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Item 8. Financial Statements and Supplementary Data

2020-08-18 compared with 2019-08-20 · 956 added, 1073 removed, 576 unchanged (78% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements of

Consolidated Financial Statements of Fabrinet

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of June 26, 2020 and June 28, 2019

Consolidated Statements of Operations and Comprehensive Income for the Years Ended June

28, 2019, June 29, 2018 and June 30, 2017

Consolidated Statements of Shareholders Equity for the Years Ended June 28, 2019, June

29, 2018 and June 30, 2017

Consolidated Statements of Cash Flows for the Years Ended June 28, 2019, June

29, 2018 and June 30, 2017

Notes to Consolidated Financial Statements for the Years Ended June 28, 2019, June

29, 2018 and June 30, 2017

Consolidated Statements of Operations and Comprehensive Income for the Years Ended June 26, 2020, June 28, 2019 and June 29, 2018

Consolidated Statements of Shareholders’ Equity for the Years Ended June 26, 2020, June 28, 2019 and June 29, 2018

Consolidated Statements of Cash Flows for the Years Ended June 26, 2020, June 28, 2019 and June 29, 2018

Notes to Consolidated Financial Statements

Supplementary Financial Data

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Fabrinet and its subsidiaries (the Company) as of June 28, 2019 and June 29, 2018, and the related consolidated

statements of operations and comprehensive income, consolidated statements of changes in shareholders equity and consolidated statements of cash flows for each of the three years in the period ended June 28, 2019, including the related

notes (collectively referred to as the consolidated financial statements).

We also have audited the Companys internal control over financial reporting as of June 28, 2019, based on criteria established in Internal

Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 28, 2019 and June 29, 2018, and

the results of its operations and its cash flows for each of the three years in the period ended June 28, 2019 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company

maintained, in all material respects, effective internal control over financial reporting as of June 28, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

We have audited the accompanying consolidated balance sheets of Fabrinet and its subsidiaries (the Company ) as of June 26, 2020 and June 28, 2019, and the related consolidated statements of operations and comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for each of the three years in the period ended June 26, 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).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 26, 2020 and June 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended June 26, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 26, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Companys management is responsible for these consolidated financial statements, for maintaining effective internal control over

financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Annual Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to

express opinions on the Companys consolidated financial statements and on the Companys internal control over financial reporting based on our 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.

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our 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.

We conducted our audits in accordance with the standards of the 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.

Our audits of the consolidated financial statements included performing procedures to assess the risks of

material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the consolidated financial statements.

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.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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 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.

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Definition and Limitations of Internal Control over Financial Reporting

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability

of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting

includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the

assets of the company;

of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of

the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations,

internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,

or that the degree of compliance with the policies or procedures may deteriorate.

includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition – Identifying and evaluating terms and conditions in contracts for the timing of revenue recognition.

As described in Note 3 to the consolidated financial statements, management applies the following steps in their determination of revenue to be recognized:

1) identification of the contract with a customer;

2) identification of the performance obligations in the contract;

3) determination of the transaction price;

4) allocation of the transaction price to the performance obligations in the contract;

and 5) recognition of revenue when, or as, the Company satisfies a performance obligation.

Since the control of the product is typically transferred to the customer depending on the terms of the contract, management applies judgment in identifying and evaluating any terms and conditions when the Company has an enforceable right to payment.

For the fiscal year ended June 26, 2020, the Company’s revenue was $1,642.0 million.

The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the identification and evaluation of terms and conditions in contracts for the timing of revenue recognition, is a critical audit matter are that there was a significant amount of judgment exercised by management in identifying and evaluating terms and conditions in contracts that impact the timing of revenue recognition.

This in turn led to a high degree of auditor judgment and an increased extent of audit effort in performing our audit procedures to evaluate whether terms and conditions in contracts and point of controls transferred were appropriately identified and evaluated by management.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of internal

controls relating to the revenue recognition process, including controls related to the identification and evaluation of terms and conditions in contracts and the determination of the appropriate amount and timing of revenue recognition based on the contractual terms.

These procedures also included, among others:

(i) assessed the terms in the customer contract and evaluated the appropriateness of management’s application of their accounting policies and determination of revenue recognition;

(ii) tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements;

(iii) selected a sample of sales transaction from the period within a defined period before

and after the Company’s fiscal year ended and obtained the invoice, customer contract, bill of lading and proof of delivery, in order to evaluate whether revenue was recognized in the appropriate fiscal year;

and (iv) selected a sample of credit memos from the period immediately subsequent to the Company’s fiscal year end and obtained the related invoice, and shipping documents to evaluate whether they relate to revenue recognition in the fiscal year ended.

/s/ PricewaterhouseCoopers ABAS Ltd.

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Cash and cash equivalents

Restricted cash in connection with business acquisition

Short-term restricted cash

Short-term investments

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Contract assets

Inventory, net

Other receivable

Prepaid expenses

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Total current assets

Non-current assets

Long-term restricted cash

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Intangibles, net

Operating right-of-use

Deferred tax assets

Other non-current assets

Total non-current assets

Other non-current

Total non-current

Liabilities and Shareholders’ Equity

Current liabilities

Bank borrowings

Long-term borrowings, current portion, net

Trade accounts payable

Fixed assets payable

Contract liabilities

Capital lease liability, current portion

Operating lease liabilities, current portion

Income tax payable

Deferred liability in connection with business acquisition

Accrued payroll, bonus and related expenses

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Non-current liabilities

Long-term loan from bank

Long-term borrowings, non-current

Deferred tax liability

Capital lease liability, non-current portion

Operating lease liabilities, non-current

Severance liabilities

Other non-current liabilities

Total non-current liabilities

Other non-current

Total non-current

Total Liabilities

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Shareholders’ equity

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

no shares issued and outstanding as of June 28, 2019 and

June 29, 2018)

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

38,230,753 shares and 37,723,733 shares issued as of

June 28, 2019 and June 29, 2018, respectively;

and 36,841,650 shares and 36,434,630 shares outstanding as of June 28, 2019 and June 29, 2018, respectively)

Additional paid-in capital

Treasury shares (1,389,103 shares and 1,289,103 shares as of June 28, 2019 and June 29, 2018,

respectively)

Preferred shares ( 5,000,000

shares authorized, $ 0.01 par value;

no shares issued and outstanding as of June 26, 2020 and June 28, 2019)

Ordinary shares ( 500,000,000

shares authorized, $ 0.01

shares and 38,230,753

shares issued as of June 26, 2020 and June 28, 2019, respectively;

and 36,727,864

shares and 36,841,650

shares outstanding as of June 26, 2020 and June 28, 2019, respectively)

Additional paid-in

Treasury shares ( 1,744,103

shares and 1,389,103

shares as of June 26, 2020 and June 28, 2019, respectively)

Accumulated other comprehensive loss

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dollars, except per share data)

June 26, 2020

June 28, 2019

June 29, 2018

Cost of revenues

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Foreign exchange gain (loss), net

Other income, net

Other income (expense), net

Income before income taxes

Income tax expense

Other comprehensive loss, net of tax:

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

Change in net unrealized loss on derivative instruments

Change in retirement benefits plan prior service cost

Other comprehensive income (loss), net of tax:

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

Change in net unrealized gain (loss) on derivative instruments

Change in retirement benefit plan – prior service cost

Change in foreign currency translation adjustment

Total other comprehensive loss, net of tax

Total other comprehensive income (loss), net of tax

Net comprehensive income

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Issuance of ordinary shares

Repurchase of 1,289,103 shares held as treasury shares

Tax withholdings related to net share settlement of restricted share units

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Other comprehensive loss

Cumulative effect adjustment from adoption of ASC 606

Share-based compensation

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Balances at June 28, 2019

Other comprehensive loss

Cumulative effect adjustment from adoption of ASC 606

Other comprehensive income

Share-based compensation

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Depreciation and amortization

(Gain) loss on disposal and impairment of property, plant and equipment

Loss (gain) on disposal and impairment of property, plant and equipment

Loss on disposal of intangibles

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

Amortization of investment discount

impairment of goodwill

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

Accretion of premiums on short-term investments

Amortization of deferred debt issuance costs

Allowance for doubtful accounts (reversal)

Unrealized (gain) loss on exchange rate and fair value of derivative

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

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 expenses

(Reversal of) Inventory obsolescence

Other non-cash

Changes in operating assets and liabilities

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Contract assets

Other current assets and non-current assets

Other current assets and non-current

Trade accounts payable

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Income tax payable

Other current liabilities and non-current liabilities

Severance liabilities

Other current liabilities and non-current

Net cash provided by operating activities

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Proceeds from maturities of short-term investments

Payments in connection with business acquisition, net of cash acquired

Funds provided to customer to support transfer of manufacturing operations (Note 10)

Purchase of property, plant and equipment

Proceeds from disposal of property, plant and equipment

Purchase of intangibles

Proceeds from disposal of property, plant and equipment

Net cash used in investing activities

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands of U.

Cash flows from financing activities

Proceeds of short-term loan from bank

Repayment of short-term loan from bank

Repayment of long-term loan from bank

Payment of debt issuance costs

Proceeds from

short-term borrowings

Repayment of short-term borrowings

Proceeds from long-term borrowings

Repayment of long-term borrowings

Proceeds from issuance of ordinary shares under employee share option plan

Repayment of capital lease liability

Repayment of finance lease liabilities

Repurchase of ordinary shares

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Withholding tax related to net share settlement of restricted share units

Net cash (used in) provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands of U.

Net cash used in financing activities

Net increase in cash, cash equivalents and restricted cash

Movement in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Increase (decrease) in cash, cash equivalents and restricted cash

Increase in cash, cash equivalents and restricted cash

Effect of exchange rate on cash, cash equivalents and restricted cash

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Cash received for interest

Non-cash investing and financing activities

investing and financing activities

Construction, software and equipment related payables

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the

consolidated balance sheets that sums to the total of the same amounts shown in the consolidated statements of cash flows:

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sums to the total of the same amounts shown in the consolidated statements of cash flows:

(amount in thousands)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

thousands of U.S.

(in thousands of U.S.

dollars unless otherwise noted)

Business and organization

Fabrinet (Fabrinet or the Parent

Company) was incorporated on August 12, 1999, and commenced operations on January 1, 2000.

Fabrinet (“Fabrinet” or the “Parent Company”) was incorporated on August 12, 1999, and commenced operations on January 1, 2000.

The Parent Company is an exempted company incorporated in the Cayman Islands, British West Indies.

The Company refers to Fabrinet

and its subsidiaries as a group.

The Company provides advanced optical packaging and precision optical, electro-mechanical and

electronic manufacturing services to original equipment manufacturers (OEMs) of complex products, such as optical communication components, modules and sub-systems, industrial lasers, automotive

components, medical devices and sensors.

The Company offers a broad range of advanced optical and electro-mechanical capabilities across the entire manufacturing process, including process design and engineering, supply chain management,

manufacturing, complex printed circuit board assembly, advanced packaging, integration, final assembly and testing.

The “Company” refers to Fabrinet and its subsidiaries as a group.

The Company provides advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers (“OEMs”) of complex products, such as optical communication components, modules and sub-systems,

industrial lasers, automotive components, medical devices and sensors.

The Company offers a broad range of advanced optical and electro-mechanical capabilities across the entire manufacturing process, including process design and engineering, supply chain management, manufacturing, complex printed circuit board assembly, advanced packaging, integration, final assembly and testing.

The Company focuses primarily on the production of low-volume,

high-mix products.

The principal subsidiaries of Fabrinet include Fabrinet Co., Ltd.

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(“Casix”), Fabrinet West, Inc.

(Fabrinet West) and

Fabrinet UK Limited (Fabrinet UK).

(“Fabrinet West”) and Fabrinet UK Limited (“Fabrinet UK”).

Summary of significant accounting policies

Principles of consolidation

The Company utilizes a 52-53 week fiscal year ending on the Friday in June closest to June 30.

The Company utilizes a 52-53

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

Fiscal year 2020 ended on June 26, 2020 and consisted of 52 weeks.

Fiscal year 2018 ended on June 29, 2018 and consisted of 52

Fiscal year 2019 ended on June 28, 2019 and consisted of 52 weeks.

The consolidated financial statements have been

prepared in accordance with accounting principles generally accepted in the United States (U.S.

Fiscal year 2018 ended on June 29, 2018 and consisted of 52 weeks.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and include Fabrinet and its subsidiaries.

All inter-company accounts and transactions have been eliminated.

On September 14, 2016, the Company acquired Global CEM Solutions, Ltd.

and all of its subsidiaries (collectively, Fabrinet

UK), 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 Fabrinet UK commencing as of the

acquisition date.

See Note 11, Business acquisition for further details on the accounting for this transaction.

Use of estimates

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

requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amount of total revenues and expenses

during the year.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amount of total revenues and expenses during the year.

The Company bases estimates on historical experience and various assumptions about the future that are believed to be reasonable based on available information.

The Companys 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 and valuation of intangible assets related to a 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 differ from actual results, adjustments will be made in subsequent periods to reflect more current information.

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

Significant assumptions are used in accounting for share-based compensation, allowance for doubtful accounts, income taxes, inventory obsolescence, goodwill and valuation of intangible assets related to business 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 be different from actual results, adjustments will be made in subsequent periods to reflect more current information.

Additionally, the extent to which the evolving COVID-19 pandemic impacts the Company’s 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.

Reclassifications

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

The reclassifications have been made to the consolidated balance sheet as of June 28, 2019 and the consolidated statement of cash flows for fiscal year ended June 28, 2019 as following table:

Year ended June 28, 2019

(amount in thousands)

As previously

Reclassification

Consolidated Balance Sheets

Current liabilities

Fixed assets payable

Finance lease liabilities, current portion

Other payables

Finance lease liabilities, non-current

Other non-current

Consolidated Statement of Cash Flows

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities

Unrealized loss on fair value of interest rate swaps

Severance liabilities

(Reversal of) Inventory obsolescence

Changes in operating assets and liabilities

Other current assets and non-current

Severance liabilities

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

Changes in accounting policies

Except for the adoption of the new revenue recognition accounting standard disclosed in Note 3Revenues from contracts with

customers, the Company has consistently applied the accounting policies to all periods presented in these consolidated financial statements.

Except for the adoption of the new lease accounting standard and the derivatives and hedging standard described within the sub-heading

“New Accounting Pronouncements – adopted by the Company”, the Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements.

Foreign currency transactions and translation

The consolidated

financial statements are presented in United States dollars ($ or USD).

The consolidated financial statements are presented in United States dollars (“$” or “USD”).

The functional currency of Fabrinet and most of its subsidiaries is the USD.

With respect to subsidiaries that use USD as their functional currency, transactions denominated in a currency other than USD are translated into USD at the rates of exchange in effect at the date of the

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate prevailing at the consolidated balance sheet dates.

Transaction gains and losses are included in foreign

exchange gain (loss) in the accompanying consolidated statements of operations and comprehensive income.

Fabrinet translates

the assets and liabilities of its subsidiaries that do not use USD as their functional currency into USD using exchange rates in effect at the end of each period.

Revenue and expenses for such subsidiaries are translated using rates that approximate

those in effect during the period.

Gains and losses from these translations are recognized in foreign currency translation adjustment included in accumulated other comprehensive loss (AOCI) in the Companys consolidated balance

Transaction gains and losses are included in foreign exchange gain (loss) in the accompanying consolidated statements of operations and comprehensive income.

Fabrinet translates the assets and liabilities of its subsidiaries that do not use USD as their functional currency into USD using exchange rates in effect at the end of each period.

Revenue and expenses for such

subsidiaries are translated using rates that approximate those in effect during the period.

Gains and losses from these translations are recognized in foreign currency translation adjustment included in accumulated other comprehensive income (loss) (“AOCI”) in the Company’s consolidated balance sheets.

Cash and cash equivalents

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

Cash and cash equivalents consist of cash deposited in checking

accounts, time deposits with maturities of less than three months, money market accounts, and short-term investments with maturities of three months or less at the date of purchase.

Cash and cash equivalents consist of cash deposited in checking accounts, time deposits with maturities of less than three months, money market accounts, and short-term investments with maturities of three months or less at the date of purchase.

Short-term investments

Management determines the appropriate classification of its investments at the time of purchase and re-evaluates the designations at each balance sheet date.

Company may sell certain of the Companys short-term investments prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and duration management.

The maturities of the

Companys short-term investments generally range from three months to three years.

The Companys short-term investments consist of investments in U.S.

Treasury, fixed income securities, liquidity funds which invest in short-term debt

securities and certificates of deposit and time deposits and have been classified and accounted for as available-for-sale.

The Companys investments in marketable securities are classified as

available-for-sale securities and reported at fair value.

Unrealized gains and losses related to changes in the fair value of securities are recognized in AOCI in the

Companys consolidated balance sheets.

Changes in the fair value of available-for-sale securities impact the Companys net income only when such securities are

sold or other-than-temporary impairment is recognized.

Management determines the appropriate classification of its investments at the time of purchase and re-evaluates

the designations at each balance sheet date.

The Company may sell certain of the Company’s short-term investments prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and duration management.

The maturities of the Company’s short-term investments generally range from three months to three years.

The Company’s short-term investments, which consist of investments in U.S.

Treasury, fixed income securities, liquidity funds that invest in short-term debt securities and certificates of deposit and time deposits, have been classified and accounted for as available-for-sale.

The Company’s investments in marketable securities are classified as available-for-sale

securities and reported at fair value.

Unrealized gains and losses related to changes in the fair value of securities are recognized in AOCI in the Company’s consolidated balance sheets.

Changes in the fair value of available-for-sale

securities impact the Company’s net income only when such securities are sold or when other-than-temporary impairment is recognized.

Realized gains and losses on the sale of securities are determined by specific identification of each security’s cost basis.

The Company reviews its short-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

Companys intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investments 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.

The Company reviews its short-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.

Trade accounts receivable

Accounts receivable are carried at anticipated realizable value.

The Company assesses the collectability of its accounts receivable based

on specific customer circumstances, current economic trends, historical experience with collection and the age of past due receivables and provides an allowance for doubtful receivables based on a review of all outstanding amounts at the period end.

Bad debts are written-off when identified.

Unanticipated changes in the liquidity or

financial position of the Companys customers may require revision to the allowances for doubtful accounts.

The Company assesses the collectability of its accounts receivable based on specific customer circumstances, current economic trends, historical experience with collection and the age of past due receivables and provides an allowance for doubtful receivables based on a review of all outstanding amounts at the period end.

Bad debts are written-off

when identified.

Unanticipated changes in the liquidity or financial position of the Company’s customers may require revision to its allowances for doubtful accounts.

Contract assets

A contract asset is recognized when the Company 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.

The Company reviews for impairment of contract assets on a quarterly basis for any events or changes in circumstances that indicate that their carrying amount may not be recoverable.

A contract asset is recognized when the Company has recognized revenues prior to generating an invoice for payment.

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

The Company reviews contract assets for impairment on a quarterly basis, or when events or changes in circumstances indicate that their carrying amount may not be recoverable.

Contract liabilities

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Inventory is stated at the lower of cost or market value.

Cost is estimated using the standard costing method, computed on a first-in, first-out basis, with adjustments for variances to reflect actual costs not in excess of net realizable market value.

Market value is the estimated selling price in the ordinary course of business, less the costs of

completion and selling expenses.

Cost is estimated using the standard costing method, computed on a first-in,

basis, with adjustments for variances to reflect actual costs not in excess of net realizable market value.

Market value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.

The Company assesses the valuation of inventory on a quarterly basis and writes down the value for estimated excess and obsolete inventory based upon estimates of future demand.

Operating leases

Payments made under operating leases are expensed on a

straight-line basis over the lease term.

Capital lease

Certain machines and equipment held under capital leases are classified as property, plant and equipment and amortized using the

straight-line method over the terms of the lease contracts.

The related obligations from the capital lease are recorded as liabilities in the consolidated balance sheets.

The Company determines if an arrangement contains a lease at inception.

The Company applies the guidance in ASC 842 to determine whether a contract is, or contains, a lease.

A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.

Operating leases are included in operating lease right of use (“ROU”) assets and operating lease liabilities within the Company’s consolidated balance sheets.

The Company rents certain real estate under agreements that are classified as operating leases.

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

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at 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.

Variable lease payments primarily include reimbursements of costs incurred by lessors for common area maintenance and utilities.

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

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

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

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

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

Finance leases

Finance leases are accounted for in a manner similar to financed purchases.

The right-of-use

asset is amortized to amortization expense.

Interest expense is recorded in connection with the lease liability.

Property, plant and equipment

Land is stated at historical cost.

Other property, plant and equipment, except for construction in process and machinery under

installation, are stated at historical cost less accumulated depreciation.

Other property, plant and equipment, except for construction in process and machinery under installation, are stated at historical cost less accumulated depreciation.

Repair and maintenance costs are expensed as incurred.

Depreciation is calculated using the straight-line method to write-off the cost

of each asset to its residual value over its estimated useful life as follows:

Depreciation is calculated using the straight-line method to write-off

the cost of each asset to its residual value over its estimated useful life as follows:

Land improvements

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Computer hardware

Construction in process and machinery under installation is stated at historic cost and depreciation

begins after it is constructed and fully installed and is ready for its intended use in the operations of the Company.

and losses on disposal are determined by comparing proceeds with carrying amounts and are included in other income in the consolidated statements of operations and comprehensive income.

The Company reviews long-lived assets or asset groups for recoverability on a quarterly basis for any events or changes in circumstances

that indicate that their carrying amount may not be recoverable.

Recoverability of long-lived 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 property and equipment exceeds its fair value.

Construction in process and machinery under installation is stated at historic cost and depreciation begins after it is constructed and fully installed and is ready for its intended use in the operations of the Company.

Gains and losses on disposal are determined by comparing proceeds with carrying amounts and are included in other income in the consolidated statements of operations and comprehensive income.

The Company reviews long-lived assets or asset groups for recoverability on a quarterly basis for any events or changes in circumstances that indicate that their carrying amount may not be recoverable.

Recoverability of long-lived 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 long-lived assets exceeds its fair value.

Intangibles are stated at historical cost less amortization.

Amortization of customer relationships is calculated using the accelerated method as to reflect the pattern in which the economic benefits of

the intangible assets are consumed.

Amortization of customer relationships is calculated using the accelerated method as to reflect the pattern in which the economic benefits of the intangible assets are consumed.

Amortization of other intangibles is calculated using the straight-line method.

assets are reviewed for impairment quarterly or more frequently whenever changes or circumstances indicate the carrying amount of related assets may not be recoverable.

Business acquisition

For the acquisition of Fabrinet UK, the

Company 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 was finalized in the fourth

quarter of fiscal year 2017.

The acquired intangible assets, which consisted of customer relationships and backlog, were

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 intangibles for impairment whenever changes or

circumstances indicate the carrying amount may not be recoverable.

In connection with the acquisition of Fabrinet UK,

$3.4 million of cash, net of foreign currency translation adjustment, for deferred consideration, was placed into an escrow account under the Companys control.

The Company contractually agreed to remit this deferred consideration to the

sellers of Fabrinet UK, subject to the resolution of claims that the Company may make against the funds with respect to indemnification and other claims within 24 months from the closing date of the transaction.

As of June 28, 2019, there were

no balances of restricted cash and deferred consideration in connection with business acquisitions.

As of June 29, 2018, the cash is presented as restricted cash in the consolidated balance sheets within current assets and the related liability

is presented within current liabilities for the deferred consideration.

Goodwill arising from the acquisition is primarily attributable to the ability to expand future products and services and the assembled

Goodwill is reviewed annually for impairment or more frequently whenever changes or circumstances indicate the carrying amount of goodwill may not be recoverable.

Intangible assets are reviewed for impairment quarterly or more frequently whenever changes or circumstances indicate the carrying amount of related assets may not be recoverable.

Goodwill arising from 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 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.

The Company may initiate goodwill impairment testing by considering qualitative factors to determine whether it is more likely than not 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.

Goodwill is not deductible for tax purposes.

Accordingly, if goodwill is impaired for financial reporting purposes, there is no impact on deferred taxes.

Treasury shares

Treasury share purchases are accounted for under

the cost method whereby the entire cost of the acquired stock is recorded as treasury shares.

Gains and losses in excess of par value on the subsequent reissuance of shares are credited or charged to additional

paid-in capital in the consolidated balance sheets using the average-cost method.

Treasury share purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury shares.

Gains and losses in excess of par value on the subsequent reissuance of shares are credited or charged to additional paid-in

capital in the consolidated balance sheets using the average-cost method.

Borrowing costs

Borrowing costs are accounted for on an accrual basis and are charged to the consolidated statements of operations and comprehensive income in the year incurred, except for interest costs on general and

specific borrowings attributable to finance certain qualifying assets.

Such costs to finance qualifying assets are capitalized during the period of time that is required to complete and prepare the assets for their intended use, as part of the cost

of the assets.

Such costs to finance qualifying assets are capitalized during the period of time that is required to complete and prepare the assets for their intended use, as part of the cost of the assets.

All other borrowing costs are expensed as incurred.

Where funds are not borrowed for a specific acquisition,

construction or production of assets, the capitalization rate used to determine the amount of interest to be capitalized is the weighted average interest rate applicable to the Companys outstanding borrowings during the year.

Where funds are

borrowed specifically for the acquisition, construction or production of assets, the amount of borrowing costs eligible for capitalization on the respective assets is determined as the actual borrowing costs are incurred on that borrowing during the

respective periods.

Where funds are not borrowed for a specific acquisition, construction or production of assets, the capitalization rate used to determine the amount of interest to be capitalized is the weighted average interest rate applicable to the Company’s outstanding borrowings during the year.

Where funds are borrowed specifically for the acquisition, construction or production of assets, the amount of borrowing costs eligible for capitalization on the respective assets is determined as the actual borrowing costs are incurred on that borrowing during the respective periods.

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 the measurement date.

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 the measurement date.

The three levels of inputs that may be used to measure fair value are defined as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs for similar assets and liabilities in active markets other than quoted prices included within Level 1 that are

observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 2 inputs for similar assets and liabilities in active markets other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 inputs that are significant to the fair value measurement and unobservable (i.e.

supported by little or no market activity),

which require the reporting entity to develop its own valuation techniques and assumptions.

The Company utilizes the market

approach to measure fair value for its financial assets and liabilities.

supported by little or no market activity), which require the reporting entity to develop its own valuation techniques and assumptions.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities.

The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

The carrying amounts of certain financial instruments, which include cash and cash equivalents, trade accounts receivable, contract

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

The carrying amounts of certain financial instruments, which include cash and cash equivalents, trade accounts receivable, contract 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.

The derivative assets and liabilities are recognized on the consolidated balance sheets as other current assets or other current

liabilities and are measured at fair value.

The Company applies hedge accounting to arrangements that qualify and are

designated for cash flow or fair value hedge accounting treatment.

Hedge accounting is discontinued prospectively if the hedging relationship ceases to be effective or the hedging or hedged items cease to exist as a result of maturity, sale,

termination or cancellation.

Derivatives designated and qualifying as hedges of the exposure to variability in expected future

cash flows, or other types of forecasted transactions, are considered cash flow hedges which include forward currency contracts.

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 in the consolidated balance sheets, while any ineffective portion is recognized directly in earnings, as a component of foreign exchange gain (loss) in the consolidated statements of operations and comprehensive income.

The portion of gain or loss on the derivative instrument remains in AOCI until the forecasted transaction is recognized in earnings.

The Company also enters into derivative contracts that are intended to economically hedge certain of the Companys risks.

The changes in the fair value of the derivatives are recorded directly in

earnings as a component of foreign exchange gain (loss) in the consolidated statements of operations and comprehensive income.

In accordance with the fair value measurement guidance, the Companys accounting policy is to measure the credit risk

of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

The Company executes derivative instruments with financial institutions that are credit-worthy, which the Company defines

as institutions that hold an investment grade credit rating.

The derivative 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 and non-current

portion as follows:

A derivative whose fair value is a net liability is classified in total as current.

A derivative whose fair value is a net asset and whose current portion is an asset is classified in total as non-current.

If the current portion is liability, it should be presented as current liability.

For presentation in consolidated statements of cash flows are classified in the same line item as the underlying item.

The Company applies hedge accounting to arrangements that qualify and are designated for cash flow or fair value hedge accounting treatment.

Hedge accounting is discontinued prospectively if the hedging relationship ceases to be effective or the hedging or hedged items cease to exist as a result of maturity, sale, termination or cancellation.

Derivatives designated and qualifying as hedges of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges which include foreign currency forward contracts and interest rate swap.

In a cash flow hedging relationship, the change in the fair value of the hedging derivative is initially recorded in AOCI in the consolidated balance sheets, gain or loss on the derivative instrument is 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.

In accordance with the fair value measurement guidance, the Company’s accounting policy is to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

The Company executes derivative instruments with financial institutions that are credit-worthy, which the Company defines as institutions that hold an investment grade credit rating.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents,

short-term investments, derivatives and accounts receivable.

Cash, cash equivalents and short-term investments are maintained

with several financial institutions.

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.

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 investments in marketable

securities to securities with a maturity not in excess of three years, and all marketable securities that the Company invests in are rated A1, P-1, F1, or better.

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

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.

Revenue recognition

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 recognizes revenue relating to contracts that depict 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.

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.

In order to meet this requirement, the Company applies 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 performance obligations in the contract, and (5) recognize revenue when a

performance obligation is satisfied.

(1) identify the contract with a customer, (2) identify the performance obligations under the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations under the contract, and (5) recognize revenue when a performance obligation is satisfied.

Revenue is recognized net of any taxes collected from customers, which is subsequently remitted to governmental authorities.

A performance obligation is a promise in a contract to transfer a distinct good or

service to the customer.

In contracts with multiple performance obligations, the Company identifies each performance obligation and evaluates whether the performance obligation is distinct within the context of the contract at contract inception.

The majority of the Companys contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.

A performance obligation is a contractual promise to transfer a distinct good or service to the customer.

In contracts with multiple performance obligations, the Company identifies each performance obligation and

evaluates whether the performance obligation is distinct within the context of the contract at contract inception.

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.

Sales of finished goods

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 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, which results in the deferral of revenue until formal notice

of acceptance is received from the customer.

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 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, which results in the deferral of revenue until formal notice of acceptance is received from the customer.

Judgment may be required in determining if an acceptance clause provides for substantive acceptance.

Certain customers may request the Company to store finished products at the Company’s 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 Companys warehouse and refrain from using the ordered goods to fulfill other customer orders.

In these situations, revenue is only recognized when the

completed goods are ready for shipment and transferred to the Companys warehouse.

Customers generally are obligated to

purchase finished goods that the Company has manufactured according to their demand requirements.

Materials that are not consumed by customers within a specified period of time, or are no longer required due to a products cancellation or end-of-life, are typically designated as excess or obsolete inventory under the Companys contracts.

Once materials are designated as either excess or obsolete inventory,

customers are typically required to purchase such inventory from the Company even if the customer has chosen to cancel production of the related products.

The excess or obsolete inventory is shipped to the customer and revenue is recognized upon

A contracts transaction price is allocated to each distinct performance obligation and recognized as revenue

when, or as, the performance obligation is satisfied.

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 to fulfill other customer orders.

In these situations, revenue is only recognized when the completed goods are ready for shipment and transferred to the Company’s warehouse.

Customers generally are obligated to purchase finished goods that the Company has manufactured according to their demand requirements.

Materials that are not consumed by customers within a specified period of time, or are no longer required due to a product’s cancellation or end-of-life,

are typically designated as excess or obsolete inventory under the Company’s contracts.

Once materials are designated as either excess or obsolete inventory, customers are typically required to purchase such inventory from the Company even if the customer has chosen to cancel production of the related products.

The excess or obsolete inventory is shipped to the customer and revenue is recognized upon shipment.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

In determining the net consideration to which the Company expects to be entitled, the Company evaluates whether the price is subject to refund or adjustment.

The Company generally does not

grant return privileges, except for in the case of defective products during the warranty period.

The Company generally does not grant return privileges, except for in the case of defective products during the warranty period.

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

These standard warranties are assurance type

warranties and do not offer any services in addition to the assurance that the product will continue to work as specified.

sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.

These standard warranties are assurance-type warranties ,

and the Company does not offer any services in addition to the assurance that the product will continue to work as specified.

The sales price is not considered to be fixed or determinable until 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.

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.

The Company provides services for customers that are related to the Company’s manufacturing activities.

In many cases, although the

nature of work performed is service in nature, revenue is only recognizable on shipping of the product because the customer has specific requirements as to how many items can be shipped at any given point in time, i.e.

In many cases, although the nature of work performed is that of a service, revenue is only re cognized upon shipment

of the product because the customer has specific requirements as to how many items can be shipped at any given point in time, i.e.

at point-in-time.

The related costs are expensed as incurred.

Service revenues of $106.1 million, $73.5 million and $92.8 million were

recognized in the consolidated statements of operations and comprehensive income for the years ended June 28, 2019, June 29, 2018 and June 30, 2017, respectively.

Service revenues of $ 90.5 million, $ 106.1 million and $ 73.5 million were recognized in the consolidated statements of operations and comprehensive income for the years ended June 26, 2020, June 28, 2019 and June 29, 2018, respectively.

Contract Costs

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.

Incremental costs of obtaining a contract are costs that the Company would not have incurred if the contract had not been obtained (e.g., sales commissions or similar incentive payments linked directly to new or modified customer contracts).

Costs that would have been incurred regardless of whether a customer contract was obtained (e.g., costs of pursuing the contract

, legal advice, etc.) are expensed as incurred, unless such costs are explicitly chargeable to the customer.

During the years

ended June 26, 2020 and June 28, 2019, the Company did no t have any incremental costs of obtaining a contract.

Shipping and Handling

Shipping costs billed to customers are recorded as revenue.

Shipping and handling expense related to costs incurred to deliver product are recognized within cost of goods sold.

The Company accounts for shipping and handling activities that occur after control has transferred as a fulfillment cost, as opposed to a separate performance obligation, and the costs of shipping and handling are recognized concurrently with the related revenue.

Warranty provision

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

Generally, this warranty is limited to workmanship and the

Companys liability is capped at the price of the product.

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

The provisions will be adjusted when experience indicates an expected settlement will differ from initial estimates.

Warranty cost allowances (reversal) of $0.07 million, ($0.02 million) and $1.0 million were recognized in the consolidated

statements of operations and comprehensive income for the years ended June 28, 2019, June 29, 2018 and June 30, 2017, respectively.

Warranty cost allowances (reversal) of $ 0.02 million, $ 0.07 million and $( 0.02 ) million were recognized in the consolidated statements of operations and comprehensive income for the years ended June 26, 2020, June 28, 2019 and June 29, 2018, respectively.

Share-based compensation

Share-based compensation is recognized in

the consolidated financial statements based on grant-date fair value.

Share-based compensation is recognized in the consolidated financial statements based on grant-date fair value.

The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period.

The Company estimates the fair value

of share option awards utilizing the Black-Scholes-Merton option-pricing model (BSM), net of estimated forfeitures.

For restricted share units and performance share units, the fair values are based on the market value of our ordinary

shares on the date of grant.

The Company estimates the fair value of share option awards utilizing the Black-Scholes-Merton option-pricing model (“BSM”), net of estimated forfeitures.

For restricted share units and performance share units, the fair values are based on the market value of our ordinary shares on the date of grant.

Employee contribution plan

The Company operates a defined contribution plan, known as a provident fund, in its subsidiaries in Thailand and the United Kingdom.

assets of these plans are in separate trustee-administered funds.

The provident fund is funded by matching payments from employees and by the subsidiaries on a monthly basis.

Current contributions to the provident fund are accrued and paid to the

fund manager on a monthly basis.

The assets of these plans are in separate trustee-administered funds.

provident fund is funded by matching payments from employees and by the subsidiaries on a monthly basis.

Current contributions to the provident fund are accrued and paid to the fund manager on a monthly basis.

The Company sponsors the Fabrinet U.S.

401(k) Retirement Plan (the 401(k) Plan), a Defined Contribution Plan under ERISA, at its subsidiaries in the United States, which provides retirement benefits for

its eligible employees through tax deferred salary deductions.

401(k) Retirement Plan (the “401(k) Plan”), a Defined Contribution Plan under ERISA, at its subsidiaries in the United States, which provides retirement benefits for its eligible employees through tax deferred salary deductions.

Severance liabilities

Under labor protection laws applicable in Thailand and the Companys subsidiary in Thailands employment policy, all employees

of such subsidiary with more than 120 days of service are entitled to severance pay on forced termination or retrenchment or in the event that the employee reaches the retirement age of 55.

The entitlement to severance pay is determined according to

an employees individual employment tenure with the Company and is subject to a maximum benefit of 400 days of salary unless otherwise agreed upon in an employees 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.

The Company accounts for these severance liabilities on an actuarial basis using the Projected Unit Credit Method, using the long-term Thai government bond yield as a discount rate.

There are no separate

plan assets held in respect of these liabilities.

The Companys subsidiary in the United Kingdom operates a defined

benefit pension plan that defines the pension benefit an employee will receive on retirement, usually dependent upon several factors including but not limited to age, length of service and remuneration.

The defined benefit obligation is calculated

using the projected unit credit method.

Annually the Company engages independent actuaries to calculate the

The present value is determined by discounting the estimated future payments using market yields on high quality corporate bonds that are denominated in sterling and that have terms

approximating the estimated period of the future payments (discount rate).

Under labor protection laws applicable in Thailand and the Company’s subsidiary in Thailand’s employment policy, all employees of such subsidiary with more than 120 days of service are entitled to severance pay on forced termination or retrenchment or in the event that the employee reaches the retirement age of 55.

The entitlement to severance pay is determined according to an employee’s individual employment tenure with the Company and is subject to a maximum benefit of 400 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.

The Company accounts for these severance liabilities based on an actuarial valuation using the Projected Unit Credit Method, which apply the long-term Thai government bond yield as a discount rate.

There are no separate plan assets held in respect to these liabilities.

The Company’s subsidiary in the U.K.

operates a defined benefit pension plan that defines the pension benefit an employee will receive on retirement, usually dependent upon several factors including but not limited to age, length of service and remuneration.

The defined benefit obligation is calculated using the projected unit credit method.

Annually the Company engages independent actuaries to calculate the obligation.

The present value is determined by discounting the estimated future payments using market yields on high quality corporate bonds that are denominated in sterling and that have terms approximating the estimated period of the future payments (discount rate).

The plan assets are held separately from those of the Company in independently administered funds and are measured at fair value.

Severance liabilities are recognized in the Companys consolidated balance sheet under non-current liabilities.

The related expenses,

if incurred during the period, are recognized in the Companys consolidated statements of operations and comprehensive income as selling, general and administrative expenses.

Prior service cost is initially recognized to other comprehensive

income (loss) at the date of plan amendment.

Such prior service cost is amortized as expenses as a component of net periodic pension cost by the weighted average remaining years of service to full eligibility date of active employees.

Employee entitlements to annual leave are recognized when they accrue to the employee.

Severance liabilities are recognized in the Company’s consolidated balance sheet under non-current

The related expenses, if incurred during the period, are recognized in the Company’s consolidated statements of operations and comprehensive income as selling, general and administrative expenses.

Prior service cost is initially recognized to other comprehensive income (loss) at the date of plan amendment.

Such prior service cost is amortized as expenses as a component of net periodic pension cost using

the weighted average remaining years of service to full eligibility date for

active employees.

Employee entitlements to annual leave are recognized when earned by

the employee.

On termination of employment, accrued employee entitlement to annual leave is paid in cash.

between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those

temporary differences are expected to reverse.

The Company uses the asset and liability method of accounting for income taxes, whereby deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Deferred tax assets are reduced by a valuation

allowance if, based on the weight of the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Fabrinet’s subsidiaries are subject to income tax audits by the respective tax authorities in all of the jurisdictions in which they operate.

The determination of tax liabilities in each of these

jurisdictions requires the interpretation and application of complex and sometimes uncertain tax laws and regulations.

The Company recognizes liabilities based on its estimate of whether, and the extent to which, additional tax liabilities

are more-likely-than-not.

If the Company ultimately determines that the payment of such a liability is not probable, then it reverses the liability and recognizes a tax benefit during the period in which the

determination is made that the liability is no longer probable.

The determination of tax liabilities in each of these jurisdictions requires the interpretation and application of complex and sometimes uncertain tax laws and regulations.

The Company recognizes liabilities based on its estimate of whether, and the extent to which, additional tax liabilities are more-likely-than-not.

If the Company ultimately determines that the payment of such a liability is not probable, then it reverses the liability and recognizes a tax benefit during the period in which the determination is made that the liability is no longer probable.

The recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities requires that the Company makes certain estimates and judgments.

to these estimates or a change in judgment may have a material impact on the Companys tax provision in a future period.

The authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely

than not to occur based on an evaluation of both positive and negative evidence and the relative weight of the evidence.

A company shall reduce its deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is

more likely than not (i.e., a likelihood of greater than 50 percent) that some portion or all of the deferred tax assets will not be realized.

The valuation allowance shall be sufficient to reduce the deferred tax asset to the amount

that 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 evidence, a valuation allowance for

deferred tax assets is not needed.

The accounting standard clarifies the accounting for uncertainty in income taxes recognized

in an entitys financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return.

The Company recognizes a tax benefit in the financial statements for an uncertain tax position only if managements assessment is

that the position is more likely than not 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.

Changes to these estimates or a change in judgment may have a material impact on the Company’s tax provision in a future period.

The authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur based on an evaluation of both positive and negative evidence and the relative weight of the evidence.

A company shall reduce its deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is “more likely than not” (i.e., a likelihood of greater than 50 percent) that some portion or all of the deferred tax assets will not be realized.

The valuation allowance shall be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized.

The accounting standard clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return.

The Company recognizes a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” 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.

New Accounting Pronouncements—not yet adopted by the Company

In May 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-05, Financial InstrumentsCredit Losses (Topic 326) The amendments in this Update provide entities that have certain instruments within the scope of Subtopic

326-20, Financial InstrumentsCredit LossesMeasured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial

InstrumentsOverall, 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 MeasurementOverall, 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.

In December 2019, the Financial

Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 U.S.

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

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

This ASU will be effective for the Company in the first quarter of fiscal year 2022.

Early adoption is permitted.

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

In April 2019, FASB issued ASU 2019-04, Financial InstrumentsCredit Losses (Topic

326), Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 825) Codification Improvements. The amendments in this Update 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.

Early adoption is permitted.

The Company is currently evaluating the impact of the adoption of this

update on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13

2018-13, Fair Value Measurement (Topic 820), Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurement. This ASU is intended to improve the effectiveness of

disclosures in the notes to the financial statements, including (1) the development of a framework that promotes consistent decisions by the FASB about disclosure requirements and (2) the appropriate exercise of discretion by reporting

, “Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU is intended to improve the effectiveness of disclosures in the notes to the financial statements, including (1) the development of a framework that promotes consistent decisions by the FASB about disclosure requirements and (2) the appropriate exercise of discretion by reporting entities.

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

The amendments in this update are effective for all entities for fiscal years, and

interim periods within those fiscal years, beginning after December 15, 2019.

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 2017-04, IntangiblesGoodwill and Other (Topic

Simplifying the Test for Goodwill Impairment. This amendment modified the concept of impairment assessment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists

when the carrying amount of a reporting unit exceeds its fair value.

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

adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company does not expect the amendments will impact its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842):

The amendment

requires the Company to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease:

liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis;

and (2) a right of use asset, which is an asset that represents the lessees right to use, or control the use of, a

specified asset for the lease term.

For public companies, this update is effective in the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

adoption is permitted.

The FASB has issued three additional updates to the standard which (1) provide guidance on comparative reporting requirements for initial adoption and also provide

additional guidance for lessors, on separating lease and non-lease components in a contract and allocating the consideration in the contract to the separate components (ASU

(2) provide guidance on transition disclosure in the annual period in which a change in accounting principle is made;

and (3) narrow aspects of the guidance issued in the amendments in update 2016-02 on various matters (ASU 2018-10).

The effective date for all amendments is the same as ASU 2016-02.

The Company will adopt the new lease accounting standard (ASC 842) using the modified retrospective transition approach,

effective on June 29, 2019.

Accordingly, the Companys comparative financial statements as of June 28, 2019 will not be adjusted.

ASC 842 also provides practical expedients for the Companys ongoing accounting.

The Company plans

to elect the short-term lease recognition exemption for its operating leases with term of less than 12 months, which will not require recognition of right of use assets or lease liabilities for these leases.

The most significant impact of the adoption of ASC 842 is expected to be recognition of right of use assets and lease liabilities for the

operating leases with a term of greater than 12 months, while the accounting for finance leases will remain substantially unchanged.

ASC 842 will require the Company to provide significant new disclosures about its leasing activities in its interim

financial information effective in the first quarter of fiscal year 2020.

The Company has assessed the preliminary impact of adopting ASC 842 to the Companys first quarter financial statements of fiscal year 2020 to be recognized right of use

under non-current assets of $4.8 million, lease liabilities totaling $5.2 million, with $1.3 million under current liabilities and $3.9 million under

non-current liabilities, and a decrease in retained earnings of $0.4 million.

New Accounting Pronouncementsadopted by the Company

In November 2017, the FASB issued ASU 2017-14, Income StatementReporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue

from Contracts with Customers (Topic 606):

Amendments to SEC Paragraphs Pursuant to the Staff Accounting Bulletin (SAB) No.

116 and SEC Release No.

This ASU amended,

superseded and added certain SEC paragraphs in Topic 220, Topic 605 and Topic 606 to reflect the August 2017 issuance of SEC Staff Accounting Bulletin (SAB) 116 and SEC Release No.

The SEC staff

issued SAB 116 to align its revenue guidance with Accounting Standards Codification (ASC) 606.

For public business entities, this update is effective for fiscal years beginning after December 15, 2017, including interim periods within those

The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, including interim periods within those

fiscal years.

Early application is permitted.

The Company adopted this standard along with the implementation of ASC 606 effective June 30, 2018 with immaterial impact to the consolidated financial statements.

In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue

from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842):

Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and

Observer Comments. The amendment delays the mandatory adoption of Topic 606 and Topic 842 for certain entities, revises the guidance related to performance-based incentive fees in Topic 605 and revises the guidance related to leases in Topic

840 and Topic 842.

The revisions to the lease guidance eliminate language specific to certain sale-leaseback arrangements, guarantees of lease residual assets and loans made by lessees to owner-lessors.

Also included is an amendment to Topic 842 to

retain the guidance in Topic 840 covering the impact of changes in tax rates on investments in leveraged leases.

This guidance, which is effective immediately, generally relates to the adoption of Topic 606 and Topic 842.

The Company adopted this

standard along with the implementation of ASC 606 effective June 30, 2018 with immaterial impact to the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and InvestmentsEquity Method and Joint Ventures

Accounting for Investments in Qualified Affordable Housing Projects:

Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. The amendment provides

guidance to the

Company in relation to the disclosure of the impact that ASU 2014-09, ASU 2016-02 and ASU 2016-13 will have on the Companys financial statements when adopted.

The Company adopted this standard along with the implementation of ASC 606 effective June 30, 2018 with immaterial impact to the

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 adopted this new update effective June 30, 2018 with no impact to the consolidated financial statements.

Revenues from contracts with customers

On June 30, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606), under Accounting Standards Codification Topic 606 (ASC 606), and applied the modified

retrospective method to those contracts which were not completed as of June 29, 2018.

The modified retrospective method requires the Company to recognize the cumulative effect of the adoption of ASC 606, for all contracts with customers, to the

opening balance of equity at June 30, 2018.

Accordingly, the Companys comparative financial information as of June 29, 2018 has not been adjusted and continues to be reported under ASC 605, Revenue Recognition (ASC

The cumulative effect adjustment recorded was based on the timing difference of revenue recognition between ASC

605 and ASC 606 and mostly related to certain manufacturing contracts with vendor-managed inventory arrangements.

Under ASC 605, revenue for such contracts was recognized at the earlier of when the inventory was consumed by the customers or if

not consumed, on the expiration of time specified in the contract.

On adoption of ASC 606, revenue is recognized when inventory is shipped to customers.

The following table shows the impact of adoption of ASC 606 on the adoption date of June 29, 2018 on the consolidated balance sheets:

Consolidated Balance Sheets

Impact of Adopting ASC 606

The Company assessed the preliminary impact from the adoption of this update and expected no impact on its consolidated financial statements.

In June 2016, the FASB issued ASU

“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

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 year 2021.

Early adoption is permitted.

The Company assessed the preliminary impact from

of this update and expected

no impact on its consolidated financial statements.

New Accounting Pronouncements—adopted by the Company

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.

Accordingly, the Company’s comparative financial statements as of June 28, 2019 have not been adjusted.

ASC 842 also provides practical expedients for the Company’s ongoing accounting.

The Company elected the short-term lease recognition exemption for its operating leases with a term of less than 12 months, which will not require recognition of ROU assets or lease liabilities for these leases.

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

Future minimum lease payments due under non-cancelable

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

(amount in thousands)

June 29, 2018

June 30, 2018

Contract assets

Inventory, net

Liabilities and Shareholders Equity

Retained earnings

Majority of adjustment relates to certain manufacturing contracts with vendor-managed inventory arrangements for which revenue was recognized on

Adjustment relates to reduction of finished goods inventory for certain vendor-managed inventory arrangements.

Adjustment relates to cumulative effect adjustment upon adoption of ASC 606.

Total future minimum operating lease payments

The most significant impact of the adoption of ASC 842 was the recognition of ROU assets and lease liabilities for operating leases with a term of greater than 12 months, while the accounting for finance leases will remain substantially unchanged.

for further details.

On June 29, 2019, the Company adopted ASU 2017-12,

“Derivatives and Hedging (Topic 815):

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

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

Prior to the adoption of ASU 2017-12,

the Company was required to separately measure and reflect the amount by which the hedging instrument did not offset the changes in the fair value or cash flows of hedged items, and to record the ineffective portion as earnings.

Upon the adoption of ASU 2017-12,

the Company no longer recognizes hedge ineffectiveness as earnings, but instead records the entire changes in the fair value of the hedged instruments as other comprehensive income.

Amounts recorded as other comprehensive income are subsequently reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the hedged item affects earnings.

See Note 7 for further details.

In March 2020, the 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 year 2020 with no impact to the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04,

“Intangibles—Goodwill and Other (Topic 350):

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

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.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

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

The Company early adopted this ASU in the fourth quarter of fiscal 2020 with no impact to the Company’s consolidated financial statements.

Revenues from contracts with customers

Contract Assets and Liabilities

A contract asset is recognized when the Company 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.

During the year ended June 28, 2019, the Company had no impairment for contract assets recognized.

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

with customers.

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.

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 Companys contract assets and contract liabilities during the year ended June 28, 2019:

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

ended June 26, 2020 and June 28, 2019:

(amount in thousands)

1 unchanged sentence

Beginning balance, June 28, 2019

Cumulative effect adjustment upon adoption of ASC 606

Revenue recognized

2 unchanged sentences

(amount in thousands)

Contract Assets

Beginning balance, June 30, 2018

Additions during the year, net

Cumulative effect adjustment upon adoption of ASC 606

Revenue recognized

Amounts collected or invoiced

Ending balance, June 28, 2019

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 these costs are expected to be recovered.

Incremental costs of obtaining a contract are those the Company would not have incurred if the contract had not been

obtained (e.g., sales commissions or similar incentive payments linked directly to new or modified customer contracts).

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 those costs are explicitly chargeable to the customer.

During the year ended June 28, 2019, the Company did not have any incremental costs of obtaining a contract.

Shipping and Handling

Shipping costs billed to customers are recorded as revenue.

Shipping and handling expense related to costs incurred to deliver product are recognized within cost of goods sold.

The Company accounts for

shipping and handling activities that occur after control has transferred as a fulfillment cost, as opposed to a separate performance obligation, and the costs of shipping and handling are recognized concurrently with the related revenue.

The impact of adoption of ASC 606 on the Companys consolidated statements of

operations and comprehensive income for the year ended June 28, 2019 and consolidated balance sheets as of June 28, 2019 was as follows:

Consolidated Statement of Operations and Comprehensive Income

Year Ended June 28, 2019

Impact of Adopting ASC 606

(amount in thousands)

Cost of revenues

Earnings per share

Adjustment relates to

certain manufacturing contracts with vendor-managed inventory arrangements for which revenue was recognized at shipping.

Adjustment relates to

costs associated with revenue recognized.

Adjustment relates to

net impact on net income upon adoption of ASC 606.

Consolidated Balance Sheets

As of June 28, 2019

Impact of Adopting ASC 606

Beginning balance, June 28, 2019

Advance payment received during the year

Revenue recognized

Ending balance, June 26, 2020

(amount in thousands)

Contract assets

Inventory, net

Liabilities and Shareholders Equity

Contract liabilities

Retained earnings

Majority of adjustment relates to certain manufacturing contracts with vendor-managed inventory arrangements for which revenue was recognized on

Adjustment relates to reduction of finished goods inventory for vendor-managed inventory.

Adjustment relates to advance payment arrangements with customers result in the recognition of contract liabilities.

Adjustment relates to cumulative effect adjustment upon adoption of ASC 606.

Revenue by Geographic Area

Total revenues are attributed to a particular geographic area based on

the bill-to-location of customers.

Beginning balance, June 30, 2018

Advance payment received during the year

Revenue recognized

Ending balance, June 28, 2019

Revenue by Geographic Area and End Market

Total revenues are attributed to a particular geographic area based on the bill-to-location of

the Company’s customers.

The Company operates primarily in three geographic regions:

North America, Asia-Pacific and Europe.

The following table

presents total revenues by geographic regions:

(amount in thousands)

The following table presents total revenues by geographic regions:

(amount in thousands, except percentages)

North America

The following table sets forth revenues by end market.

(amount in thousands)

(amount in thousands, except percentages)

Optical communications

2 unchanged sentences

Fabrinet is domiciled in the Cayman Islands.

current laws of the Cayman Islands, Fabrinet is not subject to tax in the Cayman Islands on income or capital gains until March 6, 2039.

Income of the Company exempted from corporate income tax in the Cayman Islands amounted to $104.6 million, $58.4 million and $64.2 million in the years ended June 28, 2019,

June 29, 2018 and June 30, 2017, respectively.

Under the current laws of the Cayman Islands, Fabrinet is not subject to tax in the Cayman Islands on income or capital gains until March 6, 2039 .

Income of the Company exempted from corporate income tax in the Cayman Islands amounted to $ 101.9 million, $ 104.6 million and $ 58.4 million for the years ended June 26, 2020, June 28, 2019 and June 29, 2018, respectively.

Fabrinet Thailand is where the majority of the Company’s operations and production takes place.

The Company is not subject to tax

from July 2012 through June 2020 on income generated from the manufacture of products at Pinehurst Building 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.

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 the case of our Pinehurst campus and until June 2026 in the case of our Chonburi campus).

Currently, the corporate income tax rate for our Thai

subsidiary is 20%.

The Company wa

s not subject to tax from July 2012 through June 2020 on income generated from the manufacture of products at Pinehurst Building 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.

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.

Currently, the corporate income tax rate for our Thai subsidiary is

People’s Republic of China

1 unchanged sentence

The United States

The Tax Cuts and Jobs Act (Tax Reform Act)

was enacted on December 22, 2017 and provided for significant changes to U.S.

The Tax Cuts and Jobs Act (“Tax Reform Act”) enacted on December 22, 2017 provided for significant changes to U.S.

Among other provisions, the Tax Reform Act reduced the U.S.

corporate income tax rate to 21% effective January 1, 2018.

The subsidiaries in the U.S.

were subject to an average Federal statutory tax rate of 27.6% for fiscal year 2018 and 21% for fiscal year 2019.

corporate income tax

rate to 21 % effective January 1, 2018.

Accordingly, the Company’s U.S.

subsidiaries were subject to a Federal statutory tax rate

for fiscal year 2020 and fiscal year 2019.

The United Kingdom

4 unchanged sentences

Total income tax expense

The reconciliation between the Companys taxes that would arise by applying the statutory tax rate of

the country of the Companys principal operations, Thailand, to the Companys effective tax charge is shown below:

The reconciliation between the Company’s taxes that would arise by applying the statutory tax rate of the country of the Company’s principal operations, Thailand, to the Company’s effective tax charge is shown below:

(amount in thousands)

4 unchanged sentences

Income tax on unremitted earnings

Effect of different tax rate in relation to deferred tax utilization

Effect of different tax rate in relation to deferred

tax utilization

Effect of foreign exchange rate adjustment

2 unchanged sentences

Utilization of loss carryforward

(Reversal of) valuation allowance

Valuation allowance (reversal of)

Corporate income tax expense

Income before income taxes was mostly generated from domestic income in the Cayman Islands.

Income not subject to tax relates to income earned in the Cayman Islands and income subject to an investment promotion privilege for Pinehurst

Building 6 and the Companys Chonburi campus.

Income not subject to tax relates to income earned in the Cayman Islands and income subject to an investment promotion privilege for Pinehurst Building 6 and the Company’s Chonburi campus.

Income not subject to tax per ordinary share on a diluted basis was $ 0.55 , $ 0.57 , and $ 0.34 for the years ended June 26, 2020, June 28, 2019, and June 29, 2018, respectively.

The Companys deferred tax assets and deferred tax liabilities, net of valuation

allowance, at each balance sheet date are as follows:

The Company’s deferred tax assets and deferred tax liabilities, net of valuation allowance, at each balance sheet date are as follows:

(amount in thousands)

4 unchanged sentences

(amount in thousands)

Deferred tax liabilities:

Temporary differences from intangibles and changes in the fair value of assets acquired

Deferred tax from unremitted earnings

During fiscal year 2018, one of the Companys subsidiary in the United States 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 29, 2018, the Company reversed certain deferred tax assets valuation allowance as management expected it was more likely than not that the Company would realize profits in subsequent

fiscal years so that the loss carryforwards could be partially utilized.

Consequently, as of June 28, 2019, the Company has assessed and established a partial valuation allowance for the deferred tax assets at the same level as in fiscal year

The changes in the valuation allowances of deferred tax assets were as follows:

5 unchanged sentences

Balance as of June 28, 2019

During fiscal year 2019, the Company completed its assessment of the income tax effects resulting from the

Tax Reform Act and concluded that no cumulative remeasurement adjustments were required.

During fiscal year 2018, the Company

made certain provisional accounting estimates, as permitted under Staff Accounting Bulletin No.

118, to account for the impact of the Tax Reform Act.

As of June 29, 2018, the Company applied the new corporate tax rate to compute its current income tax and remeasured its deferred tax assets and liabilities for all U.S.

subsidiaries to reflect the

lower rate expected to

apply when these provisional accounting estimates were utilized.

The remeasurement resulted in (1) a reduction in current income tax expenses of $0.1 million and (2) a reduction in

deferred tax assets of $0.4 million.

Income tax liabilities have not been established for withholding tax and other taxes

that would be payable on the unremitted earnings of Fabrinet Thailand.

Balance as of June 26, 2020

During fiscal year 2018, one of the Company’s 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 29, 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 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 assets 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.

During fiscal year 2020, one of the Company’s subsidiaries in the U.K.

also 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 such subsidiary

will not be utilized .

, a full valuation allowance of $ 1.6 million

for the deferred tax assets was set up as of June 26, 2020

Income tax liabilities have not been established for withholding tax and other taxes that would be payable on the unremitted earnings of Fabrinet Thailand.

Such amounts of Fabrinet Thailand are permanently reinvested;

unremitted earnings for Fabrinet Thailand totaled $109.7 million and $102.5 million as of June 28,

2019 and June 29, 2018, respectively.

unremitted earnings for Fabrinet Thailand totaled $ 112.3 million and $ 109.7 million as of June 26, 2020 and June 28, 2019, respectively.

Unrecognized deferred tax liabilities for such unremitted earnings were $ 7.0 million and $ 6.9 million as of June 26, 2020 and June 28, 2019, respectively.

Deferred tax liabilities of $1.3 million and $1.0 million have been established for withholding tax on the unremitted earnings

of Casix for the years ended June 28, 2019 and June 29, 2018, respectively, which are included in non-current deferred tax liability in the consolidated balance sheets.

Deferred tax liabilities of $ 1.1 million and $ 1.3 million have been established for withholding tax on the unremitted earnings of Casix for the years ended June 26, 2020 and June 28, 2019, respectively, which are included in non-current

deferred tax liability in the consolidated balance sheets.

Uncertain income tax positions

Interest and penalties related to uncertain income tax positions are recognized in income tax expense.

The Company had approximately $0.8 million and $0.9 million of accrued interest and

penalties related to uncertain income tax positions on the consolidated balance sheets as of June 28, 2019 and June 29, 2018, respectively.

The Company (reversed) recorded interest and penalties of $(0.1) million, $0.3 million and

$0.3 million for the years ended June 28, 2019, June 29, 2018 and June 30, 2017, respectively, in the consolidated statements of operations and comprehensive income.

With regard to the Thailand jurisdiction, tax years 2014

through 2018 remain open to examination by the local authorities.

The following table indicates the changes to the

Companys uncertain income tax positions for the years ended June 28, 2019, June 29, 2018 and June 30, 2017 included in other non-current liabilities.

The Company had approximately $ 0.5 million and $ 0.8 million of accrued interest and penalties related to uncertain income tax positions on the consolidated balance sheets as of June 26, 2020 and June 28, 2019, respectively.

The Company recorded

(reversed) interest and penalties of $ 0.1 million, $( 0.1 ) million and $ 0.3 million for the years ended June 26, 2020, June 28, 2019 and June 29, 2018, respectively, in the consolidated statements of operations and comprehensive income.

With regard to the Thailand jurisdiction, tax years 2015 through 2019 remain open to examination by the local authorities.

The following table indicates the changes to the Company’s uncertain income tax positions for the years ended June 26, 2020, June 28, 2019 and June 29, 2018 included in other non-current

(amount in thousands)

5 unchanged sentences

Basic earnings per ordinary share is computed by dividing reported net income by the weighted average number of ordinary shares outstanding during each period.

Diluted earnings per ordinary share is

computed by calculating the effect of potential dilutive ordinary shares outstanding during the year using the treasury

Diluted earnings per ordinary share is computed by calculating the effect of potential dilutive ordinary shares outstanding during the year using the treasury stock method.

Dilutive ordinary equivalent shares consist of share options, restricted share units and performance share units.

3 unchanged sentences

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)

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)

2 unchanged sentences

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

Outstanding 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 Companys current assessment of the related performance obligations.

As of June 28,

2019, June 29, 2018 and June 30, 2017, there were no anti-dilutive share options.

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 Companys 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)

3 unchanged sentences

Certificates of deposit and time deposits

Corporate bonds and commercial papers

Corporate debt securities

agency and U.S.

Treasury securities

(amount in thousands)

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.

Treasury securities

Sovereign and municipal securities

The cash equivalents include short-term bank deposits, investments in money market funds, and marketable

securities with maturities of three months or less at the date of purchase.

The cash equivalents include short-term bank deposits, investments in money market funds, and marketable securities with maturities of three months or less at the date of purchase.

The effective interest rate on short term bank deposits was 1.8 % and 1.9 % per annum for the years ended June 26, 2020 and June 28, 2019, respectively.

As of June 28, 2019 and June 29, 2018, 58% and 49%, respectively, of our cash and cash equivalents were held by the Parent

The following table summarizes the cost and estimated fair value of marketable securities classified as available-for-sale securities based on stated effective maturities as of June 28, 2019:

As of June 26, 2020 and June 28, 2019, 63 % and 58 %, respectively, of our cash and cash equivalents were held by the Parent Company.

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 June 26, 2020:

June 26, 2020

June 28, 2019

(amount in thousands)

1 unchanged sentence

Due between one to five years

During the year ended June 28, 2019, the Company recognized a realized gain of $0.2 million from

sales and maturities of available-for-sale securities.

As of June 28, 2019 and June 29, 2018, the Company considered the declines in market value of its short-term investment portfolio to be temporary in nature and did not consider any of its

securities other-than-temporarily impaired.

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

The policy requires investments generally to be

investment grade, with the primary objective of minimizing the potential risk of principal loss.

During the year ended June 26, 2020, the Company recognized a realized gain of $ 0.1 million from sales and maturities of available-for-sale

As of June 26, 2020 and June 28, 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.

The Company typically invests in highly-rated securities, and its investment policy

generally limits the amount of credit exposure to any one issuer.

The policy requires investments generally to be investment grade, with the primary objective of minimizing the potential risk of principal loss.

Fair values were determined for each individual security in the investment portfolio.

When evaluating an investment for other-than-temporary impairment,

the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and the Companys intent to

sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investments cost basis.

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 years ended June 26, 2020 and June 28, 2019.

As of June 28, 2019 and June 29, 2018, cash, cash equivalents, and short-term investments included a bank deposit of

$40.0 million held in various financial institutions located in the United States in order to support the availability of the Facility Agreement and comply with covenants.

Under the terms and conditions of 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 the term of the Facility Agreement.

discussed in Note 15, the Company must comply with this covenant from and after the effective date of the Facility Agreement.

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

Fair value of financial instruments

Fair value is defined as the exchange price that would be recei v

ed 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 the measurement date.

The three levels of inputs that may be used to measure fair value are defined as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for assets or liabilities, either directly or indirectly.

If the assets or liabilities have a specified (contractual) term, Level 2 inputs must be observable for substantially the full term of assets or liabilities.

Level 3 inputs are unobservable inputs for assets or liabilities, which require the reporting entity to develop its own valuation techniques and assumptions.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities.

The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

The following table provides details of

the financial instruments measured at fair value on a recurring basis, including:

Fair Value Measurements at Reporting Date

4 unchanged sentences

Certificates of deposit and time deposits

Corporate bonds and commercial papers

Corporate debt securities

agency and U.S.

8 unchanged sentences

Certificates of deposit and time deposits

Corporate bonds and commercial papers

Corporate debt securities

agency and U.S.

Treasury securities

Sovereign and municipal securities

Derivative assets

Derivative liabilities

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

Interest rate swap agreement with an outstanding amount of $60.9 million.

Foreign currency forward contracts with notional amount of $7.0 million and Canadian dollars 0.4 million.

Foreign currency option contracts

with notional amount of $30.0 million.

Foreign currency forward contracts with a notional amount of $ 125.0 million and Canadian dollars of 0.6 million, and option contract with a notional amount of $ 1.0 million.

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.

Derivative financial instruments

The Company utilizes derivative financial instruments to hedge (i) foreign exchange risk associated with certain foreign currency denominated assets and liabilities and other foreign currency transactions, and (ii) interest rate risk associated with its long-term debt.

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

Foreign currency forward and option contracts

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

dollar equivalent values of the Companys foreign currency denominated

assets and liabilities change.

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 minimizes

the credit risk in derivative instruments by limiting its exposure to any single counterparty and by entering into derivative instruments only with counterparties that meet the Companys minimum credit quality standard.

As of June 28,

2019, the Company recognized the fair value of foreign currency forward contracts of $2.2 million as derivative assets in the consolidated balance sheets under other current assets and the Company recognized the fair value of interest rate swap

agreement of $2.6 million as derivative liabilities in the consolidated balance sheets under other current liabilities.

As of June 29, 2018, the Company recognized the fair value of foreign currency forward contracts of $1.7 million

as derivative liabilities in the consolidated balance sheets under other current liabilities.

As of June 28, 2019 and

June 29, 2018, the Company had no foreign currency forward contracts designated as cash flow hedges.

During the year ended June 30, 2017, the Company discontinued cash flow hedges and recognized a gain from unwinding foreign currency

forward contracts of $0.3 million as foreign exchange gain, net in the consolidated statements of operations and comprehensive income.

As of June 28, 2019, the Company had forty-five outstanding foreign currency forward contracts with an aggregate notional amount of $72.0 million and one foreign currency forward contract with

notional amount of Canadian dollars 0.6 million with maturity dates from July through September 2019.

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

The Company uses foreign currency forward and option 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 with counterparties that meet the Company’s minimum credit quality standard.

The Company may enter into foreign currency forward contracts with maturi ties of up to 12 months

to hedge fluctuations 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 qualified 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 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 consolidated statements of operations and comprehensive income.

As of June 26, 2020, the Company had 125 outstanding U.S.

dollar foreign currency forward contracts against Thai baht with an aggregate notional amount of $ 125.0 million, one foreign currency contract with notional amount of Canadian dollars 0.6 million and one foreign currency option contract with notional amount of $ 1.0 million with maturity dates ranging from July 2020 through January 2021 .

As of June 26, 2020, hedging relationship over foreign currency forward contracts which designated for hedge accounting had been tested to be highly effective based on the performance of retrospective and prospective regression testing.

During the year ended June 26, 2020, the Company recorded an unrealized gain

of $ 1.1 million

from changes in the fair value of these foreign currency forward contracts, designated as hedging instruments, in other comprehensive income in the consolidated statements of operations and comprehensive income.

was reclassified from AOCI to foreign exchange gain (loss), net, cost of revenues, and selling, general and administrative expenses in the consolidated statements of operations and comprehensive income from the discontinuance of cash flow hedge.

As of June 26, 2020, the amount in AOCI that is expected to be reclassified into earnings within 12 months as gain

of $ 2.7 million .

During the year ended June 26, 2020, the Company included an unrealized loss of $

million from changes in fair value of foreign currency forward and option contracts which were not designated for hedge accounting in earnings as foreign exchange gain (loss), net in the consolidated statements of operations and comprehensive income.

As of June 28, 2019, the Company had 45 outstanding foreign currency forward contracts with an aggregate notional amount of $ 72.0 million and one foreign currency forward contract with notional amount of Canadian dollar s

with maturity dates from July through September 2019.

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

of forecasted transactions denominated in Thai baht and Canadian dollars.

During the year ended June 28, 2019, the Company included unrealized gain of $4.8 million from changes in fair value of foreign currency contracts in earnings as

foreign exchange gain (loss), net in the consolidated statements of operations and comprehensive income.

As of June 29,

2018, the Company had five outstanding foreign currency forward contracts with notional amount of $7.0 million, four outstanding foreign currency option contracts with notional amount of $30.0 million and one foreign currency forward

contract with notional amount of Canadian dollars 0.4 million with maturity dates from July through October 2018.

These foreign currency forward and option contracts were not designated for hedge accounting and were used to hedge fluctuations

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

During the year ended June 29, 2018, the Company included unrealized loss of $1.7 million from changes in fair value of foreign currency

contracts in earnings as foreign exchange loss, net in the consolidated statements of operations and comprehensive income.

During the year

ended June 28, 2019, the Company included unrealized

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

As of June 28, 2019, the Company had no foreign currency forward contracts designated as cash flow hedges.

Interest rate swap agreements

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 June 26, 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 credit facility agreement with Bank of America (the “BofA Facility Agreement”) to a fixed interest rate

annum through the scheduled maturity of the term loan in June 2023 (see Note 16).

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

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 16) and on September 10, 2019, repaid in full 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.

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 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 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 June 26, 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 AOCI in the consolidated balance sheets, with a portion reclassified from AOCI into earnings at each reporting period based on either the accrued interest amount or the interest payment.

As of June 26, 2020, the amount in AOCI that is expected to be reclassified into earnings within 12 months

$ 0.3 million.

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 year s

ended June 26, 2020 and June 28, 2019, the Company recorded unrealized loss of $ 1.7 million and $ 2.6 million, respectively, from changes in the fair value of these interest rate swaps as interest expense in the 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 consolidated statements of operations and other comprehensive income:

(amount in thousands)

Financial statements

Derivatives gain (loss) recognized in other comprehensive income:

Foreign currency forward contracts

Other comprehensive income

Interest rate swaps

Other comprehensive income

Total derivatives gain

recognized in other comprehensive income

Derivatives loss (

gain) reclassified from accumulated other comprehensive income into earnings:

Foreign currency forward contracts

Cost of revenues

Foreign currency forward contracts

Selling, general and administrative expenses

Foreign currency forward contracts

Foreign exchange gain (loss), net

Interest rate swaps

Interest expense

Total derivatives loss

reclassified from accumulated other comprehensive income into earnings

Change in net unrealized gain on derivative 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 and option contracts

Interest rate swaps

Derivatives designated as hedging instruments

Foreign currency forward contracts

Interest rate swaps

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 consolidated balance sheets.

The 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 consolidated balance sheets as follows:

Derivative Financial Instruments

Balance Sheet Line Item

Fair Value of Derivative Assets

Other current assets

Fair Value of Derivative Liabilities

Accrued expenses

Trade accounts receivable, net

8 unchanged sentences

Goods in transit

Inventory obsolescence

Inventory, net

Other receivable

On October 1, 2019, the Company provided funds in the amount of $ 24.3 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.

As of June 26, 2020, the Company recorded the $ 24.3 million funds as other receivable in the consolidated balance sheet.

For the year ended June 26, 2020, the Company classified these funds as an investing activity in the consolidated statement of cash flows.

Restricted cash

As of June 28, 2019, the Company had an outstanding standby letter of credit of 6.0 million Euros related to the Companys support of a customer with the transfer of certain manufacturing

operations from Berlin, Germany to the Companys facilities in Thailand.

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

As of June 29, 2018, the Company had a restricted cash

balance of $3.3 million in connection with business acquisitions.

Business acquisition

On September 14, 2016, the Company acquired 100% shareholding in Fabrinet UK for cash consideration of approximately $13.0 million, net of $0.5 million cash acquired.

provides contract electronics manufacturing services to the global electronics industry with innovative solutions, adding value to the design, manufacture and testing of printed circuit board assemblies.

Pursuant to the acquisition agreement, the

Company placed $3.4 million of cash, net of foreign currency translation adjustment, for deferred consideration in an escrow account which is under the Companys control.

However, the Company contractually agreed to remit this deferred

consideration to the sellers of Fabrinet UK, subject to the resolution of claims that the Company may make against the funds with respect to indemnification and other claims, within 24 months from the closing date of the transaction.

The Company has accounted for this acquisition under the provisions of business combinations accounting, in accordance with Accounting

Standards Codification Topic 805 Business Combinations.

Accordingly, the estimated fair value of the acquisition consideration was allocated to the assets acquired and the liabilities assumed based on their respective fair values on the

acquisition date.

The Company has made certain estimates and assumptions in determining the allocation of the acquisition consideration.

The allocation of consideration to the individual net assets acquired was finalized in the fourth quarter of fiscal year 2017.

As the functional currency of Fabrinet UK is pound sterling

(GBP), for the year ended June 28, 2019, the Company recognized a $0.6 million loss from foreign currency translation adjustment in its consolidated statements of operations and comprehensive income, under other comprehensive

(loss) income, net of tax.

During the year ended June 30, 2017, the Company recorded 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 Companys allocation of the total purchase price for the acquisition is

summarized below:

As of June 26, 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 with the 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.

The Company leases facilities under non-cancelable

operating lease agreements.

The Company leases a portion of its capital equipment and vehicles, certain land and buildings for its facilities in Thailand, the Cayman Islands, China, the U.S., the U.K.

and Israel under operating lease arrangements that expire at various dates through 2026 .

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 may

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

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

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

In accordance with ASC 840, rent expense under operating leases amounted to $ 1.9 million and $ 1.8 million for the fiscal years ended June 28, 2019 and June 29, 2018, respectively.

Amounts of minimum future annual commitments under non-cancelable

operating and finance leases in accordance with ASC 840 were as follows:

As of June 28, 2019

(amount in thousands)

Accounts receivable

Other current assets

Property, plant and equipment

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

In connection with the Companys acquisition of Fabrinet UK, the Company assumed lease agreements for

certain machine and equipment, which are accounted for as capital leases.

As of June 28, 2019, the Company included approximately $0.9 million of capital lease assets and $0.5 million of capital lease liability 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.

During the year ended June 28, 2019

and June 29, 2018 there were no transaction costs related to the acquisition.

Pro forma results of operations for the

acquisition have not been presented as they were not material to the Companys results of operations.

The 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:

30-year UK Government Bond adjusted by spot yield to reflect recent volatility

Long-term revenue growth:

Operating margin:

Customer relationships represent the fair value of future projected revenues derived from the sale of

products to existing customers of the acquired company.

The fair value of $4.4 million will be amortized, using the accelerated method, over an estimated useful life of ten years.

Backlog represents the fair value of sales orders backlog as of the valuation date.

The fair value of $0.1 million will be amortized,

using an accelerated amortization method, over the respective estimated useful life of three years.

Goodwill arising from the acquisition is primarily attributable to the ability to expand future products and services and the assembled

Goodwill is not deductible for tax purposes.

Total future minimum operating lease payments

Operating leases

following table shows the impact of adoption of ASC 842 on the adoption date of June 29, 2019 on the consolidated balance sheets:

Consolidated Balance Sheets

Impact of Adopting ASC 842

(amount in thousands)

June 28, 2019

June 29, 2019

Operating lease ROU assets

Liabilities and Shareholders’ Equity

Operating lease liabilities, current

Operating lease liabilities, non-current

As of June 26, 2020, the maturities of the Company’s operating lease liabilities were as follows:

(amount in thousands)

Total undiscounted lease payments

Less imputed interest

Total present value of lease liabilities

Includes current portion of operating lease liabilities of $ 2.0 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 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.

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 June 26, 2020, the Company had finance lease liabilities of $ 0.1 million, which were recorded under other payables in the consolidated balance sheets.

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

June 26, 2020

Weighted-average remaining lease term (in years)

Operating leases

Finance leases

Weighted-average discount rate

Operating leases

Finance leases

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

(amount in thousands)

June 26, 2020

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

Financing cash flows from finance leases

ROU assets obtained in exchange for lease liabilities

Finance lease assets

Property, plant and equipment, net

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Accumulated depreciation

Impairment reserve

Net book value

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 Companys production in Thailand.

The aggregate purchase price was approximately $5.6 million, of which the first installment of $1.1 million was paid by the Company on January 10, 2017

and the remaining balance of the purchase price was fully paid on December 25, 2017.

Leased assets included in

manufacturing equipment comprise certain machine and equipment from capital lease agreements assumed from the acquisition of Fabrinet UK.

Leased assets included in manufacturing equipment comprise certain machine and equipment from finance lease agreements assumed from the acquisition of Fabrinet UK.

(amount in thousands)

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June 28, 2019

CostCapital leases

Cost—Finance leases

Accumulated depreciation

Net book value

Depreciation expense amounted to $28.7 million, $27.4 million and $22.5 million for the

years ended June 28, 2019, June 29, 2018 and June 30, 2017, respectively, and has been allocated between cost of revenues and selling, general and administrative expenses in the consolidated statements of operations and comprehensive

The cost of fully depreciated property, plant and equipment written-off during

the years ended June 28, 2019, June 29, 2018 and June 30, 2017 amounted to $2.0 million, $3.5 million and $5.4 million, respectively.

During the year ended June 28, 2019 the Company recognized impairment reserves for property, plant and equipment of $0.9 million.

During the year ended June 29, 2018, no impairment was

recognized for property, plant and equipment.

During the year ended June 28, 2019 and June 29, 2018, the Company had

no borrowing costs capitalized.

Depreciation expense amounted to $

29.7 million, $

28.7 million and $

27.4 million for the years ended June

2019 and June

2018 , respectively, and has been allocated between cost of revenues and selling, general and administrative expenses in the consolidated statements of operations and comprehensive income.

The cost of fully depreciated property, plant and equipment written-off

during the years ended June 26, 2020, June 28, 2019 and June 29, 2018 amounted to $ 2.9 million, $ 2.0 million and $ 3.5 million, respectively.

During the year s

ended June 26, 2020, June 28, 2019 and June 29, 2018, the Company recognized impairment reserves for property, plant and equipment of $ 0.8 million ,

$ 0.9 million and zero , respectively.

During the years ended June 26, 2020, June 28, 2019 and June 29, 2018, the Company had no borrowing costs capitalized

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

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Total intangibles

In connection with the acquisition of Fabrinet UK, the Company recorded $4.4 million of customer

relationships and $0.1 million of backlog in the consolidated balance sheets.

As of June 28, 2019, the weighted-average remaining life of customer relationships was 5.4 years.

As of June 29, 2018, the weighted-average remaining life

of customer relationships and backlog was 6.1 years and 0.9 years, respectively.

The Company recorded amortization expense

relating to intangibles of $1.2 million, $1.7 million and $1.2 million for the years ended June 28, 2019, June 29, 2018 and June 30, 2017, respectively.

As of June 28, 2019, the estimated future amortization of intangible assets during each fiscal year was as follows:

In connection with the acquisition of Fabrinet UK, the Company recorded $ 4.4 million of customer relationships and $ 0.1 million of backlog in the consolidated balance sheets.

As of June 26, 2020 and June 28, 2019, the weighted-average remaining life of customer relationships was 4.6 years and 5.4 years, respectively.

The Company recorded amortization expense relating to intangibles of $ 1.3 million, $ 1.2 million and $ 1.7 million for the years ended June 26, 2020, June 28, 2019 and June 29, 2018, respectively.

Based on the carrying amount of intangibles as of June 26, 2020, and assuming no future impairment of the underlying assets, the estimated future amortization during each fiscal year was as follows:

(amount in thousand)

In connection with the acquisition of Fabrinet UK, the Company recorded $3.8 million of goodwill in the consolidated balance sheets.

In connection with the acquisition of Fabrinet UK, the Company recorded goodwill in the consolidated balance sheets.

The changes in the carrying amount of goodwill were as follows:

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Balance as of June 28, 2019

Impairment charge

Foreign currency translation adjustment

Balance as of June 26, 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.

As of June 28, 2019, the Company performed the annual impairment test for goodwill, which indicated there was no goodwill impairment.

The Companys total borrowings, including short-term and long-term borrowings, consisted of the following:

As of June 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 reporting

unit’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 impairment testing, the carrying amount of the reporting unit exceeded its fair value, and the Company recognized goodwill 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, no goodwill impairment had been recognized.

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

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

(amount in thousands)

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June 28, 2019

Short-term borrowing:

Current portion of long-term borrowing

Long-term borrowing:

Term loan borrowing:

Long-term borrowings, current portion, net:

Long-term borrowings, current portion

Unamortized debt issuance costs—current portion

Long-term borrowings, current portion, net

Long-term borrowings, non-current

portion, net:

Term loan borrowings:

LIBOR + 1.50 % per annum (1)

quarterly installments

LIBOR + 1.35 % per annum (1)

quarterly installments

Current portion

Non-current portion of long-term borrowing

LIBOR is London Interbank Offered Rate.

Unamortized debt issuance costs— non-current

Long-term borrowings, non-current

We have entered into interest rate swaps that effectively fix a series of our future interest payments on our term loans.

Refer to Note 7.

The movements of long-term borrowings were as follows for the years ended June 26, 2020 and June 28, 2019:

(amount in thousands)

Opening net book amount

Additional loan during the period

Repayment during the period

Closing net book amount

As of June 28, 2019, the future maturities of long-term borrowings during each

fiscal year were as follows:

Opening balance

Borrowings during the period

Repayments during the period

Closing balance

As of June 26, 2020, the future maturities of long-term borrowings during each fiscal year were as follows:

(amount in thousand)

Credit facilities:

The Company entered into a syndicated senior credit facility agreement (the Facility Agreement) with a consortium of banks on May 22, 2014.

The Facility Agreement, led by Bank of America,

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 contained 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.

On February 26, 2015, the Company entered into the Second Amendment to the Facility Agreement, which extended the availability period

for draws on the term loan facility from May 21, 2015 to July 31, 2015 and allowed the Company, upon the satisfaction of certain conditions, to designate from time to time one or more of its subsidiaries as borrowers under the Facility

On July 31, 2015, the Company entered into the Third Amendment to the Facility Agreement, which extended the availability period for draws on the term loan facility from July 31, 2015 to July 31, 2016.

2016, the Company entered into the Fourth Amendment to the Facility Agreement to change the timing of filing certain financial information with the bank.

On June 4, 2018, the Company entered into the Fifth Amendment to the Facility Agreement to (i) reduce the revolving commitments thereunder from $150.0 million to $25.0 million,

(ii) extend the termination date of the revolving commitments from May 22, 2019 to June 4, 2023, (iii) refinance the then-existing term loan and revolving loans under the Facility Agreement into a $65.0 million term loan, and

(iv) reduce the applicable interest rate margins and commitment fees.

Term loans must be repaid in quarterly installments, beginning on June 30, 2018, with the remaining outstanding principal and accrued and unpaid interest being due and

payable on June 4, 2023.

After giving effect to the amendment, $65.0 million aggregate principal amount of term loans and no revolving loans were outstanding under the Facility Agreement.

In addition, the Fifth Amendment contains an

accordion feature permitting the Company to request an increase in the revolving loan facility to provide up to an aggregate of $200.0 million in additional commitments, subject to customary terms and conditions, and provided that no default or

event of default exists at the time of such request.

As of June 28, 2019 and June 29, 2018, $60.9 million and $64.2 million aggregate principal amount of term loans, respectively, and no revolving loans were outstanding under the

Credit facilities agreements:

Bank of Ayudhya Public Company Limited

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 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.

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

BofA Facility Agreement.

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 year ended June 26, 2020, the Company recorded $ 1.5 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.

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

While the term loan is outstanding, the Borrower is required to maintain a loan to value of the mortgaged real property ratio of not greater than 65%.

If the loan to value ratio is not maintained, the Borrower will be required to provide additional security or prepay a portion of the term loan in order to restore the required ratio.

The Company is also required to maintain a debt service coverage ratio of at least 1.25 times and a debt to equity ratio less than or equal to 1.0 times.

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

As of June 26, 2020, the Company was in compliance with all of its financial 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 June 26, 2020, there was $ 51.8 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 “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.

From time to time, the Company amended the BofA Facility Agreement, before repaying all outstanding amounts under the agreement and terminating such agreement on September 10, 2019 .

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

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

During the year s

ended June 26, 2020 and June 28, 2019, the Company recorded $ 0.5 million and $ 2.4 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.

June 26, 2020, there were no amounts outstanding under the Bof A

Facility Agreement.

As a result of the Fifth Amendment, loans under the Facility Agreement bear interest, at Fabrinets

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%, determined in accordance with the Facility Agreement in each case with such spread determined based on Fabrinets

consolidated total leverage ratio for the preceding four fiscal quarter period.

Interest is due and payable monthly 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.

Fabrinets obligations under the Facility Agreement are guaranteed by certain existing and future material subsidiaries.

In addition, the Facility Agreement is secured by Fabrinets present and future accounts receivable, deposit accounts and cash, and a pledge of the capital stock of certain of Fabrinets 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

$20.0 million in a jurisdiction where a control agreement, or the equivalent under the local law, can be effected.

Facility Agreement contains customary affirmative and negative covenants.

Negative covenants include, among other things, limitations on liens, indebtedness, investments, mergers, sales of assets, changes in the nature of the business, dividends and

distributions, affiliate transactions and capital expenditures.

The Facility Agreement contains financial covenants requiring Fabrinet to maintain:

(1) a minimum tangible net worth of not less than $338.0 million plus 50% of quarterly net

income after June 30, 2018, exclusive of quarterly losses;

(2) a minimum debt service coverage ratio of not less than 1.50:1.00;

(3) a maximum total leverage ratio of not more than 2.50:1.00;

and (4) a minimum quick ratio of not

less than 1.10:1.00.

Each of these financial covenants is calculated on a consolidated basis for the consecutive four fiscal quarter period then ended.

As of June 28, 2019, the Company was in compliance with all covenants under the Facility

The Facility Agreement also contains customary events of default including, among other things, payment defaults,

breaches of covenants or representations and warranties, cross-defaults with certain other indebtedness, bankruptcy and insolvency events and change in control of Fabrinet, subject to grace periods in certain instances.

Upon an event of default, the

lenders may terminate their commitments, declare all or a portion of the outstanding obligations payable by Fabrinet to be immediately due and payable and exercise other rights and remedies provided for under the Facility Agreement.

Fabrinet intends to use the proceeds of the credit line to finance its future 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.

On July 25, 2018, the Company entered into the Swap Agreement, which is used to mitigate interest rate risk and improve the interest

rate profile of the Companys debt obligations by converting the floating interest rate of term loans under the Facility Agreement to a fixed interest rate of 2.86% per annum through maturity in June 2023.

The Company has not designated the

Swap Agreement as a hedging instrument.

Swap transactions are due and settled monthly.

During the year ended June 28, 2019, the Company included a net loss of $0.3 million from the Swap Agreement in interest expense in the consolidated

statements of operations and comprehensive income.

Short-term borrowings from bank

In connection with the acquisition of Fabrinet UK in the first quarter of fiscal year 2017, the Company assumed a secured borrowing

In the first quarter of fiscal year 2018, the Company fully repaid these short-term loans and sent a notification letter to the bank to terminate this secured borrowing agreement.

As a result, the bank released secured trade accounts

receivable and the way chattels mortgage over the plant and machine of Fabrinet UK.

Undrawn available credit facilities

classified by available period of future borrowing as of June 28, 2019 and June 29, 2018 were as follows:

(amount in thousands)

Expiring within one year

Expiring beyond one year

June 28, 2019, there was $ 60.9 million outstanding under the BofA Facility

Agreement, related to the term loan.

Severance liabilities

6 unchanged sentences

Interest cost

Curtailment gain

Actuarial loss on obligation

Actuarial ( gain

loss on obligation

Foreign currency translation

8 unchanged sentences

Prior service cost is the change in Projected Benefit Obligation resulting from changes to employee benefits from local law changes.

The amount recognized in the consolidated balance sheets under

non-current liabilities and non-current assets were determined as follows:

The amount recognized in the consolidated balance sheets under non-current

liabilities and non-current

assets were determined as follows:

(amount in thousands)

Non-current assets

Non-current liabilities

The following table provides information regarding accumulated benefit obligations:

1 unchanged sentence

Accumulated benefit obligations

The following table sets forth the plan assets at fair value as of June 28, 2019.

The following table sets forth the plan assets at fair value as of June 26, 2020 and June 28, 2019.

(amount in thousands)

Fair value measurement as

Fair value measurement as of

June 26, 2020

The Other category represents the bid value of the trustees insurance policy held with Old Mutual Wealth and the value of assets held

with Royal London.

(amount in thousands)

Fair value measurement as of

June 28, 2019

The “Other” category represents the bid value of the trustees’ insurance policy held with Old Mutual Wealth and the value of assets held with Royal London.

The Trustees have chosen to invest in the following funds:

1 unchanged sentence

Old Mutual Wealth Creation Balanced Portfolio

Royal London Corporate Pension Services Limited

The Old Mutual Wealth assets are administered on unit-linked principles and allow access to a range of

Royal London Deposit Administration

The Old Mutual Wealth assets are administered on unit-linked principles and allow access to a range of funds;

these have been treated as Level 2 fair value measurement.

The Royal London assets are administered on a deposit

administration basis.

The Royal London assets are administered on a deposit administration basis.

This is similar to a with profits fund but with a lower exposure to the stock market.

The policy is to majorly invest in UK Government bonds and Corporate bonds in which there is a constant rate of return reset annually.

assets are considered as unobservable inputs and have been treated as Level 3 fair value measurement.

The principal actuarial

assumptions used were as follows:

The policy is invested in a mix of assets, mainly UK Government bonds and Corporate bonds, the returns of which are smoothed over time.

These assets are considered as 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.

The principal actuarial assumptions used were as follows:

Weighted average actuarial assumptions used to determine severance liabilities

3 unchanged sentences

Discount rate

0.4 % - 3.1 %

2.3 % - 3.2 %

2.5 % - 3.7 %

Future salary increases

3.5 % - 10.0 %

Weighted average actuarial assumptions used to determine benefit costs

3 unchanged sentences

Discount rate

2.3 % - 3.2 %

2.5 % - 3.7 %

1.9 % - 3.6 %

Expected long-term rate of return on assets

1 unchanged sentence

Share-based compensation

In determining the grant date fair value

of share option awards, the Company is required to make estimates of expected dividends to be issued, expected volatility of Fabrinets ordinary shares, expected forfeitures of the awards, risk free interest rates for the expected term of the

awards and expected terms of the awards.

In determining the grant date fair value of share option awards, the Company is required to make estimates of expected dividends to be issued, expected volatility of Fabrinet’s ordinary shares, expected forfeitures of the awards, risk free interest rates for the expected term of the awards and expected terms of the awards.

Forfeitures are estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates.

The 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 years ended

June 28, 2019, June 29, 2018 and June 30, 2017 was as follows:

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 years ended June 26, 2020, June 28, 2019 and June 29, 2018 was as follows:

(amount in thousands)

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Net effect on share-based compensation expense

Share-based compensation expense was recorded in the consolidated statements of operations and

comprehensive income as follows:

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

(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

years ended June 28, 2019, June 29, 2018 and June 30, 2017.

The Company did no t capitalize any share-based compensation expense as part of any asset costs during the years ended June 26, 2020, June 28, 2019 and June 29, 2018.

Share-based award activity

Fabrinet maintains the following equity incentive plans:

the Amended and Restated 2010 Performance Incentive Plan (the

2010 Plan) and the 2017 Inducement Equity Incentive Plan (the 2017 Inducement Plan).

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

On December 14, 2017, Fabrinets shareholders adopted an amendment to the 2010 Plan to increase the number of ordinary shares

authorized for issuance under the 2010 Plan by 2,100,000 shares.

As of June 28, 2019, there were an aggregate of 764,261 restricted share units outstanding and 451,194 performance share units outstanding under the 2010 Plan.

As of June 28,

2019, there were 1,832,949 ordinary shares available for future grant under the 2010 Plan.

On November 2, 2017, Fabrinet

adopted the 2017 Inducement Plan with a reserve of 160,000 ordinary shares authorized for future issuance solely for the granting of inducement share options and equity awards to new employees.

The 2017 Inducement Plan was adopted without

shareholder approval in reliance on the employment inducement exemption provided under the New York Stock Exchange Listed Company Manual.

As of June 28, 2019, there were an aggregate of 36,490 restricted share units outstanding and

97,306 performance share units outstanding under the 2017 Inducement Plan.

As of June 28, 2019, there were 14,041 ordinary shares available for future grant under the 2017 Inducement 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 June 26, 2020, there were 51,916 restricted share units outstanding, 3,836 performance share units outstanding and 2,923,551 ordinary shares available for future grant under the 2020 Plan.

As of June 26, 2020, there were 721,514 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.

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.

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.

June 26, 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.”

Share options

1 unchanged sentence

Fabrinet’s board of directors has the authority to determine the type of option and the number of shares subject to an option.

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 grantees first grant, 25 percent of the underlying shares 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 vest

monthly over four years, commencing one month after the vesting commencement date.

The following table summarizes share option

activity under the 2010 Plan:

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 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 vest monthly over four years, commencing one month after the vesting commencement date.

The following table summarizes share option activity under the 2010 Plan:

Exercise Price

4 unchanged sentences

Balance as of June 28, 2019

The fair value of each share option grant was determined by the Company using the methods and assumptions

discussed below.

During the year ended June 26, 2020, there was no movement of share option.

The fair value of each share option grant was determined by the Company using the methods and assumptions discussed below.

Each of these inputs is subjective and generally requires significant judgment and management estimate to determine.

The total fair value of share options vested during the years ended June 26, 2020, June 28, 2019 and June 29, 2018 was nil .

The total intrinsic value of options exercised during the years

ended June 28, 2019, June 29, 2018 and June 30, 2017 was nil, $2.0 million and $8.9 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.

Valuation Method The Company estimated the fair value of the Companys ordinary

shares to be used in the BSM by taking into consideration a number of assumptions, as discussed below.

Dividend The Company used zero as an annualized dividend yield since it did not anticipate paying any cash dividends in the near future.

Expected Volatility The Company determined the expected volatility based on the Companys historical volatility over the last four years.

Risk-Free Interest Rate The Company based the risk-free interest rate on the implied yield currently available on U.S.

Treasury zero-coupon issues with a remaining term equivalent to the expected term of the option.

Expected Term Expected terms used in the BSM represent the periods that the companys share options are expected to be outstanding and are determined based on the Companys

historical experience of similar awards, giving consideration to the contractual terms of the share options, vesting schedules and expectations of future employee behavior.

Vesting Period Fabrinets share options generally vest and become

exercisable over a four-year period, and expire seven years from the date of grant.

For an initial grant, 25 percent of the underlying shares subject 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 an optionholder, 1/48 of the underlying shares subject to an option vest monthly over four years, commencing one month after the vesting commencement

Fair Value The fair value of Fabrinets share options granted to employees was estimated using the

weighted-average for each assumption of expected volatility, risk-free rate of return, and expected term.

Restricted share

units and performance share units

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

and the 2017 Inducement 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.

Restricted share units granted to non-employee directors generally cliff vest 100% on the first of January, approximately one year from the

grant date, provided the director continues to serve through such date.

Performance share units granted to executives will

vest at the end of a two-year performance period based on the Companys achievement of pre-defined performance criteria, which consist of revenue and gross margin

The total intrinsic value of options exercised during the years ended June 26, 2020, June 28, 2019 and June 29, 2018 was nil , nil and $ 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.

Valuation Method

—The Company estimated the fair value of the Company’s ordinary shares to be used in the BSM by taking into consideration a number of assumptions, as discussed below.

Expected Dividend

—The Company used zero as an annualized dividend yield since it did not anticipate pay ing

any cash dividends in the near future.

Expected Volatility

—The Company determined the expected volatility based on the Company’s historical volatility over the last four years.

Risk-Free Interest Rate

—The Company based the risk-free interest rate on the implied yield currently available on U.S.

Treasury zero-coupon

issues with a remaining term equivalent to the expected term of the option.

Expected Term

—Expected terms used in the BSM represent the periods that the company’s share options are expected to be outstanding and are determined based on the Company’s historical experience of similar awards, giving consideration to the contractual terms of the share options, vesting schedules and expectations of future employee behavior.

Vesting Period

—Fabrinet’s share options generally vest and become exercisable over a four-year period, and expire seven years from the date of grant.

For an initial grant, 25 percent of the underlying shares subject 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 an 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 fair value of Fabrinet’s share options granted to employees was estimated using the weighted-average for each assumption of expected volatility, risk-free rate of return, and expected term.

Restricted share units and performance share units

Restricted share units and performance share units have been granted under the Equity Incentive Plans

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

Restricted share units granted to non-employee

directors generally cliff vest 100 % on the first of January, approximately

one year from the grant date, provided the director continues to serve through such date.

Performance share units granted to executives will vest, if at all, at the end of a two -year

performance period based on the Company’s achievement of pre-defined

performance criteria, which consist of revenue and non- U.S.

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.

The Company has entered into an employment agreement, as amended on August 12, 2016, with one executive of the Company that provided for accelerated vesting of equity awards under certain

circumstances.

Pursuant to such agreement, because the executives employment with the Company continued through February 20, 2017, (1) all outstanding equity awards granted to the executive prior to August 2016 became 100% vested on

February 20, 2017 and (2) certain restricted share units granted to the executive in August 2016 became 100% vested on February 20, 2017.

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

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Expected to vest as of June 26, 2020

The following table summarizes performance share unit activity under the Equity

Incentive Plans:

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

Average Grant

5 unchanged sentences

Expected to vest as of June 26, 2020

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.

The total fair value of restricted share units and performance share units vested during

the year ended June 28, 2019, June 29, 2018 and June 30, 2017 was $26.8 million, $12.2 million and $18.1 million, respectively.

The aggregate intrinsic value of restricted share units and performance share units

outstanding as of June 28, 2019 was $67.0 million.

As of June 28, 2019, there was $12.7 million and

$1.8 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 2.6

years and 1.2 years, respectively.

For the years ended June 28, 2019 and June 29, 2018, the Company withheld an

aggregate of 235,730 shares and 145,918 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 years ended June 28, 2019 and June 29, 2018, the Company then remitted cash of $10.6 million and $5.5 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 shares 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 paid-in capital.

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.

The total fair value of restricted share units and performance share units vested during the year s

ended June 26, 2020, June 28, 2019 and June 29, 2018 was $ 13.7 million, $ 26.8 million and $ 12.2 million, respectively.

The aggregate intrinsic value of restricted share units and performance share units outstanding as of June 26, 2020 was $ 73.5 million.

As of June 26, 2020, there was $ 12.2 million and $ 5.6 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 2.4 years and 1.1 years, respectively.

For the years ended June 26, 2020 and June 28, 2019, the Company withheld an aggregate of 94,141 shares and 235,730 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 the years ended June 26, 2020 and June 28, 2019, the Company then remitted cash of $ 4.9 million and $ 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 shares 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 paid-in

Employee benefit plans

Employee contribution plan

The Company operates a defined

contribution plan, known as a provident fund, in its subsidiaries in Thailand and the United Kingdom.

The Company operates a defi n

ed contribution plan, known as a provident fund, in its subsidiaries in Thailand and the United Kingdom.

The assets of these plans are in separate trustee-administered funds.

The provident fund is funded by matching payments from employees and by the

subsidiaries on a monthly basis.

The provident fund is funded by matching payments from employees and by the subsidiaries on a monthly basis.

Current contributions to the provident fund are accrued and paid to the fund manager on a monthly basis.

The Companys contributions to the provident fund amounted to $4.8 million, $4.2 million and

$3.6 million during the years ended June 28, 2019, June 29, 2018 and June 30, 2017, respectively.

The Company’s contributions to the provident fund amounted to $ 5.5 million, $ 4.8 million and $ 4.2 million during the years ended June 26, 2020, June 28, 2019 and June 29, 2018, respectively.

The Company sponsors the Fabrinet U.S.

401(k) Retirement Plan (401(k)

Plan), a Defined Contribution Plan under ERISA, at its subsidiaries in the United States which provides retirement benefits for eligible employees through tax deferred salary deductions.

The 401(k) Plan allows employees to contribute up

to 80% of their annual compensation, subject to annual contributions limits established by the Internal Revenue Service.

The Company provides for a 100% match of employees contributions to the 401(k) Plan up to the first 6% of annual

compensation.

401(k) Retirement Plan (“401(k) Plan”), a Defined Contribution Plan under ERISA, at its subsidiaries in the United States which provides retirement benefits for eligible employees through tax deferred salary deductions.

The 401(k) Plan allows employees to contribute up to 80 % of their annual compensation, subject to annual contributions limits established by the Internal Revenue Service.

The Company provides for a 100 % match of employees’ contributions to the 401(k) Plan up to the first 6 % of annual compensation.

All matching contributions are made in cash and vest immediately.

The Companys matching contributions to the 401(k) Plan were $0.8 million, $0.7 million and $0.6 million during the years ended June 28, 2019,

June 29, 2018 and June 30, 2017, respectively.

The Company’s matching contributions to the 401(k) Plan were $ 0.7 million, $ 0.8 million and $ 0.7 million during the years ended June 26, 2020, June 28, 2019 and June 29, 2018, respectively.

Executive incentive plan and employee performance bonuses

For the years ended June 28, 2019 and June 29, 2018, the Company maintained an executive incentive plan with

quantitative objectives, based on achieving certain revenue and non-GAAP gross margin targets.

During the years ended June 28, 2019, June 29, 2018 and June 30, 2017, discretionary merit-based

bonus awards were also available to Fabrinets non-executive employees.

distributions to employees were $7.6 million, $4.0 million and $7.6 million for the years ended June 28, 2019, June 29, 2018 and June 30, 2017, respectively.

For the years ended June 26, 2020 and June 28, 2019, the Company maintained an executive incentive plan with quantitative objectives, based on achieving certain revenue and non-U.S.

GAAP operating margin or gross margin targets.

During the years ended June 26, 2020, June 28, 2019 and June 29, 2018, discretionary merit-based bonus awards were also available to Fabrinet’s non-executive

Bonus distributions to employees were $ 8.7 million, $ 7.6 million and $ 4.0 million for the years ended June 26, 2020, June 28, 2019 and June 29, 2018, respectively.

Shareholders’ equity

Fabrinet’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 year ended June 28, 2019, Fabrinet issued 507,020 ordinary shares upon the vesting of restricted share units and performance

share units, net of shares withheld.

For the year ended June 29, 2018, Fabrinet issued 92,288 ordinary shares upon the

exercise of options, for cash consideration at a weighted average exercise price of $15.56 per share, and 290,949 ordinary shares upon the vesting of restricted share units, net of shares withheld.

For the year ended June 30, 2017, Fabrinet issued 367,641 ordinary shares upon the exercise of options, for cash consideration at a

weighted average exercise price of $16.02 per share, and 816,409 ordinary shares upon the vesting of restricted share units, net of shares withheld.

For the year ended June 26, 2020, Fabrinet issued 241,214 ordinary shares upon the vesting of restricted share units and performance share units, net of shares withheld.

For the year ended June 28, 2019, Fabrinet issued 507,020 ordinary shares upon the vesting of restricted share units and performance share units, net of shares withheld.

For the year ended June 29, 2018, Fabrinet issued 92,288 ordinary shares upon the exercise of options, for cash consideration at a weighted average exercise price of $ 15.56 per share, and 290,949 ordinary shares upon the vesting of restricted share units, net of shares withheld.

All such issued shares are fully paid.

Treasury shares

In August 2017, the Companys 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 Companys board of directors approved the increase of

$30.0 million and $50 million, respectively, to the original share repurchase authorization, bringing the aggregate authorization to $110.0 million.

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 year ended June 26, 2020, 355,000 shares were repurchased under the program, at an average price per share of $ 58.37 , totaling $ 20.7 million.

As of June 28, 2019, the Company had

a remaining authorization to purchase up to an additional $62.2 million worth of its ordinary shares under the share repurchase program.

As of June 26, 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 by component for the years ended June 28, 2019 and June 29, 2018 were as follows:

The changes in AOCI for the years ended June 26, 2020 and June 28, 2019 were as follows:

(amount in thousands)

Unrealized net

(Losses)/Gains

Unrealized Gains

Available-for-sale

(Losses)/Gains

Gains (Losses)

on Derivative

benefit plan -

Prior service

8 unchanged sentences

Balance as of June 26, 2020

The following table presents the pre-tax amounts reclassified from

AOCI into the consolidated statements of operations and comprehensive income for the years ended June 28, 2019 and June 29, 2018, respectively.

The following table presents the pre-tax

amounts reclassified from AOCI into the consolidated statements of operations and comprehensive income for the years ended June 26, 2020 and June 28, 2019, respectively.

(amount in thousands)

3 unchanged sentences

Interest income

Unrealized gains on derivative instruments

Unrealized gains

on derivative instruments

Cost of revenues

Unrealized gains

on derivative instruments

Selling, general and administrative expenses

Unrealized gains

on derivative instruments

Foreign exchange loss, net

Unrealized gains

on derivative instruments

Interest expense

Retirement benefit plan – Prior service cost

Selling, general and administrative expenses

Total amounts reclassified from AOCI

1 unchanged sentence

Letter of credit and bank guarantees

As of June 28, 2019, the

Company had an outstanding standby letter of credit of 6.0 million Euros related to the Companys support of a customer with the transfer of certain manufacturing operations from Berlin, Germany to the Companys facilities in

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

June 28, 2019 and June 29, 2018, there were outstanding bank guarantees given by a bank on behalf of our subsidiary in Thailand for electricity usage and other normal business amounting to $1.6 million and $1.5 million,

respectively.

Operating lease commitments

The Company leases a portion of its capital equipment, vehicle, and certain land and buildings for its facilities 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 amounted to $1.9 million, $1.8 million and $1.7 million

for the years ended June 28, 2019, June 29, 2018 and June 30, 2017, respectively.

As of June 28, 2019, the future minimum lease payments due under non-cancelable operating leases during each fiscal year were as follows:

(amount in thousands)

Total future minimum operating lease payments

Capital lease commitments

In connection with the acquisition of Fabrinet UK, 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 28, 2019, the future minimum lease payments under non-cancelable capital leases during each fiscal year were as follows:

(amount in thousands)

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 June 28, 2019, the present value of capital lease during each fiscal year were as follows:

(amount in thousands)

Total future minimum capital lease payments

As of June 26, 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 June 26, 2020 and June 28, 2019, the standby letter of credit was backed by cash collateral of $ 7.4 million.

As of June 26, 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 totaling $ 1.6 million

and there were other bank guarantees given by a bank on behalf of our subsidiaries in China and the U.K.

to support their operations of

$ 0.1 million and $ 25 thousand, respectively.

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.

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.

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

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

1 unchanged sentence

Indemnification of directors and officers

Cayman Islands law does not limit the extent to which a companys memorandum and articles of association may provide for

indemnification of directors and officers, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a

Fabrinets amended and restated memorandum and articles of association provide for indemnification of directors and officers for actions, costs, charges, losses, damages and expenses incurred in their capacities as such, except that such

indemnification does not extend to any matter in respect of any fraud or dishonesty that may attach to any of them.

accordance with Fabrinets form of indemnification agreement for its directors and officers, Fabrinet has agreed to indemnify its directors and officers against certain liabilities and expenses incurred by such persons in connection with claims

by reason of their being such a director or officer.

Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of directors and officers, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.

Fabrinet’s amended and restated memorandum and articles of association provide for indemnification of directors and officers for actions, costs, charges, losses, damages and expenses incurred in their capacities as such, except that such indemnification does not extend to any matter in respect of any fraud or dishonesty that may attach to any of them.

In accordance with Fabrinet’s form of indemnification agreement for its directors and officers, Fabrinet has agreed to indemnify its directors and officers against certain liabilities and expenses incurred by such persons in connection with claims by reason of their being such a director or officer.

Fabrinet maintains a director and officer liability insurance policy that may enable it to recover a portion of any future amounts paid under the indemnification agreements.

Business segments and geographic information

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to

allocate resources and in assessing performance.

The Companys chief operating decision maker is Fabrinets chief executive officer.

As of June 28, 2019, June 29, 2018 and June 30, 2017, the Company operated and internally

managed a single operating segment.

Operating segments are defined as comp one nts of an enterprise that engage in business activities for which discrete 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 CODM is Fabrinet’s Chief Executive Officer.

As of June 26, 2020, June 28, 2019 and June 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.

Total revenues are attributed to a particular geographic area based on the

bill-to-location of the customer.

The Company operates primarily in three geographic regions:

Total revenues are attributed to a particular geographic area based on the bill-to-location

of the Company’s customer.

The Company operates in three geographic regions:

North America, Asia-Pacific and Europe.

The following table presents total

revenues by geographic regions:

The following table presents total revenues by geographic regions:

(amount in thousands)

North America

As of June 28, 2019 and June 29, 2018, the Company had approximately $31.4 million and

$33.2 million, respectively, of long-lived assets based in North America, with the substantial remainder of assets based in Asia-Pacific.

As of June 26, 2020 and June 28, 2019, the Company had approximately $ 29.5 million and $ 31.4 million, respectively, of long-lived assets based in North America, with the substantial remainder of assets based in Asia-Pacific and Europe.

The following table presents revenues by end market:

3 unchanged sentences

Significant customers

Total revenues, by percentage, from individual customers representing 10% or more of total revenues in the respective periods were as

Total revenues, by percentage, from individual customers representing 10% or more of total revenues in the respective periods were as follows:

Lumentum Operations LLC

Accounts receivable from individual customers representing 10% or more of accounts receivable as of

June 28, 2019 and June 29, 2018, respectively, were as follows:

Acacia Communications Inc.

Infinera Corporation

Represents less than 10% of total revenues.

Accounts receivable from individual customers representing 10% or more of accounts receivable as of June 26, 2020 and June 28, 2019, respectively, were as follows:

Lumentum Operations LLC

NeoPhotonics Corporation

Acacia Communications Inc.

Represents less than 10% of total accounts receivable.

Financial instruments

Objectives and significant terms and conditions

The principal

financial risks faced by the Company are foreign currency risk and interest rate risk.

The principal financial risks faced by the Company are foreign currency risk and interest rate risk.

The Company borrows at floating rates of interest to finance its operations.

A minority of sales and purchases and a majority of labor and overhead costs are

entered into in foreign currencies.

A minority of sales and purchases and a majority of labor and overhead costs are entered into in foreign currencies.

In order to manage the risks arising from fluctuations in currency exchange rates, the Company uses derivative instruments.

Trading for speculative purposes is prohibited under Company policies.

The Company enters into short-term foreign currency forward and option contracts to manage foreign currency exposures associated with

certain assets, liabilities and other forecasted foreign currency transactions and may designate these instruments as hedging instruments.

The foreign currency forward and option contracts generally have maturity of up to six months.

currency exchange contracts are recognized on the consolidated balance sheets at fair value.

The Company enters into short-term foreign currency forward and option contracts to manage foreign currency exposures associated with certain assets, liabilities and other forecasted foreign currency transactions and may designate these instruments as hedging instruments.

The foreign currency forward and option contracts generally have maturities of up to twelve 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.

Foreign currency risk

The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Thai baht, Chinese Renminbi (RMB) and GBP.

As of June 28, 2019 and June 29, 2018, the Company had outstanding foreign

currency assets and liabilities as follows:

The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Thai baht, Chinese Renminbi (“RMB”) and Pound sterling (“GBP”).

As of June 26, 2020 and June 28, 2019, the Company had outstanding foreign currency assets and liabilities as follows:

As of June 26, 2020

1 unchanged sentence

(amount in thousands)

The Thai baht assets represent cash and cash equivalents, trade accounts receivable, deposits and other

current assets.

The Thai baht assets represent cash and cash equivalents, trade accounts receivable, deposits and other current assets.

The Thai baht liabilities represent trade accounts payable, accrued expenses, income tax payable and other payables.

The Company manages its exposure to fluctuations in foreign exchange rates by the use of foreign currency contracts

and offsetting assets and liabilities denominated in the same currency in accordance with managements policy.

The Company manages its exposure to fluctuations in foreign exchange rates by the use of foreign currency contracts and offsetting assets and liabilities denominated in the same currency in accordance with management’s policy.

As of June 26, 2020 there were $ 126 .0 million of foreign currency forward and option contracts outstanding on the Thai baht payables.

As of June 28, 2019, there were $ 72 .0 million of foreign currency forward contracts outstanding on the Thai baht payables.

As of June 29, 2018, there were $7.0 million of foreign currency forward contracts and $30.0 million of foreign currency option contracts outstanding on the Thai baht payables.

The RMB assets represent cash and cash equivalents, trade accounts receivable and other current assets.

The RMB liabilities represent

trade accounts payable, accrued expenses and other payables.

The RMB liabilities represent trade accounts payable, accrued expenses and other payables.

As of June 26, 2020 and June 28, 2019, there were no derivative contracts denominated in RMB.

The GBP assets primarily represent cash, trade accounts receivable, inventory and property, plant and equipment.

The GBP liabilities primarily represent trade accounts payable.

As of June 28, 2019,

there were no derivative contracts denominated in GBP.

For fiscal year 2019, fiscal year 2018, and fiscal year 2017, the

Company recorded unrealized gain of $4.8 million, unrealized loss of $1.7 million, and unrealized gain of $0.02 million, respectively, related to derivatives that are not designated as hedging instruments in its consolidated

statements of operations and comprehensive income.

The GBP assets represent cash, trade accounts receivable, inventory and property, plant and equipment.

The GBP liabilities represent trade accounts payable.

As of June 26, 2020 and June 28, 2019, there were no derivative contracts denominated in GBP.

For fiscal year 2020, fiscal year 2019, and fiscal year 2018, the Company recorded unrealized loss of $ 1.2 million, unrealized gain of $ 4.8 million, and unrealized 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.

Interest Rate Risk

The Companys principal interest bearing assets are time deposits and short-term investments with maturities of three years or less

held with high quality financial institutions.

The Company’s principal interest bearing assets are time deposits and short-term investments with maturities of three years or less held with high quality financial institutions.

The Company’s principal interest bearing liabilities are bank loans which bear interest at floating rates.

On July 25, 2018, the Company entered into the Swap Agreement, which the Company did not designate as a hedging instrument.

The Swap Agreement was used to mitigate interest rate risk and improve the

interest rate profile of the Companys debt obligations by converting the floating interest rate of the term loans under the Facility Agreement to the fixed interest rate of 2.86% per annum through maturity of the term loan in June 2023.

swap transactions are due and settled monthly.

The Company entered into interest rate swap agreements (the “Swap Agreements”) to manage this risk and increase the profile of the Company’s debt obligation.

The terms of the Swap Agreements allow the Company to 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 these 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.

Subsequent Event

On July 8, 2019, the Company entered into a 16.2 million Euros standby letter of credit related to the Companys support of a customer with the transfer of certain manufacturing operations

from Berlin, Germany to the Companys facilities in Thailand.

The standby letter of credit was backed by cash collateral of $22.1 million.

In August 2020, the Company’s board of directors approved the repurchase of up to an additional $ 58.5 million of Fabrinet’s outstanding ordinary shares, bringing the aggregate authorization under Fabrinet’s existing share repurchase program to $ 168.5 million.

UNAUDITED QUARTERLY FINANCIAL INFORMATION

The following table sets forth a summary of the Companys quarterly financial information for each of the four quarters in the

fiscal years ended June 28, 2019 and June 29, 2018:

The following table sets forth a summary of the Company’s quarterly financial information for each of the four quarters in the fiscal years ended June 26, 2020 and June 28, 2019:

Three Months Ended

8 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data