What changed in this filing

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Item 1A. Risk Factors

2020-11-03 compared with 2020-05-05 · 75 added, 60 removed, 510 unchanged (21% of the section changed)

7 unchanged sentences

pandemic has adversely affected the global economy, disrupted global supply chains and created significant volatility in the financial markets.

In addition, the pandemic has resulted in travel restrictions, business closures and the institution of quarantining and other restrictions on movement in many communities.

For the quarter ended March 27, 2020, we experienced a decrease in demand for some of our services and disruption in our supply chain because of the effects of COVID-19,

In addition, the pandemic has resulted in travel restrictions, business closures and the institution of quarantines and other restrictions on movement in many communities.

For the quarter ended September 25, 2020, we continued to experience a decrease in demand for some of our services and disruption in our supply chain because of the effects of COVID-19,

which had a negative impact on our financial results.

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on our future business, financial condition and operating results will depend largely on future developments, including (i) the duration and magnitude of the pandemic;

(ii) the measures taken by governmental authorities and private actors to limit the spread of COVID-19;

(ii) the measures taken by governmental authorities and private sectors to limit the spread of COVID-19;

(iii) our ability to continue providing products and services;

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We have depended, and will continue to depend, upon a small number of customers for a significant percentage of our total revenues.

During each of the three months ended March 27, 2020 and March 29, 2019, we had one customer that accounted for 16.4% and 19.8% respectively, of our total revenues.

During each of the nine months ended March 27, 2020 and March 29, 2019, we had one customer that accounted for 16.4% and 18.6%, respectively, of our total revenues.

During the three months ended September 25, 2020 and September 27, 2019, we had two customers and one customer, respectively, that each contributed 10% or more of our revenues.

During the three months ended September 25, 2020 and September 27, 2019, such customers accounted for 28.6% and 18.0% of our revenues, respectively.

Dependence on a small number of customers means that a reduction in orders from, a loss of, or other adverse actions by any one of these customers would reduce our revenues and could have a material adverse effect on our business, financial condition and operating results.

For example, in the three months ended March 27, 2020, we experienced some order cancelations and delays with respect to certain products that we manufacture for our customers due to COVID 19, which adversely affected our revenue.

For example, in the six months ended June 26, 2020, we experienced some order cancelations and delays with respect to certain products that we manufacture for our customers due to COVID-19,

which adversely affected our revenue.

Further, our customer concentration increases the concentration of our accounts receivable and our exposure to payment default by any of our key customers.

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In addition, although we enter into master supply agreements with our customers, the level of business to be transacted under those agreements is not guaranteed.

Instead, we are awarded business under those

agreements on a project-by-project

Instead, we are awarded business under those agreements on a project-by-project

Some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us.

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If the optical communications market does not expand as we expect, our business may not grow as fast as we expect, which could adversely impact our business, financial condition and operating results.

Revenues from the optical communications end market represented 75.4% and 75.0% of our total revenues for the nine months ended March 27, 2020 and March 29, 2019, respectively.

Revenues from the optical communications end market represented 78.8% and 75.7% of our revenues for the three months ended September 25, 2020 and September 27, 2019, respectively.

Our future success as a provider of precision optical, electro-mechanical and electronic manufacturing services for the optical communications market depends on the continued growth of the optics industry and, in particular, the continued expansion of global information networks, particularly those directly or indirectly dependent upon a fiber optic infrastructure.

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As a result, a reduction in customer demand could decrease our gross profit and harm our business, financial condition and operating results.

For example, in the three months ended March 27, 2020, we experienced some order cancelations and delays with respect to telecom products that we manufacture for our customers due to COVID-19;

For example, in the six months ended June 26, 2020, we experienced some order cancelations and delays with respect to telecom products that we manufacture for our customers due to COVID-19;

however, these cancelations and delays were partially offset by increased demand for datacom products.

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The primary impact of currency exchange fluctuations is on our cash, receivables, and payables of our operating entities.

We may experience significant unexpected losses from fluctuations in exchange rates.

For example, in the three months ended March 29, 2019, we experienced a $3.1 million foreign exchange loss, which negatively affected our net income per share for the same period by $0.08.

Our customer contracts generally require that our customers pay us in U.S.

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dollar as compared with the Thai baht, and our results have been adversely impacted by this fluctuation in exchange rates.

As of March 27, 2020, the U.S.

dollar had appreciated approximately 3.9% against the Thai baht since March 30, 2018.

As of September 25, 2020, the U.S.

dollar had depreciated approximately 2.7% against the Thai baht since September 28, 2018.

Further, while we attempt to hedge against certain exchange rate risks, we typically enter into hedging contracts with maturities of up to 12 months, leaving us exposed to longer term changes in exchange rates.

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The PRC government may at its discretion restrict access in the future to foreign currencies for current account transactions.

If this occurs, our PRC subsidiary may not be able to pay us dividends in U.S.

If this occurs, our PRC

subsidiary may not be able to pay us dividends in U.S.

dollars without prior approval from the PRC State Administration of Foreign Exchange.

In addition, conversion of RMB for most capital account items, including direct investments, is still

subject to government approval in the PRC.

In addition, conversion of RMB for most capital account items, including direct investments, is still subject to government approval in the PRC.

This restriction may limit our ability to invest the earnings of our PRC subsidiary.

As of March 27, 2020, the U.S.

dollar had appreciated approximately 12.9% against the RMB since March 30, 2018.

As of September 25, 2020, the U.S.

dollar had appreciated approximately 1.1% against the RMB since September 28, 2018.

There remains significant international pressure on the PRC government to adopt a substantially more liberalized currency policy.

GBP are convertible in connection with trade- and service-related foreign exchange transactions and foreign debt service.

As of March 27, 2020, the U.S.

dollar had appreciated approximately 14.9% against the GBP since March 30, 2018.

As of September 25, 2020, the U.S.

dollar had appreciated approximately 2.5% against the GBP since September 28, 2018.

Any appreciation in the value of the RMB and GBP against the U.S.

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Historically, we have experienced supply shortages resulting from various causes, including reduced yields by our suppliers, which prevented us from manufacturing products for our customers in a timely manner.

More recently, for the quarter ended March 27, 2020, we experienced significant fluctuations in the availability of certain materials due to COVID-19,

More recently, for the six months ended June 26, 2020, we experienced significant fluctuations in the availability of certain materials due to COVID-19,

which had an adverse impact on our revenue and costs.

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Our customers are located throughout the world, and our principal manufacturing facilities are located in Thailand.

Total revenues from the bill-to-location

of customers outside of North America accounted for 49.0% and 52.7% of our total revenues for the nine months ended March 27, 2020 and March 29, 2019, respectively.

We expect that total revenues from the bill-to-location

of customers outside of North America will continue to account for a significant portion of our total revenues.

Revenues from the bill-to-location

of customers outside of North America accounted for 52.5% and 49.7% of our revenues for the three months ended September 25, 2020 and September 27, 2019, respectively.

We expect that revenues from the bill-to-location

of customers outside of North America will continue to account for a significant portion of our revenues.

Our customers also depend on international sales, which further exposes us to the risks associated with international operations.

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To ensure compliance, some of our customers immediately suspended shipments to Huawei in order to begin assessments of the products they sold to Huawei (and its affiliates), to determine whether these products were subject to the restrictions resulting from the ban.

This had an immediate impact on our customer orders in the fourth quarter of fiscal year 2019, which affected our revenue for the quarter.

This had an immediate impact on our customer orders in the fourth quarter of fiscal year 2019, which affected our revenue for that quarter.

We expect this ban to continue to adversely affect orders from our customers for the foreseeable future.

We are subject to risks related to the ongoing U.S.-China trade dispute, including increased tariffs on materials that we use in manufacturing, which could adversely affect our business, financial condition and operating results.

In August 2019, the U.S.

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Although the U.S.

Administration announced on January 15, 2020 the reduction of certain tariffs on Chinese imported goods and delayed certain other related tariffs, we cannot assure you that the U.S.

Administration will not continue to increase tariffs on imports from China or alter trade agreements and terms between China and the United States, which may include limiting trade with China.

Administration announced on January 15, 2020 the reduction of certain tariffs on Chinese imported goods and delayed the implementation of certain other related tariffs, we have no assurance that the U.S.

Administration will not continue to increase or impose tariffs on imports from China or alter trade agreements and terms between China and the United States, which may include limiting trade with China.

Trade restrictions, including tariffs, quotas, embargoes, safeguards and customs restrictions, could have the effect of increasing the cost of materials we use to manufacture certain products, which could result in lower margins.

The tariffs could also result in disruptions to our supply chain, as suppliers struggle to fill orders from companies trying to purchase goods in bulk ahead of announced tariffs.

The tariffs could also result in disruptions to our supply chain, as suppliers struggle to fill orders from companies trying to purchase goods in bulk ahead of announced tariffs taking effect.

The institution of trade tariffs both globally and between the U.S.

and China specifically could also cause a decrease in the sales of our customers’ products to end users located in China, which could directly impact our revenues in the form of reduced orders.

and China specifically could also cause a decrease in the sales of our customers’ products to end-users

located in China, which could directly impact our revenues in the form of reduced orders.

If existing tariffs are raised further or if new tariffs are imposed on additional categories of components used in our manufacturing activities, and if we are unable to pass the costs of such tariffs on to our customers, our operating results would be harmed.

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was elected as Prime Minister, and in July 2019, the new Prime Minister’s nominees for cabinet ministers were appointed.

Any future political instability in the Kingdom of Thailand could prevent shipments from entering or leaving the country, disrupt our ability to manufacture products in Thailand, and force us to transfer our operations to more stable, and potentially more costly, regions.

In October 2020, there were several rounds of protest for political reform.

Further, the Thai government may raise the minimum wage standards for labor and could repeal certain promotional certificates that we have received or tax holidays for certain export and value added taxes that we enjoy, either preventing us from engaging in our current or anticipated activities or subjecting us to higher tax rates.

A new regime could nationalize our business or otherwise seize our assets and any other future political instability could harm our business, financial condition and operating results.

We expect to continue to invest in our manufacturing operations in the PRC, which will continue to expose us to risks inherent in doing business in the PRC, any of which risks could harm our business, financial condition and operating results.

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For example, the 2011 flooding in Thailand forced us to temporarily shut down all of our manufacturing facilities in Thailand and cease production permanently at our Chokchai facility, which adversely affected our ability to meet our customers’ demands during fiscal year 2012.

In some countries in which we operate, including the PRC, United States and Thailand, outbreaks of infectious diseases such as COVID-19,

In some countries in which we mainly operate, including the PRC, the U.S.

and Thailand, outbreaks of infectious diseases such as COVID-19,

H1N1 influenza virus, severe acute respiratory syndrome (“SARS”) or bird flu could disrupt our manufacturing operations, reduce demand for our customers’ products and increase our supply chain costs.

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While we are unable to accurately predict the full impact that COVID-19

will have on our business, financial condition and operating results due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day

operations and could disrupt our business, as well as that of our customers, suppliers and other counterparties, for an indefinite period of time.

will have on our business, financial condition and operating results due to numerous uncertainties, including the duration and severity of the pandemic as well as related containment measures, our compliance with such measures has already impacted our day-to-day

operations and could continue to disrupt our business, as well as that of our customers, suppliers and other counterparties, for an indefinite period of time.

In addition, increased international political instability, evidenced by the threat or occurrence of terrorist attacks, enhanced national security measures, conflicts in the Middle East and Asia, strained international relations arising from these conflicts and the related decline in consumer confidence and economic weakness, may hinder our ability to do business.

Any escalation in these events or similar future events may disrupt our operations and the operations of our customers and suppliers and may affect the availability of materials needed for our manufacturing services.

may also disrupt the transportation of materials to our manufacturing facilities and finished products to our customers.

Such events may also disrupt the transportation of materials to our manufacturing facilities and finished products to our customers.

These events have had, and may continue to have, an adverse impact on the U.S.

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This in turn could have a material adverse effect on our business, financial condition and operating results.

Unfavorable worldwide economic conditions may negatively affect our business, financial condition and operating results.

Unfavorable worldwide economic conditions may negatively affect our business, operating results and financial condition.

The sudden and continuing global economic downturn and uncertainty due to the effects of COVID-19

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Uncertainty about worldwide economic conditions poses a risk as businesses may further reduce or postpone spending in response to reduced budgets, tight credit, negative financial news and declines in income or asset values, which could adversely affect our business, financial condition and operating results and increase the volatility of our share price.

In addition, our ability to access capital markets may be restricted, which could have an impact on our ability to react to changing economic and business conditions and could also adversely affect our business, financial condition and operating results.

Due to the unprecedented and rapidly changing social and global economic impacts associated with COVID-19,

we are unable to predict or estimate the ultimate impact on our business or business prospects.

The ultimate significance of COVID-19

on our business will depend on, among other things:

the extent and duration of the pandemic, the severity of the disease and the number of people infected with the virus;

the effects on the global economy of the pandemic and of the measures taken by governmental authorities and other third parties restricting day-to-day

life and the length of time that such measures remain in place;

and governmental programs implemented to assist businesses impacted by the pandemic.

At this time, we cannot estimate the short- or long-term impacts of COVID-19

on our business, operating results and financial condition.

We may experience manufacturing yields that are lower than expected, potentially resulting in increased costs, which could harm our business, operating results and customer relations.

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We hold the following additional certifications:

ANSI ESD S20.20 for facilities and manufacturing process

control, in compliance with ESD standard;

ANSI ESD S20.20 for facilities and manufacturing process control, in compliance with ESD standard;

Transported Asset Protection Association, or TAPA, for Logistic Security Management System;

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Our effective income tax rate, provision for income taxes and future tax liability could be adversely affected by numerous factors, including the results of tax audits and examinations, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in income tax rates, changes in the valuation of deferred tax assets and liabilities, failure to meet obligations with respect to tax exemptions, and changes in tax laws and regulations.

As of March 27, 2020, our U.S.

From time to time, we engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions.

Currently, we are undergoing audit by the U.S.

Internal Revenue Service for U.S.

federal and state tax for tax years 2016 and 2017.

It is reasonably possible that we may have an adverse effect on our provision from income taxes, but the amount cannot be reasonably estimated.

The tax audits are expected to be concluded within the next 12 months.

As of September 25, 2020, our U.S.

federal and state tax returns remain open to examination for the tax years 2015 through 2018.

In addition, tax returns that remain open to examination in Thailand range from the tax years 2015 through 2019, and in the PRC and the United Kingdom range from the tax years 2015 through 2018.

In addition, tax returns that remain open to examination in Thailand, the PRC and the U.K.

range from the tax years 2015 through 2019.

The results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and tax liability.

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Fabrinet (the “Cayman Islands Parent”) is an exempted company incorporated in the Cayman Islands.

We maintain manufacturing operations in Thailand, the PRC, the United Kingdom and the U.S.

We maintain manufacturing operations in Thailand, the PRC, the U.K.

We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments in lieu of taxes.

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

Preferential tax treatment from the Thai government in the form of a corporate tax exemption is also currently available to us through June 2020 and June 2026 on income generated from projects to manufacture certain products at our Pinehurst campus and Chonburi campus, respectively.

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).

Preferential tax treatment from the Thai government in the form of a corporate tax exemption on income generated from projects to manufacture certain products at our Chonburi campus is available to us through June 2026.

Similar preferential tax treatment was available to us through June 2020 with respect to products manufactured at our Pinehurst campus.

After June 2020, 50% of our income generated from products manufactured at our Pinehurst campus will be exempted from tax through June 2025.

We will lose this favorable tax treatment in Thailand unless we comply with these restrictions, and as a result we may delay or forego certain strategic business decisions due to these tax considerations.

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Such a challenge generally involves a complex area of taxation and a significant degree of judgment by management.

If any taxation authorities are successful in challenging our financing or transfer pricing policies, our income tax expense may be adversely affected and we could become subject to interest and penalty charges, which may harm our business, financial condition and operating results.

If any tax authorities are successful in challenging our financing or transfer pricing policies, our income tax expense may be adversely affected and we could become subject to interest and penalty charges, which may harm our business, financial condition and operating results.

We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our shareholders.

We anticipate that our current cash and cash equivalents, together with cash provided by operating activities and funds available through our working capital and credit facilities, will be sufficient to meet our current and anticipated needs for general corporate purposes for at least the next 12 months.

We operate in a market, however, that makes our prospects difficult to evaluate.

However, we operate in a market that makes our prospects difficult to evaluate.

It is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs.

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We generally use LIBOR as a reference rate to calculate interest rates under our credit facility agreement.

In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021.

In 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021.

It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021.

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Whether or not SOFR or another alternative reference rate attains market traction as a LIBOR replacement tool remains in question.

If LIBOR ceases to exist, we will need to agree upon a replacement index with the bank under our credit facility agreement,

and certain of the interest rates under such agreement may change.

If LIBOR ceases to exist, we will need to agree upon a replacement index with the bank under our credit facility agreement, and certain of the interest rates under such agreement may change.

The new rates may not be as favorable to us as those in effect prior to any LIBOR phase-out.

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The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and disclosure controls and procedures quarterly.

While we were able to assert in our Annual Report on Form 10-K

While we are able to assert in our most recent Annual Report on Form 10-K

that our internal control over financial reporting was effective as of June 26, 2020, we cannot predict the outcome of our testing in future periods.

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While we have ongoing measures and procedures to prevent and remedy control deficiencies, if they occur there can be no assurance that we will be successful or that we will be able to prevent material weaknesses or significant deficiencies in our internal control over financial reporting in the future.

Moreover, if we identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses in future periods, the market

price of our ordinary shares could decline and we could be subject to potential delisting by the NYSE and review by the NYSE, the SEC, or other regulatory authorities, which would require the expenditure by us of additional financial and management resources.

Moreover, if we identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses in future periods, the market price of our ordinary shares could decline and we could be subject to potential delisting by the NYSE and review by the NYSE, the SEC, or other regulatory authorities, which would require the expenditure by us of additional financial and management resources.

As a result, our shareholders could lose confidence in our financial reporting, which would harm our business and the market price of our ordinary shares.

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We use professional investment management firms to manage our excess cash and cash equivalents.

Our short-term investments as of March 27, 2020 are primarily investments in a fixed income portfolio, including certificates of deposit, time deposits, corporate bonds and commercial papers, U.S.

Our short-term investments as of September 25, 2020 are primarily investments in a fixed income portfolio, including certificates of deposit, time deposits, corporate bonds and commercial papers, U.S.

agency and U.S.

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The policy also provides that we may not invest in short-term investments with a maturity in excess of three years.

We regularly review our investment portfolio to determine if any security is other-than-temporarily impaired, which would require us to record an impairment charge in the period any such determination is made.

In making this judgment, we evaluate, among other things, the duration and extent to which the fair value of a security is less than its cost;

the financial condition of the issuer and any changes thereto;

and our intent to sell, or whether we will more likely than not be required to sell, the security before recovery of its amortized cost basis.

Our assessment on whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security.

Should financial market conditions worsen, investments in some financial instruments may pose risks arising from market liquidity and credit concerns.

In addition, any deterioration of the capital markets could cause our other income and expense to vary from expectations.

As of March 27, 2020, we did not record any impairment charges associated with our portfolio of short-term investments, and although we believe our current investment portfolio has little risk of material impairment, we cannot predict future market conditions or market liquidity, or credit availability, and can provide no assurance that our investment portfolio will remain materially unimpaired.

As of September 25, 2020, we did not record any impairment charges associated with our portfolio of short-term investments, and although we believe our current investment portfolio has little risk of material impairment, we cannot predict future market conditions or market liquidity, or credit availability, and can provide no assurance that our investment portfolio will remain materially unimpaired.

Energy price volatility may negatively impact our business, financial condition and operating results.

76 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-Q

Item 1A. Risk Factors