehensive

income which is expected to be reclassified into earnings within 12 months is $ 4.9 million.

The Company entered into interest rate swap agreements to mitigate interest rate risk and improve the interest rate profile of the Company’s debt obligations.

As of December 27, 2019, the Company had two

outstanding interest rate swap agreements with an aggregate notional amount of $ 125.1 million.

As of December 28, 2018, the Company had one outstanding interest rate swap agreement with a notional amount of $ 64.2 million.

As of March 27, 2020, the Company had two outstanding interest rate swap agreements with an aggregate notional amount of $ 125.1 million.

As of June 28

, 2019, the Company had one outstanding interest rate swap agreement with a notional amount of $ 64.2 million.

On July 25, 2018, Fabrinet Thailand entered into an interest rate swap agreement to effectively convert the floating interest rate of its term loan under the Bank of America Credit Facility Agreement to a fixed interest rate of 2.86 % per annum through the scheduled maturity of the term loan in June 2023 (see Note 14).

The Company did not designate this interest rate swap for hedge accounting.

On September 3, 2019, the Company entered into a new term loan agreement under a Credit Facility Agreement with the Bank of Ayudhya Public Company Limited (the “Bank”) (see Note 1 4

) and on September 10, 2019, repaid in full the outstanding term loan under the Bank of America Credit Facility (see Note 1 4

On September 3, 2019, the Company drew down a term loan under a new Credit Facility Agreement with the Bank of Ayudhya Public Company Limited (the “Bank”) (see Note 14) and on September 10, 2019, repaid in full the outstanding term loan under the Bank of America Credit Facility (see Note 14).

In conjunction with the funding of the new term loan, the Company entered into a second interest rate swap agreement.

The combination of both of these interest rate swaps effectively convert the floating interest rate of the Company’s new term loan with the Bank to a fixed interest rate of 4.36 % per annum through the maturity of the term loan in June 2024 .

On September 27, 2019, the Company designated these two interest rate swaps as a cash flow hedge for the Company’s term loan under the Credit Facility Agreement with the Bank.

The combination of these two interest rate swaps qualified for hedge accounting because the hedges are highly effective, and the Company has designated and documented contemporaneously the hedging relationships involving these interest rate swaps.

While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings.

a portion reclassified

from accumulated other comprehensive income into earnings at each reporting period based on either the accrued interest amount or the interest payment.

The following table provides a summary of the impacts of derivative gain (loss) of our cash flow hedges on the unaudited condensed consolidated statements of operations and other comprehensive income:

The combination of both of these interest rate swaps effectively convert the floating interest rate of the Company’s term loan with the Bank to a fixed interest rate of

4.36 % per annum through the maturity of the term loan in

On September 27, 2019, the Company designated these two interest rate swaps as a cash flow

hedge for the Company’s term loan under the Credit Facility Agreement with the Bank.

The combination of these two interest rate swaps qualified for hedge accounting based on a regression testing result which proved the hedges are highly effective.

In addition, the Company has designated and documented contemporaneously the hedging relationships involving these interest rate swaps.

At least quarterly, the Company performs a qualitative effectiveness test on the interest rate swaps to support the continued application of hedge accounting.

As of March 27, 2020, the hedging relationship was determined to be highly effective based on the performance of a qualitative effectiveness testing.

While the Company intends 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 earnings.

From September 27, 2019, any gains or losses related to these interest rate swaps will be recorded in accumulated other comprehensive income in the unaudited condensed consolidated balance sheets, with a portion reclassified from accumulated other comprehensive income into earnings at each reporting period based on either the accrued interest amount or the interest payment.

As of March 27, 2020, the amount in accumulated other comprehensive income that is expected to be reclassified into earnings within 12 months is $ 17 thousand.

Prior to September 27, 2019, these interest rate swaps were not designated as cash flow hedges and all changes in the fair value of these interest rate swaps were reflected in earnings.

During the nine months ended March 27, 2020 and March 29, 2019, the Company recorded unrealized loss of $ 1.7 million and $ 1.6 million, respectively, from changes in the fair value of these interest rate swaps as interest expense in the unaudited condensed consolidated statements of operations and comprehensive income.

The following table provides a summary of the 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 unaudited condensed consolidated statements of operations and other comprehensive income:

Three Months Ended

Six Months Ended

Nine Months Ended

(amount in thousands)

Derivatives gain (loss) recognized in other comprehensive income:

Foreign currency forward contracts

comprehensive

Interest rate swaps

Other comprehensive income

Derivatives gain (loss) reclassified from other comprehensive income into earnings:

comprehensive

Total derivatives loss recognized in other comprehensive income

Derivatives gain (loss) reclassified from accumulated other comprehensive income into earnings:

Foreign currency forward contracts

Cost of revenues

Foreign currency forward contracts

Foreign exchange loss, net

Interest rate swaps

Interest expense

During the six months ended December 27, 2019, there was an amortization of the fair value of interest rate swaps as of hedge inception date in the amount of $ 0.4

million due to the application of hedge accounting which results in interest expense reduction.

As of December 27, 2019, the

amount in accumulated other comprehensive income which is expected to be reclassified into earnings

within 12 months w as

$ 0.7 million.

Prior to September 27, 2019, these interest rate swaps were not designated as cash flow hedges.

All changes in the fair value of these interest rate swaps w ere

reflected in earnings.

During the six months ended December 27, 2019 and December 28, 2018, the Company recorded unrealized loss of $ 1.7 million and unrealized loss

of $ 0.8 million, respectively, from changes in the fair value of these interest rate swaps as interest expense in the unaudited condensed consolidated statements of operations and comprehensive income.

The following table provides the fair values of our derivative financial instruments for the periods presented:

Total derivatives gain reclassified from accumulated other comprehensive income into earnings

Change in net unrealized loss on derivatives instruments

Fair value of derivatives

The following table provides the fair values of the Company’s derivative financial instruments for the periods presented:

(amount in thousands)

Derivatives not designated as hedging instruments

Foreign currency forward contracts

Foreign currency forward and option contracts

Interest rate swaps

Derivatives designated as hedging instruments

Foreign currency forward contracts

Interest rate swaps

Gross amounts of derivatives

Gross amounts of derivatives offset in the balance sheet

Net amounts of derivatives

The Company presents its derivatives at gross fair values in the unaudited condensed consolidated balance sheets.

However, the Company’s netting arrangements allow net settlements under certain conditions.

Our derivative instruments are typically settled monthly or quarterly.

Derivatives, gross balances

Derivatives, gross balances offset in the balance sheet

Derivatives, net balances

The Company presents its derivatives at net fair values in the unaudited condensed consolidated balance sheets.

Company’s netting arrangements allow net settlements under certain conditions.

The Company’s derivative instruments are typically settled monthly or quarterly.

The Company recorded the fair value of derivative financial instruments in the unaudited condensed consolidated balance sheets as follows:

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million to a customer to support the customer’s transfer of certain manufacturing operations from Berlin, Germany to the Company’s facilities in Thailand.

The customer has agreed to repay this amount by September 30, 2020.

This receivable is reflected within investing activities in the statement of cash flows.

e customer has agreed to repay this amount by September 30, 2020.

March 27, 2020, the Company recorded the $ 24.3 million

funds as other receivable in the unaudited condensed consolidated balance sheet.

For the nine months ended March 27, 2020, the Company classified th e

funds as an investing activity in the unaudited condensed consolidated statement of cash flows.

Restricted cash

As of December 27, 2019 and June 28, 2019, the Company had two outstanding standby letters of credit in the aggregate amount

of 6.2 million Euros and one outstanding standby letter of credit of 6.0 million Euros, respectively, related to the Company’s support of a customer’s transfer of certain manufacturing operations from Berlin, Germany to the Company’s facilities in Thailand.

As of December 27, 2019 and June 28, 2019, the standby letters of credit were backed by cash collateral of $ 7.7 million and $ 7.4 million, respectively.

As of March 27, 2020 and June 28, 2019, the Company had one outstanding standby letter of credit of 6.0 million Euros, related to the Company’s support of a customer’s transfer of certain manufacturing operations from Berlin, Germany to the Company’s facilities in Thailand.

As of March 27, 2020 and June 28, 2019, the standby letter of credit was backed by cash collateral of $ 7.4 million.

The Company leases facilities under non-cancelable

operating lease agreements.

The Company leases a portion of its capital equipment and vehicle, certain land and buildings for its facilities in Thailand, the Cayman Islands, China, the United States, the United Kingdom and Israel under operating lease arrangements that expire at various dates through 2025 .

The Company leases a portion of its capital equipment and vehicle s

, certain land and buildings for its facilities in Thailand, the Cayman Islands, China, the United States, the United Kingdom and Israel under operating lease arrangements that expire at various dates through 2025 .

Certain of these lease arrangements provide the Company the ability to extend the lease from one to five years following the expiration of the current term.

However, the Company has excluded all lease extension options from its ROU assets and lease liabilities as the Company is not reasonably assured that it will exercise these options.

All leases agreements have no term conditions of residual value guarantee provided by lessee.

None of the lease agreements contain residual value guarantees provided by the

The Company also has one intercompany lease transaction which is a lease of office and manufacturing space between Fabritek and Fabrinet West.

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Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments.

The operating lease ROU assets also include any lease payments made and exclude lease incentives and initial direct costs incurred.

Variable lease payments are expensed as incurred and are not included within the ROU asset and lease liability calculation.

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The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The Company does not account for lease components (e.g., fixed payments including rent) separately from the non-lease

The Company does not account for lease components (e.g., fixed payments including rent) separately from the

components (e.g., common-area maintenance costs).

3 unchanged sentences

(amount in thousands)

June 28, 2019

June 29, 2019

Operating lease ROU assets

2 unchanged sentences

Operating lease liabilities, non-current

As of December 27, 2019, the maturities of the Company’s operating lease liabilities were

As of March 27, 2020, the maturities of the Company’s operating lease liabilities were as follows:

(amount in thousands)

2020 (remaining six months)

2020 (remaining three months)

Total undiscounted lease payments

Imputed interest

mputed interest

Total present value of lease liabilities

Included current portion of operating lease liabilities of $1.8 million.

current portion of operating lease liabilities of $ 1.9 million.

Rental expense related to the Company’s operating leases is recognized on a straight-line basis over the lease term.

Rental expense for long-term leases for the six months ended December 27, 2019 was $ 1.0 million.

Rental expense for short-term leases for the six months ended December 27, 2019 was $ 40 thousand

Capital leases

In connection with the acquisition of Fabrinet UK, the Company assumed the capital lease commitments of several machines and equipment, with various expiration dates through September 2020 .

The equipment can be purchased at the determined prices upon expiration of such contracts.

As of December 27, 2019, the Company had capital lease liabilities of $0.3 million, which were recorded under current liabilities in the unaudited condensed consolidated balance sheets.

As of December 27, 2019, the future minimum lease payments under non-cancelable

capital leases during each fiscal year were as follows:

(amount in thousands)

(remaining six months)

Total minimum capital lease payments

Future finance charge on capital leases

Present value of capital lease

Representing capital lease liabilities

Total capital lease liabilities

As of December 27, 2019, the present value of capital leases during each fiscal year was as follows:

(amount in thousands)

2020 (remaining six months)

Present value of capital lease

The following summarizes additional information related to the Company’s operating leases and capital leases:

Rental expense for long-term leases for the three and nine months ended March 27, 2020 was $ 0.5 million and $ 1.5 million, respectively.

Rental expense for short-term leases for the three and nine months ended March 27, 2020 and March 29, 2019 was de minimis.

Finance leases

In connection with the acquisition of Fabrinet UK, the Company assumed the finance lease commitments for certain equipment, with various expiration dates through September 2020.

The equipment can be purchased at pre-determined

prices upon expiration of such contracts.

As of March 27, 2020, the Company had finance lease liabilities of $ 0.2 million, which were recorded under other payables in the unaudited condensed consolidated balance sheets.

The following summarizes additional information related to the Company’s operating leases and fi nance

As of March 27, 2020

Weighted-average remaining lease term (in years)

Operating leases

Capital leases

Finance leases

Weighted-average discount rate

Operating leases

Capital leases

The following information represents supplemental disclosure for the statement of cash flows related to operating and capital leases for the six months ended December 27, 2019:

Finance leases

The following information represents supplemental disclosure for the statement of cash flows related to operating and finance leases:

(amount in thousands)

Nine Months Ended

March 27, 2020

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

Financing cash flows from capital leases

Financing cash flows from finance leases

ROU assets obtained in exchange for lease liabilities

Capital lease assets

Finance lease assets

The following tables present details of the Company’s intangibles:

(amount in thousands)

As of December 27, 2019

As of March 27, 2020

Customer relationships

4 unchanged sentences

Total intangibles

The Company recorded amortization expense relating to intangibles of $ 0.3 million and $ 0.3 million for the three months ended December 27, 2019 and December 28, 2018, respectively, and $ 0.6 million and $ 0.6 million for the six months ended December 27, 2019 and December 28, 2018, respectively.

The Company recorded amortization expense relating to intangibles of $ 0.3 million and $ 0.3 million for the three months ended March 27, 2020 and March 29, 2019, respectively, and $ 0.9 million and $ 0.9 million for the nine months ended March 27, 2020 and March 29, 2019, respectively.

The weighted-average remaining life of customer relationships was:

As of March 27,

As of June 28,

Customer relationships

Based on the carrying amount of intangibles as of December 27, 2019, and assuming no future impairment of the underlying assets, the estimated future amortization during each fiscal year was as follows:

Based on the carrying amount of intangibles as of March 27, 2020, and assuming no future impairment of the underlying assets, the estimated future amortization during each fiscal year was as follows:

(amount in thousands)

2020 (remaining six months)

2020 (remaining three months)

The changes in the carrying amount of goodwill from the acquisition of Fabrinet UK were as follows:

2 unchanged sentences

Foreign currency translation adjustment

Balance as of December 27, 2019

(amount in thousands)

Balance as of June 29, 2018

Foreign currency translation adjustment

Balance as of December 28, 2018

Balance as of March 27, 2020

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.

The Company’s total borrowings, including current and non-current

During the nine months ended March 27, 2020 and March 29, 2019, there were no goodwill impairment losses.

The Company’s total borrowings, including current

and non-current

portions of long-term borrowings, consisted of the following:

8 unchanged sentences

1-month LIBOR + 1.50 % per annum

quarterly installments

3-month LIBOR + 1.35 % per annum

Repayable in quarterly installments

LIBOR + 1.35 % per annum

Repayable in quarterly installments

Current portion

3 unchanged sentences

Refer to Note 6.

The movements of long-term borrowings for the six months ended December 27, 2019 and December 28, 2018 were as follows:

Six Months Ended

The movements of long-term borrowings for the nine months ended March 27, 2020 and March 29, 2019 were as follows:

Nine Months Ended

(amount in thousands)

3 unchanged sentences

Closing balance

As of December 27, 2019, future maturities of long-term borrowings during each fiscal year were as follows:

As of March 27, 2020, future maturities of long-term borrowings during each fiscal year were as follows:

(amount in thousands)

2020 (remaining six months)

2020 (remaining three months)

Credit facility agreements:

Bank of Ayudhya Public Company Limited

On August 20, 2019, Fabrinet Thailand (the “Borrower”), and

Bank of Ayudhya Public Company Limited (

entered into a Credit Facility Agreement (the “Credit Facility Agreement”).

The Credit Facility Agreement provides for a facility of 110.0 million Thai Baht (approximately $ 3.6 million based on the applicable exchange rate as of September 27, 2019) and $ 160.9 million which may be used for, among other things, an overdraft facility, short-term loans against promissory notes, a letter of guarantee facility, a term loan facility and foreign exchange facilities.

On August 20, 2019, Fabrinet Thailand (the “Borrower”) and Bank of Ayudhya Public Company Limited (the “Bank”) entered into a Credit Facility Agreement (the “Credit Facility Agreement”).

The Credit Facility Agreement provides for a facility of 110.0 million Thai b

aht (approximately $ 3.6 million based on the applicable exchange rate as of September 27, 2019) and $ 160.9 million which may be used for, among other things, an overdraft facility, short-term loans against promissory notes, a letter of guarantee facility, a term loan facility and foreign exchange facilities.

The Bank may approve any request for extension of credit under the Credit Facility Agreement and may increase or decrease any facility amount in its sole discretion.

Under the Credit Facility Agreement, on August 20, 2019, the Borrower and the Bank entered into a Term Loan Agreement pursuant to which the Borrower drew down on September 3, 2019 a term loan in the original principal amount of $ 60.9 million.

The proceeds from the term loan, together with cash on hand, were used to repay outstanding obligations under the Company’s pre-existing

credit facility agreement between the Company and Bank of America, N.A.

The term loan accrues interest at 3-month LIBOR plus 1.35 % and is repayable in quarterly installments of $

3.0 million, commencing on September 30, 2019.

The term loan will

mature on June 30, 2024 .

The proceeds from the term loan, together with cash on hand, were used to repay outstanding obligations under the Company’s previous credit facility agreement with Bank of America, N.A.

The term loan accrues interest at 3-month LIBOR plus 1.35 % and is repayable in quarterly installments of $ 3.0 million, commencing on September 30, 2019.

The term loan will mature on June 30, 2024 .

The Borrower may prepay the term loan in whole or in part at any time without premium or penalty.

Any portion of the term loan repaid or prepaid may not be re-borrowed.

During the six months ended December 27, 2019, the Company recorded $ 0.6 million of interest expense in connection with this term loan.

Any borrowings under the Credit Facility Agreement, including those borrowings under the Term Loan Agreement ,

are guaranteed by Fabrinet and secured by land and buildings owned by the Borrower in the Pathumthani and Chonburi Provinces in Thailand.

During the three and nine months ended March 27, 2020, the Company recorded $ 0.5 million and $ 1.1 million, respectively, of interest expense in connection with this term loan.

Any borrowings under the Credit Facility Agreement, including those borrowings under the Term Loan Agreement, are guaranteed by Fabrinet and secured by land and buildings owned by the Borrower in the Pathumthani and Chonburi Provinces in Thailand.

The Term Loan Agreement contains affirmative and negative covenants applicable to the Borrower, including delivery of financial statements and other information, compliance with laws, maintenance of insurance, restrictions on granting security interests or liens on its assets, disposing of its assets, incurring indebtedness and making acquisitions.

3 unchanged sentences

In the case of any payment of a dividend by the Company, its debt service coverage ratio must be at least 1.50 times.

At December 27, 2019, the Company was in compliance with all of its covenants under the Term Loan Agreement.

At March 27, 2020, the Company was in compliance with all of its covenants under the Term Loan Agreement.

The events of default in the Term Loan Agreement include failure to pay amounts due under the Term Loan Agreement or the related finance documents when due, failure to comply with the covenants under the Term Loan Agreement or the related finance documents, cross default with other indebtedness of the Borrower, events of bankruptcy or insolvency in respect of the Borrower, and the occurrence of any event or series of events that in the opinion of the Bank has or is reasonably likely to have a material adverse effect.

At December 27, 2019, there was $ 57.9 million outstanding under the term loan.

At March 27, 2020, there was $ 54.8 million outstanding under the term loan.

Bank of America, N.A.

On May 22, 2014, the Company and a

consortium of banks entered into a syndicated senior credit facility agreement led by Bank of America (the “Bank of America Facility Agreement”).

On May 22, 2014, the Company and a consortium of banks entered into a syndicated

senior credit facility agreement led by Bank of America (the “Bank of America Facility Agreement”).

The Bank of America Facility Agreement provided for a $ 200.0 million credit line, comprised of a $ 150.0 million revolving loan facility and a $ 50.0 million delayed draw term loan facility.

From time to time, we amended the Bank of America Facility Agreement, before repaying all outstanding amounts under the agreement and terminating such agreement on September 10, 2019 .

The most recent amendment on June 4, 2018 (i) reduced the revolving commitments thereunder from $ 150.0 million to $ 25.0 million, (ii) refinanced the outstanding amounts under the revolving loan and term loan facilities into a $ 65.0 million term loan which was to be repaid in quarterly installments through the maturity date of June 4, 2023 ,

and (iii) reduced the interest rate margins and commitment fees.

From time to time, the Company

amended the Bank of America Facility Agreement, before repaying all outstanding amounts under the agreement and terminating such agreement on September 10, 2019 .

The term loan bore interest, at the Company’s option, at a rate per annum equal to a LIBOR rate plus a spread of 1.50% to 2.25% , or a base rate plus a spread of 0.50% to 1.25% .

During the six months ended December 27, 2019 and December 28, 2018, the Company recorded $ 0.5 million and $ 1.2 million, respectively, of interest expense in connection with this term loan.

During the nine months ended March 27, 2020 and March 29, 2019, the Company recorded $ 0.5 million and $ 1.8 million, respectively, of interest expense in connection with this term loan.

On September 10, 2019, the Company fully repaid $ 61.0 million in principal, accrued interest and other fees under the agreement.

The early termination of this agreement did not trigger any early termination fees.

At December 27, 2019, there were no amounts outstanding under the Bank of America Facility Agreement.

At June 28, 2019, there was $ 60.9 million outstanding under the Bank of America Facility Agreement, related to the term loan.

As of December 27, 2019 and June 28, 2019, the liability for uncertain tax positions including accrued interest and penalties was $ 1.2 million and $ 2.1 million, respectively.

At March 27, 2020, there were no amounts outstanding under the Bank of America Facility Agreement.

At June 28, 2019, there was $ 60.9 million outstanding

under the Bank of America Facility Agreement, related to the term loan.

As of March 27, 2020 and June 28, 2019, the liability for uncertain tax positions including accrued interest and penalties was $ 1.5 million and $ 2.1 million, respectively.

The Company expects the estimated amount of liability associated with its uncertain tax positions to decrease within the next 12 months due to the lapse of the applicable statute of limitations in foreign tax jurisdictions.

The Company files income tax returns in the United States and foreign tax jurisdictions.

The tax years from 2013 to 2018 remain open to examination by U.S.

federal and state, and foreign tax authorities.

As of March 27, 2020, the tax years from 2014 t hrough

2017 remain open to examination by U.S.

federal and state tax authorities

In addition, tax returns that remain open to examination in Thailand range from the tax years 2015 through 2019, and in

the People’s Republic of China and the United Kingdom range from the tax years 2015 through 2018.

The Company’s income tax is recognized based on the best estimate of the expected annual effective tax rate for the full financial year of each entity in the Company, adjusted for discrete items arising in that quarter.

If the Company’s estimated annual effective tax rate changes, the Company makes a cumulative adjustment in that quarter.

The Company’s effective tax rate for the three months ended December 27, 2019 and December 28, 2018 was 4.9

%, respectively, of net income.

The increase was primarily due to the fact that the Company had higher income subject to tax during the three months ended December 27, 2019, compared with the three months ended December 28, 2018.

The Company’s effective tax rate for the six months ended December 27, 2019 and December 28, 2018 was 5.0

%, respectively, of net income.

The decrease was primarily due to the fact that the Company had lower income subject to tax during the six months ended December 27, 2019 as compared to the six months ended December 28, 2018.

Company’s estimated annual effective tax rate changes, the Company makes a cumulative adjustment in that quarter.

The Company’s effective tax rate for the three months ended March 27, 2020 and March 29, 2019 was 2.4 % and 5.2 %, respectively, of net income.

crease was primarily due to the fact that the Company had

income subject to tax during the three months ended March 27, 2020, compared with the three months ended March 29, 2019.

The Company’s effective tax rate for the nine months ended March 27, 2020 and March 29, 2019 was 4.2 % and 5.2 %, respectively, of net income.

The decrease was primarily due to the fact that the Company had lower income subject to tax during the nine months ended March 27, 2020 as compared to the nine months ended March 29, 2019.

Share-based compensation

1 unchanged sentence

The grant date fair value of restricted share units and performance share units is based on the market value of our ordinary shares on the date of grant.

The effect of recording share-based compensation expense for the three and six months ended December 27, 2019 and December 28, 2018 was as follows:

The effect of recording share-based compensation expense for the three and nine months ended March 27, 2020 and March 29, 2019 was as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

(amount in thousands)

6 unchanged sentences

Share-based compensation expense was recorded in the unaudited condensed consolidated statements of operations and comprehensive income as follows:

Three Months E

Six Months Ended

Three Months ended

Nine Months Ended

(amount in thousands)

2 unchanged sentences

Total share-based compensation expense

The Company did not capitalize any share-based compensation expense as part of any asset costs during the three and six months ended December 27, 2019 and December 28, 2018.

The Company did not capitalize any share-based compensation expense as part of any asset costs during the three and nine months ended March 27, 2020 and March 29, 2019.

Share-based award activity

On December 12, 2019, t

he Company’s shareholders approved Fabrinet’s 2020 Equity Incentive Plan (the “2020 Plan”).

On December 12, 2019, the Company’s shareholders approved Fabrinet’s 2020 Equity Incentive Plan (the “2020 Plan”).

Upon the approval of the 2020 Plan, Fabrinet’s Amended and Restated 2010 Performance Incentive Plan (the “2010 Plan”) was simultaneously terminated.

The 2020 Plan provides for the grant of equity awards thereunder with respect to (i) 1,700,000 ordinary shares, plus (ii) up to 1,300,000 ordinary shares that, as of immediately prior to the termination of the 2010 Plan, had been reserved but not issued pursuant to any awards granted under the 2010 Plan and are not subject to any awards thereunder.

Upon termination of the 2010 Plan, 1,281,619

ordinary shares were reserved for issuance under the 2020 Plan pursuant to clause (ii) of the preceding sentence.

As of December 27, 2019, there were 19,044

restricted share units outstanding and an aggregate of 2,962,575

ordinary shares available for future grant under the 2020 Plan.

As of December 27, 2019, there were an aggregate of 801,150

restricted share units and 436,304

performance share units outstanding.

ordinary shares are available for future grant under the 2010 Plan.

On November 2, 2017, the Company adopted the 2017 Inducement Equity Incentive Plan (the “2017 Inducement Plan”) with a reserve of 160,000

ordinary shares authorized for future issuance solely for the granting of inducement share options and equity awards to new employees.

Upon termination of the 2010 Plan, 1,281,619 ordinary shares were reserved for issuance under the 2020 Plan pursuant to clause (ii) of the preceding sentence.

As of March 27, 2020, there were 30,262 restricted

share units outstanding, 3,836 performance share units outstanding and 2,946,847 ordinary shares available for future grant under the 2020 Plan.

As of March 27, 2020, there were 739,838 restricted share units and 436,304 performance share units outstanding

under the 2010 Plan.

No ordinary shares are available for future grant under the 2010 Plan.

On November 2, 2017, the Company adopted the 2017 Inducement Equity Incentive Plan (the “2017 Inducement Plan”) with a reserve of 160,000 ordinary shares authorized for future issuance solely for the granting of inducement share options and equity awards to new employees.

The 2017 Inducement Plan was adopted without shareholder approval in reliance on the “employment inducement exemption” provided under the New York Stock Exchange Listed Company Manual.

As of December 27, 2019, there were an aggregate of 24,327

restricted share units outstanding and 111,347 ordinary shares available for future grant under the 2017 Inducement Plan.

As of March 27, 2020, there were an aggregate of 24,327 restricted share units outstanding and 111,347 ordinary shares available for future grant under the 2017 Inducement Plan.

The 2010 Plan, 2017 Inducement Plan and 2020 Plan are collectively referred to as the “Equity Incentive Plans.”

Restricted share units and performance share units

Restricted share units and performance share units have been granted under the 2010 Plan ,

the 2017 Inducement Plan

, and the 2020 Plan

Restricted share units and performance share units have been granted under the 2010 Plan, the 2017 Inducement Plan, and the 2020 Plan.

Restricted share units granted to employees generally vest in equal installments over three or four years on each anniversary of the vesting commencement date.

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performance criteria, which consist of revenue and non-GAAP

gross margin of non- GAAP operating margin

gross margin or

operating margin targets.

The actual number of performance share units that may vest at the end of the performance period ranges from 0 % to 100 % of the award grant.

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Balance as of June 28, 2019

Balance as of December 27, 2019

Balance as of March 27, 2020

Average Grant

1 unchanged sentence

Balance as of June 29, 2018

Balance as of December 28, 2018

Balance as of March 29, 2019

The following table summarizes performance share unit activity under the Equity Incentive Plans:

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Balance as of June 28, 2019

Balance as of December 27, 2019

Balance as of March 27, 2020

Average Grant

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Balance as of June 29, 2018

Balance as of December 28, 2018

The fair value of restricted share units and performance share units is based on the market value of our ordinary shares on the date of grant.

As of December 27, 2019, there was $ 18.3 million and $ 9.3 million of unrecognized share-based compensation expense related to restricted share units and performance share units, respectively, under the Equity Incentive Plans that is expected to be recorded over a weighted-average period of 2.7 years and 1.5 years, respectively.

For the six months ended December 27, 2019 and December 28, 2018, the Company withheld an aggregate of 86,138 shares and 205,984 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 the six months ended December 27, 2019 and December 28, 2018, the Company then remitted cash of $4.4 million and $9.1 million, respectively, to the appropriate taxing authorities, and presented it as a financing activity within the unaudited condensed consolidated statements of cash flows.

Balance as of March 29, 2019

As of March 27, 2020, there was $ 15.0 million and $ 7.7 million of unrecognized share-based compensation expense related to restricted share units and performance share units, respectively, under the Equity Incentive Plans that is expected to be recorded over a weighted-average period of 2.5 years and 1.3 years, respectively.

For the nine months ended March 27, 2020 and March 29, 2019, the Company withheld an aggregate of 91,481 shares and 231,624 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 the nine months ended March 27, 2020 and March 29, 2019, the Company then remitted cash of $ 4.7 million and $ 10.4 million, respectively, to the appropriate taxing authorities, and presented it as a financing activity within the unaudited condensed consolidated statements of cash flows.

The payment was recorded as a reduction of additional paid-in

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Share capital

The Company’s

authorized share capital is 500,000,000 ordinary shares, par value of $ 0.01 per ordinary share, and 5,000,000 preferred shares, par value of $ 0.01 per preferred share.

For the three

months ended December 27, 2019,

issued 19,762 and 178,137

ordinary shares

, respectively ,

upon the vesting of restricted share units, net of shares withheld

For the three

months ended December 28, 2018,

issued 19,278

414,426 ordinary shares, respectively,

upon the vesting of restricted share units, net of shares withheld .

The Company’s authorized share capital is 500,000,000 ordinary shares, par value of $ 0.01 per ordinary share, and 5,000,000 preferred shares, par value of $ 0.01 per preferred share.

For the three and nine months ended March 27, 2020, the Company issued 52,041 and 230,178 ordinary shares, respectively, upon the vesting of restricted share units, net of shares withheld.

For the three and nine months ended March 29, 2019, the Company issued 78,072 and 492,498 ordinary shares, respectively, upon the vesting of restricted share units, net of shares withheld.

All such issued shares are fully paid.

Treasury shares

In August 2017, the Company’s board of directors approved a share repurchase program to permit the Company to repurchase up to $ 30.0

million worth of its issued and outstanding ordinary shares in the open market in accordance with applicable rules and regulations.

In February 2018 and May 2019, the Company’s board of directors approved an increase of $ 30.0

million and $ 50

million, respectively, to the original share repurchase authorization, bringing

the aggregate authorization to $ 110.0 million.

During the three and six months ended December 27, 2019, no shares were repurchased under the program.

As of December 27, 2019, the Company had a remaining authorization to purchase up to $ 62.2 million worth of its ordinary shares under the share repurchase program.

Shares repurchased under the share repurchase program are held as treasury shar e

In August 2017, the Company’s board of directors approved a share repurchase program to permit the Company to repurchase up to $ 30.0 million worth of its issued and outstanding ordinary shares in the open market in accordance with applicable rules and regulations.

In February 2018 and May 2019, the Company’s board of directors approved an increase of $ 30.0 million and $ 50.0 million, respectively, to the original share repurchase authorization, bringing the aggregate authorization to $ 110.0 million.

During the three and nine months ended March 27, 2020, 355,000

shares were repurchased under the program, at an average price per share of $ 58.37 , totaling $ 20.7 million.

As of March 27, 2020, the Company had a remaining authorization to purchase up to $ 41.5 million of its ordinary shares under the share repurchase program.

Shares repurchased under the share repurchase program are held as treasury shares.

Accumulated other comprehensive income (loss) (“AOCI”)

The changes in AOCI for the six months ended December 27, 2019 and December 28, 2018 were as follows:

The changes in AOCI for the nine months ended March 27, 2020 and March 29, 2019 were as follows:

(amount in thousands)

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Other comprehensive income before reclassification adjustment

Amounts reclassified out of AOCI to foreign exchange loss in the unaudited condensed consolidated statements of operations and comprehensive income

Amounts reclassified out of AOCI to the unaudited

condensed consolidated

statements of operations and

comprehensive income

Other comprehensive income (loss)

Balance as of December 27, 2019

Balance as of March 27, 2020

(amount in thousands)

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Other comprehensive income before reclassification adjustment

Amounts reclassified out of AOCI to foreign exchange loss in the unaudited condensed consolidated statements of operations and comprehensive income

Amounts reclassified out of AOCI to the unaudited

condensed consolidated

statements of operations and

comprehensive income

Other comprehensive income (loss)

Balance as of December 28, 2018

Balance as of March 29, 2019

Commitments and contingencies

Letter of credit and Bank guarantees

As of December 27, 2019 and June 28, 2019,

the Company had two outstanding standby letters of credit in the aggregate amount

of 6.2 million Euros

one outstanding standby letter of credit of 6.0 million Euros , respectively,

related to the Company’s support of a customer’s transfer of certain manufacturing operations from Berlin, Germany to the Company’s facilities in Thailand.

As of December 27, 2019 and June 28, 2019, these

standby letter s

of credit w ere

backed by cash collateral

in the aggregate amount

million and $ 7.4

million, respectively.

As of December 27, 2019 and June 28, 2019, there were outstanding bank guarantees given by a bank on behalf of our subsidiary in Thailand for electricity usage and other normal business amounting to $ 1.7 million and $ 1.6 million, respectively, and there were other bank guarantees given by a bank on behalf of our subsidiaries in China and the United Kingdom to support their operations of $ 0.1 million

and $ 26 thousand, respectively.

As of March 27, 2020 and June 28, 2019, the standby letter of credit was backed by cash collateral of $ 7.4 million.

As of March 27, 2020 and June 28, 2019, there were outstanding bank guarantees given by a bank on behalf of our subsidiary in Thailand for electricity usage and other normal business expenses

$ 1.5 million and $ 1.6 million, respectively, and there were other bank guarantees given by a bank on behalf of our subsidiaries in China and the United Kingdom to support their operations of

de minimis amounts.

Purchase obligations

Purchase obligations represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements.

Purchase obligations represent legally

binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements.

Although open purchase orders are considered enforceable and legally binding, their terms generally give the Company the option to cancel, reschedule and/or adjust its requirements based on its business needs prior to the delivery of goods or performance of services.

Obligations to purchase inventory and other commitments are generally expected to be fulfilled within one year.

As of December 27, 2019, the Company had an outstanding commitment to third parties of $ 10.1 million.

As of March 27, 2020, the Company had purchase obligations to third parties of $ 15.2 million.

Indemnification of directors and officers

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The Company’s chief operating decision maker is Fabrinet’s Chief Executive Officer.

As of December 27, 2019, the Company operated and internally managed a single operating segment.

As of March 27, 2020, 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.

1 unchanged sentence

of the Company’s customers.

The Company operates in three geographic regions:

operates in three geographic regions:

North America, Asia-Pacific and Europe.

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Three Months Ended

Six Months Ended

Nine Months Ended

(amount in thousands)

North America

As of December 27, 2019 and December 28, 2018, the Company had approximately $ 30.0 million and $ 32.3 million, respectively, of long-lived assets based in North America, with the substantial remainder of assets based in Asia-Pacific and Europe.

As of March 27, 2020 and March 29, 2019, the Company had approximately $ 29.9 million and $ 31.7 million, respectively, of long-lived assets based in North America, with the substantial remainder of assets based in Asia-Pacific and Europe.

Significant customers

The Company had three and two

customers that

contributed 10% or more of its total trade accounts receivable as of

December 27, 2019 and June 28, 2019, respectively.

The Company had three and two customers that individually contributed 10% or more of its total trade accounts receivable as of March 27, 2020 and June 28, 2019, respectively.

Subsequent events

The outbreak of a novel strain of coronavirus (“COVID-19”)

was recognized as a pandemic by the World Health Organization on March 11, 2020.

The outbreak has spread globally, including to Thailand, the United States, UK and Europe.

The implications of COVID-19

on the Company’s business remain uncertain.

Measures taken by governmental authorities and private actors to limit the spread of COVID-19

may interfere with the ability of the Company’s employees, suppliers and other business providers to carry out their assigned tasks or supply materials at ordinary levels of performance.

While the Company’s operations are impacted as a result of this pandemic, the Company has not experienced a direct, materially adverse financial impact.

The future impact of this pandemic on the Company’s business, financial condition, results of operations and cash flows cannot be predicted.

The Company continues to monitor developments with the spread of COVID-19,

actions taken by governmental authorities and private actors, and impacts to the Company’s suppliers and customers.

The Company continues to work to minimize disruptions to its supply chain and manufacturing capabilities, and to ensure the safety of its employees.

While the Company’s operations are impacted as a result of this pandemic, including as a result of restrictions on employees’ ability to travel and requirements that portions of the Company’s workforce work from home, the Company has not experienced a direct, materially adverse financial impact.

The Company is not currently aware of any business interruption or loss contingencies related to COVID-19

that would require recognition in the third quarter of fiscal 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements