What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-08-17 compared with 2020-08-18 · 171 added, 267 removed, 333 unchanged (57% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

In addition to historical information, this Annual Report on Form 10-K

contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

10 unchanged sentences

• our ability, and the ability of our customers and suppliers, to respond successfully to technological or industry developments;

our expectations regarding the potential impact of the COVID-19

pandemic on our business, financial condition and results of operations;

• our expectations regarding the potential impact of the COVID-19 pandemic on our business, financial condition and results of operations;

• our suppliers’ estimates regarding future costs;

6 unchanged sentences

These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K,

in particular, the risks discussed under the heading “Risk Factors” in Item 1A, as well as those discussed in other documents we file with the Securities and Exchange Commission.

We undertake no obligation

to revise or publicly release the results of any revision to these forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, in particular, the risks discussed under the heading “Risk Factors” in Item 1A, as well as those discussed in other documents we file with the Securities and Exchange Commission.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.

Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

1 unchanged sentence

For an overview of our business, see PART I – ITEM 1.

We utilize a 52-53

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

We utilize a 52-53 week fiscal year ending on the Friday in June closest to June 30.

Fiscal year 2021 ended on June 25, 2021 and consisted of 52 weeks.

2 unchanged sentences

Recent Developments Related to COVID-19

In the quarter ended March 27, 2020, the effects of the global COVID-19

pandemic impacted us in several ways and created various challenges.

At the onset of the pandemic, our PRC subsidiary, which manufactures custom optics components for us and other customers at its facility in Fuzhou, China, experienced a prolonged temporary closure following its customary eight-day

Chinese Lunar New Year holiday in January 2020.

In accordance with the Chinese government’s official efforts to mitigate the spread of COVID-19,

our PRC subsidiary, along with other businesses in various parts of the country, delayed resumption of operations following the holiday closures for approximately two weeks.

Furthermore, because of the restrictions in place on travel in China during this period, many of our employees were unable to return from their holiday travel as planned, resulting in fewer than 90% of our employees being able to return to work at our PRC subsidiary before early March.

Our other global manufacturing facilities also have been affected by various government restrictions put in place to slow the spread of COVID-19.

In Thailand, the government declared a national state of emergency effective March 26, 2020 and required the closure of various businesses, in particular retail establishments, and passed measures restricting movement and activities in Thailand.

While our operations in Thailand have not been suspended, we have implemented a number of safety protocols to allow our operations in our facilities there to continue in accordance with government regulations.

With the exception of our facility in Santa Clara, California, which closed for approximately one week beginning in late March before reopening in early April as a previously classified “essential business,” our facilities in the U.S., including in New Jersey, and in the U.K.

have remained open while adhering to the local government restrictions and orders implemented in March 2020, including “shelter-in-place”

orders and social distancing guidelines.

The health and well-being of our employees continues to be our top priority.

Over the past several months, we have implemented significant precautionary measures throughout our worldwide operations to ensure our employees and their families remain safe, such as mandatory temperature detection at building entrances, rigorous and regular facility and equipment disinfection, and mandatory personal protective equipment protocols, including (1) the wearing of face masks throughout our factories at all times, (2) distributing our employees across shifts to better maintain safe personal distances, (3) isolating incoming parts and materials for a week or more prior to unpacking, or applying extreme heat to them to kill potential viruses, (4) directing our non-factory

personnel to work remotely, and (5) restricting all non-employee

visits to our campuses.

During the six months ended June 26, 2020, we also experienced a shift in the demand for our services, with some customers canceling, decreasing or delaying orders and other customers accelerating and increasing orders.

However, the most significant effect of COVID-19

on our operations has been the disruption of our supply chain, including significant fluctuations in the availability of parts and materials necessary to manufacture our products for our customers.

While we were able to mitigate some of these issues by quickly identifying and securing alternative sources, these mitigation efforts, combined with our employee safety initiatives, negatively impacted our gross margins due to the associated costs and expenses.

Given the unprecedented global, human, and economic impact of COVID-19,

the extraordinary economic short-term uncertainty, and the evolving and differing national strategies for dealing with COVID-19,

it is extremely challenging to provide forward-looking disclosure.

Despite the uncertainty and concern about the global economy and the health of various industries, we believe it important to share our considerations as we continue to assess the impacts of COVID-19

as they relate to our business in the future:

With work-from-home protocols in place around the world, global demand for internet bandwidth has grown and we believe it will continue to grow.

Because the next-generation telecom and datacom products we manufacture for our customers are important to expand network capacity, we believe this will have a positive impact on our business in the long-term.

While we believe that the long-term growth outlook for the markets we serve has not been significantly impacted, in the short-term we are likely to continue to see regional downward demand adjustments for products we manufacture for our customers, especially if the COVID-19

outbreak intensifies or returns in various geographic areas as happened at the end of our third fiscal quarter.

Moreover, we believe the markets for other products we manufacture, such as the industrial lasers and automotive markets, are likely to see reduced demand in a prolonged economic downturn.

We expect we will continue to experience disruptions in our supply chain and the availability of parts and materials will continue to fluctuate, especially if the COVID-19

outbreak intensifies or returns in various geographic areas.

However, we believe we can mitigate these disruptions by continuing to identify and secure alternative sources.

A significant portion of our costs are variable, and because of this, we can adjust manufacturing costs relatively quickly to respond to the changing demand of our customers.

However, because parts and materials account for the largest portion of our costs, in combination with the supply chain issues noted above and, to a lesser extent, the expenses associated with our commitment to the safety and health protocols implemented across our global operations, our gross margins will continue to be negatively affected for the foreseeable future, and at least into the first half of fiscal year 2021.

The safety and health of our employees is and will remain a key priority, and we will continue to follow robust safety protocols in all of our facilities.

Given our $488.1 million in cash, cash equivalents and short-term investments, and our total debt of approximately $51.8 million, as of June 26, 2020, we believe we are in a solid position from a capital and financial resources perspective.

We expect that current cash and cash equivalent balances and short-term investments, and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months.

manufacturing platform, process optimization capabilities, advanced supply chain management, excellent customer service, and experienced management team.

For a discussion of the effects of COVID-19 on our business, see “Recent Developments Related to COVID-19” in PART I – ITEM 1.

We believe our ability to expand our relationships with existing customers and attract new customers is due to a number of factors, including our broad range of complex engineering and manufacturing service offerings, flexible low-cost manufacturing platform, process optimization capabilities, advanced supply chain management, excellent customer service, and experienced management team.

Although we expect the prices we charge for our manufactured products to decrease over time (partly as a result of competitive market forces), we still believe we will be able to maintain favorable pricing for our services because of our ability to reduce cycle time, adjust our product mix by focusing on more complicated products, improve product quality and yields, and reduce material costs for the products we manufacture.

1 unchanged sentence

Revenues, by percentage, from individual customers representing 10% or more of our total revenues is set forth in Note 22 of our audited consolidated financial statements.

Because we depend upon a small number of

customers for a significant percentage of our total revenues, a reduction in orders from, a loss of, or any other adverse actions by, any one of these customers would reduce our revenues and could have a material adverse effect on our business, operating results and share price.

Because we depend upon a small number of customers for a significant percentage of our total revenues, a reduction in orders from, a loss of, or any other adverse actions by, any one of these customers would reduce our revenues and could have a material adverse effect on our business, operating results and share price.

Moreover, our customer concentration increases the concentration of our accounts receivable and payment default by any of our key customers will negatively impact our exposure.

5 unchanged sentences

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 basis.

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

If we are unable to maintain our relationships with our existing significant customers, our business, financial condition and operating results could be harmed.

COVID-19 has also created dynamics in the semiconductor component supply chain that have led to shortages of the types of components needed in the products we manufacture for our customers.

If we or our customers are unable to procure needed semiconductor components, our ability to manufacture products for our customers will be impacted, which may reduce our revenue as we experienced during the fourth quarter of fiscal year 2021.

The impact of semiconductor component shortages may increase in the near term as supplier and customer buffer inventories and safety stocks are exhausted.

Revenues by Geography

1 unchanged sentence

North America, Asia-Pacific, and Europe.

Revenues are attributed to a particular geographic area based on the bill-to-location

of our customers, notwithstanding that our customers may ultimately ship their products to end customers in a different geographic region.

Revenues are attributed to a particular geographic area based on the bill-to-location of our customers, notwithstanding that our customers may ultimately ship their products to end customers in a different geographic region.

The substantial majority of our revenues are derived from our manufacturing facilities in Asia-Pacific.

The percentage of our revenues generated from a bill-to-location

outside of North America decreased from 52.3% in fiscal year 2019 to 49.4% in fiscal year 2020, which was partially due to a decrease in sales to our customers in Asia-Pacific by 4.7%.

Based on the short- and medium-term indications and forecasts from our customers, we expect that the portion of our future revenues attributable to customers in regions outside of North America will decrease as compared with the portion of revenues attributable to such customers during fiscal year 2020.

The percentage of our revenues generated from a bill-to-location outside of North America increased from 49.4% in fiscal year 2020 to 52.8% in fiscal year 2021, which was partially due to an increase in sales to our customers in Asia-Pacific by 1.9%.

Based on the short- and medium-term indications and forecasts from our customers, we expect that the portion of our

future revenues attributable to customers in regions outside of North America will decrease as compared with the portion of revenues attributable to such customers during fiscal year 2021.

The following table presents percentages of total revenues by geographic regions:

June 26, 2020

June 28, 2019

June 29, 2018

June 25, 2021 June 26, 2020 June 28, 2019

North America 47.2 % 50.6 % 47.7 %

Asia-Pacific 35.6 33.7 38.4

Europe 17.2 15.7 13.9

100.0 % 100.0 % 100.0 %

Our Contracts

We enter into supply agreements with our customers which generally have an initial term of up to three years, subject to automatic renewals for subsequent one-year

terms unless expressly terminated.

We enter into supply agreements with our customers which generally have an initial term of up to three years, subject to automatic renewals for subsequent one-year terms unless expressly terminated.

Although there are no minimum purchase requirements in our supply agreements, our customers provide us with rolling forecasts of their demand requirements.

Our supply agreements generally include provisions for pricing and

periodic review of pricing, consignment of our customer’s unique production equipment to us, and the sharing of benefits from cost-savings derived from our efforts.

We are generally required to purchase materials, which may include long lead-time materials and materials that are subject to minimum order quantities and/or non-cancelable

or non-returnable

terms, to meet the stated demands of our customers.

Our supply agreements generally include provisions for pricing and periodic review of pricing, consignment of our customer’s unique production equipment to us, and the sharing of benefits from cost-savings derived from our efforts.

We are generally required to purchase materials, which may include long lead-time materials and materials that are subject to minimum order quantities and/or non-cancelable or non-returnable terms, to meet the stated demands of our customers.

After procuring materials, we manufacture products for our customers based on purchase orders that contain terms regarding product quantities, delivery locations and delivery dates.

Our customers generally are obligated to purchase finished goods that we have manufactured according to their demand requirements.

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

are typically designated as excess or obsolete inventory under our contracts.

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

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

11 unchanged sentences

Historically, our employee costs have increased primarily due to increases in the number of employees necessary to support our growth and, to a lesser extent, costs to recruit, train and retain employees.

Our cost of revenues is significantly impacted by salary levels in Thailand, the PRC and the United Kingdom, the fluctuation of the Thai baht, Chinese Renminbi (“RMB”) and Pound Sterling (“GBP”) against our functional currency, the U.S.

Our cost of revenues is significantly impacted by salary levels in Thailand, the PRC and the United Kingdom, the fluctuation of the Thai baht, RMB and GBP against our functional currency, the U.S.

dollar, and our ability to retain our employees.

5 unchanged sentences

Our depreciation costs include buildings and fixed assets, primarily at our Pinehurst and Chonburi campuses in Thailand, and capital equipment located at each of our manufacturing locations.

During fiscal years 2020, 2019 and 2018, discretionary merit-based bonus awards were made to our non-executive

Charges included in cost of revenues for bonus awards to non-executive

employees were $4.6 million, $3.9 million and $3.5 million for fiscal years 2020, 2019 and 2018, respectively.

During fiscal years 2021, 2020 and 2019, discretionary merit-based bonus awards were made to our non-executive employees.

Charges included in cost of revenues for bonus awards to non-executive employees were $4.7 million, $4.6 million and $3.9 million for fiscal years 2021, 2020 and 2019, respectively.

Share-based compensation expense included in cost of revenues was $6.2 million, $6.1 million and $5.7 million for fiscal years 2021, 2020 and 2019, respectively.

We expect to incur incremental costs of revenue as a result of our planned expansion into new geographic markets, though we are not able to determine the amount of these incremental expenses.

In addition, we expect our cost of revenue to increase in the first quarter of fiscal 2022 in response to the recent surge in COVID-19 cases, particularly in our Thailand operations.

We have implemented additional safeguards beyond what we have been doing for the past 18 months in order to protect our employees.

For example, we have increased testing of our employees and have sent employees home – with pay – if they test positive for COVID-19.

In addition, we have been granted permission by the Thai government to vaccinate our employees and have been carrying out this initiative since July 2021 at our expense.

Selling, General and Administrative Expenses

5 unchanged sentences

In fiscal year 2020, the compensation committee approved a fiscal year 2020 executive incentive plan with quantitative objectives that were based solely on achieving certain revenue targets and non-U.S.

GAAP gross margin targets for fiscal year 2019.

In the three months ended September 29, 2019, the compensation committee awarded bonuses to our executive employees for Company achievements of performance under our fiscal 2019 executive incentive plan.

Discretionary merit-based bonus awards are also available to our non-executive

employees and payable on a quarterly basis.

Charges included in SG&A expenses for bonus distributions to non-executive

and executive employees were $4.1 million, $3.7 million and $0.5 million for fiscal years 2020, 2019 and 2018, respectively.

GAAP operating margin targets for fiscal year 2020.

In the three months ended September 29, 2020, the compensation committee awarded bonuses to our executive employees for Company achievements of performance under our fiscal year 2020 executive incentive plan.

Discretionary merit-based bonus awards are also available to our non-executive employees and payable on a quarterly basis.

Charges included in SG&A expenses for bonus distributions to non-executive and executive employees were $4.2 million, $4.1 million and $3.7 million for fiscal years 2021, 2020 and 2019, respectively.

Share-based compensation expense included in SG&A expenses was $19.3 million, $16.1 million and $11.5 million for fiscal years 2021, 2020 and 2019, respectively.

10 unchanged sentences

In order to manage the risks arising from fluctuations in foreign currency exchange rates, we use derivative instruments.

We may enter into foreign currency exchange forward or option contracts to manage foreign currency exposures associated with certain assets and liabilities and other forecasted foreign currency transactions and may designate these instruments as hedging instruments.

We may enter into foreign currency exchange forward or put option contracts to manage foreign currency exposures associated with certain assets and liabilities and other forecasted foreign currency transactions and may designate these instruments as hedging instruments.

The forward and put option contracts generally have maturities of up to 12 months.

All foreign currency exchange contracts are recognized in the consolidated balance sheets at fair value.

Gain or loss on our forward and put option contracts generally offset the assets, liabilities, and transactions economically hedged.

Gains or losses on our forward and put option contracts generally present gross amount in the assets, liabilities, and transactions economically hedged.

We had foreign currency denominated assets and liabilities in Thai baht, RMB and GBP as follows:

1 unchanged sentence

As of June 26, 2020

(amount in thousands, except percentages)

(amount in thousands, except percentages) Foreign

Currency $ % Foreign

Thai baht 1,472,249 $ 46,312 67.5 667,955 $ 21,617 41.8

RMB 98,056 15,145 22.1 158,060 22,402 43.3

GBP 5,111 7,119 10.4 6,220 7,726 14.9

Total $ 68,576 100.0 $ 51,745 100.0

Thai baht 2,250,514 $ 70,793 87.7 2,102,392 $ 68,039 89.5

RMB 40,112 6,195 7.7 42,586 6,036 8.0

GBP 2,656 3,699 4.6 1,545 1,919 2.5

Total $ 80,687 100.0 $ 75,994 100.0

The Thai baht assets represent cash and cash equivalents, trade accounts receivable, deposits and other current assets.

1 unchanged sentence

We manage our 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 was $126.0 million in foreign currency forward contracts and option contracts outstanding on the Thai baht payables.

As of June 25, 2021, there was $130.0 million in foreign currency forward contracts outstanding on the Thai baht payables.

As of June 26, 2020, there was $125.0 million in foreign currency forward contracts and $1.0 million in 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.

1 unchanged sentence

As of June 25, 2021 and June 26, 2020, we did not have any derivative contracts denominated in RMB.

The GBP assets represent cash, trade accounts receivable, inventory and property, plant and equipment.

The GBP assets represent cash and trade accounts receivable.

The GBP liabilities represent trade accounts payable and other payables.

As of June 25, 2021 and June 26, 2020, we did not have any derivative contracts denominated in GBP.

For fiscal years 2020 and 2019, we recorded an unrealized loss of $1.2 million and an unrealized gain of $4.8 million, respectively, related to derivatives that are not designated as hedging instruments in the consolidated statements of operations and comprehensive income.

For fiscal years 2021 and 2020, we recorded an unrealized loss of $1.5 million and $1.2 million, respectively, related to derivatives that are not designated as hedging instruments in the consolidated statements of operations and comprehensive income.

Currency Regulation and Dividend Distribution

23 unchanged sentences

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 currently available to us through June 2026.

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

Similar preferential tax treatment was available to us through June 2020 with respect to products manufactured at our Pinehurst campus Building 6.

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

1 unchanged sentence

Currently, the corporate income tax rate for our Thai subsidiary is 20%.

With respect to our U.S.

subsidiaries, 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.

The Tax Cuts and Jobs Act was enacted on December 22, 2017 and provided for significant changes to U.S.

tax law, including a reduction in the U.S.

corporate income tax rate to 21%, which is the current rate for our U.S.

subsidiaries.

During fiscal year 2019, we completed our assessment of the income tax effects resulting from the Tax Reform Act and concluded that no cumulative remeasurement adjustments were required.

The corporate income tax rates for our subsidiaries in the PRC, the U.K.

and Israel are 25%, 19% and 23%, respectively.

Critical Accounting Policies and Use of Estimates

9 unchanged sentences

Our critical accounting policies and the adoption of new accounting policies are disclosed in Note 2 – Summary of significant accounting policies.

There were no changes to our accounting policies other than the adoption of Leases (Topic 842), Derivatives and Hedging (Topic 815) and Goodwill impairment (ASU 2017-04).

There were no changes to our accounting policies other than the adoption of ASC 326, “Financial Instruments—Credit Losses:

Measurement of Credit Losses on Financial Instruments” and ASC 820, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement."

Revenue Recognition

12 unchanged sentences

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, we 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.

On evaluation of the contracts, we 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.

4 unchanged sentences

Customers generally are obligated to purchase finished goods that we have 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 our contracts.

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 our contracts.

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

5 unchanged sentences

These standard warranties are assurance-type warranties, and we do 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.

We recognize revenue net of rebates and other similar allowances.

Revenues are recognized only if these estimates can be reasonably and reliably determined.

We base our estimates on historical results taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

We estimate expected rebates and other similar allowances based on historical results taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

We consider such estimated rebates and other similar allowances as variable consideration when allocating the transaction price to the extent it is probable that there will not be a significant reversal of cumulative revenue recognized.

The estimate is primarily based on the most likely level of consideration to be paid to the customer under the specific terms of each arrangement.

We provide services for customers that are related to our manufacturing activities.

9 unchanged sentences

We perform ongoing credit evaluations of our customers’ financial condition and make provisions for doubtful accounts based on the outcomes of these credit evaluations.

We evaluate the collectability of our

accounts receivable based on specific customer circumstances, current economic trends, historical experience with collections, and the age of past due receivables.

We evaluate the collectability of our accounts receivable based on specific customer circumstances, current economic trends, historical experience with collections, and the age of past due receivables.

Unanticipated changes in the liquidity or financial position of our customers may require additional provisions for doubtful accounts.

1 unchanged sentence

Inventory Valuation

Our inventory is stated at the lower of cost (on a first-in,

basis) or market value.

Our inventory is stated at the lower of cost (on a first-in, first-out basis) or market value.

Our industry is characterized by rapid technological change, short-term customer commitments, and rapid changes in demand.

9 unchanged sentences

If these estimates and related assumptions change in the future, we may be required to increase or decrease our valuation allowance against the deferred tax assets, resulting in additional or lesser income tax expense.

During fiscal year 2018, one of our subsidiaries in the U.S.

generated taxable income sufficient for the utilization of loss carryforwards due to better operating performance and effective control of operating expenses and management determined that it was more likely than not that future taxable income would be sufficient to allow the benefit of the loss to be realized.

As of June 29, 2018, we reversed certain deferred tax assets valuation allowance as management expected it was more likely than not that we would realize profits in subsequent fiscal years so that the loss carryforwards could be partially utilized.

Consequently, as of June 28, 2019, we 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.

As of the end of fiscal year 2019, we had 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, one of our subsidiaries 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, our subsidiary in the U.K.

therefore, management believed it was more likely than not that all of the deferred tax assets of such subsidiary would not be utilized.

Thus, a full valuation allowance of $2.1 million for the deferred tax assets was set up as of the end of fiscal year 2020.

During fiscal year 2021, our subsidiaries in the U.S.

Thus, a full valuation allowance of $1.5 million for the deferred tax assets was released as of June 25, 2021.

During fiscal year 2021, our 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.

Therefore, management believed it was more likely than not that all of the deferred tax assets of such subsidiary would not be utilized.

Thus, a full valuation allowance of $ 2.1 million for the deferred tax assets was set up as of June 25, 2021.

We assess tax positions 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, based on the technical merits of the position.

We apply a “more likely than not” standard (i.e., a likelihood greater than 50 percent), in accordance with the authoritative guidance, and recognize a tax provision in the consolidated financial statements for an uncertain tax position that would not be sustained.

Share-Based Compensation

Awards granted, including share options, restricted share units and performance share units are accounted for by recognizing the cost of employee services received in exchange for awards of equity instruments, based on the fair value of those awards, in the consolidated financial statements over the requisite service period.

In determining the fair value of share option awards, we are required to make estimates of expected dividends to be issued, expected volatility of our shares, expected forfeitures of the awards, risk free interest rates for the expected terms of the awards and expected terms of the awards.

For accounting purposes only, the fair value of each option grant is estimated using the Black-Scholes-Merton option pricing model, which takes into account the following factors:

(1) the exercise price of the options;

(2) the fair value of the underlying ordinary shares;

(3) the expected life of the options;

(4) the expected volatility of the underlying ordinary shares;

(5) the risk-free interest rate during the expected life of the options;

and (6) the expected dividend yield of the underlying ordinary shares.

However, these fair values are inherently uncertain and highly subjective.

The exercise price of the options is stated in the option agreements.

The expected life of the options involves estimates of the anticipated timing of the exercise of the vested options.

The expected volatility is based on the historical volatility of our share price.

We have applied the U.S.

Treasury Bill interest rate with a maturity date similar to the expected life of our options as the risk-free interest rate and assumed a dividend yield for periods when we paid dividends.

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

The determination of our share-based compensation expense for both current and future periods requires the input of assumptions, including estimated forfeitures and the price volatility of the underlying ordinary shares.

We estimate forfeitures based on past employee retention rates and our expectations of future retention rates, and we will prospectively revise our forfeiture rates based on actual history.

Our share-based compensation expense may change based on changes to our actual forfeitures.

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 other intangibles is calculated using the straight-line method.

Business acquisition

For the acquisition of our UK subsidiary, we allocated the fair value of purchase consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date.

The allocation of consideration to the individual net assets has been finalized.

The acquired intangible assets, which consist of customer relationships and backlog, are recorded as intangibles in the consolidated balance sheets.

The fair value of the acquired intangible assets was determined based on the multi-period excess earnings method.

We review intangibles for impairment whenever changes or circumstances indicate the carrying amount may not be recoverable.

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

Goodwill is reviewed annually for impairment or more frequently

whenever changes or circumstances indicate the carrying amount of goodwill may not be recoverable.

During the three months ended June 26, 2020, we performed annual goodwill impairment testing on our subsidiary in the U.K.

and found that the carrying amount of the reporting unit exceeded its fair value.

As a result, we recognized goodwill impairment loss of $3.5 million in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income.

Results of Operations

The following table sets forth a summary of our consolidated statements of operations and comprehensive income.

Note that period-to-period

comparisons of operating results should not be relied upon as indicative of future performance.

(amount in thousands)

June 26, 2020

June 28, 2019

June 29, 2018

Note that period-to-period comparisons of operating results should not be relied upon as indicative of future performance.

(amount in thousands) June 25, 2021 June 26, 2020 June 28, 2019

Revenues $ 1,879,350 $ 1,641,836 $ 1,584,335

Cost of revenues (1,657,987) (1,455,731) (1,405,111)

Gross profit 221,363 186,105 179,224

Selling, general and administrative expenses (70,567) (68,374) (55,067)

7 unchanged sentences

Income tax expense (2,143) (5,763) (5,278)

Net income 148,341 113,479 120,955

Other comprehensive income (loss), net of tax (5,119) 1,239 (1,129)

1 unchanged sentence

The following table sets forth a summary of our consolidated statements of operations and comprehensive income as a percentage of total revenues for the periods indicated.

June 26, 2020

June 28, 2019

June 29, 2018

June 25, 2021 June 26, 2020 June 28, 2019

Revenues 100.0 % 100.0 % 100.0 %

Cost of revenues (88.2) (88.7) (88.7)

Gross profit 11.8 11.3 11.3

Selling, general and administrative expenses (3.8) (4.2) (3.5)

7 unchanged sentences

Income tax expense (0.1) (0.4) (0.3)

Net income 7.9 6.9 7.6

Other comprehensive income (loss), net of tax (0.3) 0.1 0.0

1 unchanged sentence

The following table sets forth our revenues by end market for the periods indicated.

(amount in thousands)

June 26, 2020

June 28, 2019

June 29, 2018

(amount in thousands) June 25, 2021 June 26, 2020 June 28, 2019

Optical communications $ 1,441,338 $ 1,248,174 $ 1,184,936

Lasers, sensors, and other 438,012 393,662 399,399

Total $ 1,879,350 $ 1,641,836 $ 1,584,335

We operate and internally manage a single operating segment.

12 unchanged sentences

Our SG&A expenses increased by $2.2 million, or 3.2%, to $70.6 million, or 3.8% of total revenues, for fiscal year 2021, compared with $68.4 million, or 4.2% of total revenues, for fiscal year 2020.

Our SG&A expenses increased during fiscal year 2020, compared with fiscal year 2019, mainly due to by (1) an increase in share-based compensation expenses of $4.6 million, including $3.2 million from an increase in awards of performance share units and $1.4 million from an increase in awards of restricted share units;

(2) a goodwill impairment loss related to our UK subsidiary of $3.5 million;

(3) an increase in new business start-up

costs incurred by our Israel and Thailand subsidiaries of $1.5 million;

(4) an increase in severance liabilities expense of $0.9 million due to a change in labor protection law in Thailand in May 2019 that increased the required severance payment compensation for employees with 20 years of service from 300 days of wage to 400 days of wage;

and (5) an increase in executive and management expenses of $0.4 million from bonuses and other benefits.

Our SG&A expenses increased during fiscal year 2021, compared with fiscal year 2020, mainly due to (1) an increase in share-based compensation expenses of $3.2 million from an increase in awards of performance share units and restricted share units;

(2) an increase in new business start-up costs related to our subsidiary in Israel of $1.4 million;

and (3) an increase in severance liabilities expense of $0.9 million related to a senior management retirement;

offset by a goodwill impairment loss related to our subsidiary in the U.K.

of $3.5 million in fiscal year 2020.

Operating income .

Our operating income decreased by $5.2 million to $117.4 million, or 7.1% of total revenues, for fiscal year 2020, compared with $122.6 million, or 7.7% of total revenues, for fiscal year 2019.

Our operating income increased by $33.4 million to $150.8 million, or 8.0% of total revenues, for fiscal year 2021, compared with $117.4 million, or 7.1% of total revenues, for fiscal year 2020.

Interest income .

Our interest income increased by $0.9 million to $7.6 million for fiscal year 2020, compared with $6.7 million for fiscal year 2019.

The increase was primarily due to an increase in the average balance of our outstanding cash and cash equivalents and short-term investments.

Our interest income decreased by $3.8 million to $3.8 million for fiscal year 2021, compared with $7.6 million for fiscal year 2020.

The decrease was primarily due to a lower weighted average interest rate in fiscal year 2021 compared with fiscal year 2020.

Interest expense .

Our interest expense decreased by $1.9 million to $1.1 million for fiscal year 2021, compared with $3.0 million for fiscal year 2020.

The decrease was primarily due to lower unrealized loss from mark-to-market

of interest rate swaps recognized to earnings as a result of applying cash flow hedge accounting in fiscal year 2020.

In fiscal year 2020, there was unrealized loss from mark-to-market

of interest rate swaps of $1.7 million recognized to earnings for the three months ended September 27, 2019, before applying cash flow hedge, as compared to an unrealized loss of $2.6 million for fiscal year 2019.

In addition, there was amortization

of the fair value of interest rate swaps as of the hedge inception date of $1.2 million during fiscal year 2020 in relation to applying hedge accounting which results in a decrease in interest expense.

The decrease was primarily due to lower unrealized loss from mark-to-market of interest rate swaps recognized to earnings for fiscal year 2021, due to the implementation of cash flow hedge accounting on the interest rate swaps on September 27, 2019 and lower interest expense from loan repayment in fiscal year 2021.

Foreign exchange gain (loss), net .

We recorded foreign exchange loss, net of $3.8 million for fiscal year 2020, compared with foreign exchange gain, net of $1.4 million for fiscal year 2019.

The increase in foreign exchange loss was mainly due to an unrealized foreign exchange loss from mark-to-market

of forward contracts of $1.2 million in fiscal year 2020, as compared to an unrealized foreign exchange gain from mark-to-market

of forward contracts of $4.8 million in fiscal year 2019.

We recorded foreign exchange gain, net of $0.5 million for fiscal year 2021, compared with foreign exchange loss, net of $3.8 million for fiscal year 2020.

The increase in foreign exchange gain was mainly due to an unrealized foreign exchange gain from revaluation of outstanding Thai baht assets and liabilities of $2.0 million, foreign exchange gain from subsidiaries in the PRC and the U.K., totaling $1.7 million, and realized foreign exchange gain from payment/receipt of $0.5 million in fiscal year 2021, as compared to an unrealized foreign exchange loss from mark-to-market of forward contracts of $1.2 million and realized foreign exchange loss from payment/receipt of $1.6 million in fiscal year 2020

Income before income taxes .

2 unchanged sentences

Our provision for income tax reflects an effective tax rate of 1.4% and 4.8% for fiscal year 2021 and fiscal year 2020, respectively.

The decrease was primarily due to the fact that we had lower income subject to tax in fiscal year 2020, as compared to fiscal year 2019.

The decrease was primarily due to higher income not subject to tax in fiscal year 2021, as compared to fiscal year 2020.

We recorded net income of $148.3 million, or 7.9% of total revenues, for fiscal year 2021, compared with net income of $113.5 million, or 6.9% of total revenues, for fiscal year 2020.

Other comprehensive income (loss) .

Our other comprehensive income increased by $2.4 million to $1.2 million for fiscal year 2020 compared with other comprehensive loss of $1.1 million for fiscal year 2019.

We recorded other comprehensive loss of $5.1 million, or 0.3% for fiscal year 2021, compared with other comprehensive income of $1.2 million, or 0.1% for fiscal year 2020.

The decrease in other comprehensive income was mainly due to (1) unrealized loss from mark-to-market of forward contracts and interest rate swap agreement of $5.1 million for fiscal year 2021, as compared to unrealized gain from mark-to-market of forward contracts and interest rate swap agreement of $0.6 million for fiscal year 2020, and (2) unrealized loss from mark-to-market of available-for-sale debt securities of $1.2 million for fiscal year 2021, as compared to unrealized gain from mark-to-market of available-for-sale debt securities of $0.5 million for fiscal year 2020.

Comparison of Fiscal Year 2020 with Fiscal Year 2019

8 unchanged sentences

Our gross profit increased by $6.9 million, or 3.8%, to $186.1 million, or 11.3% of total revenues, for fiscal year 2020, compared with $179.2 million, or 11.3% of total revenues, for fiscal year 2019.

The increase in gross profit percentage in fiscal year 2019 was due to higher revenue and fixed costs leverage.

SG&A expenses .

Our SG&A expenses decreased by $2.7 million, or 4.7%, to $55.1 million, or 3.5% of total revenues, for fiscal year 2019, compared with $57.8 million, or 4.2% of total revenues, for fiscal year 2018.

Our SG&A expenses decreased during fiscal year 2019, compared with fiscal year 2018, mainly due to (1) a decrease in share-based compensation expenses of $4.3 million because we did not expect to achieve the pre-defined

performance targets for vesting of certain performance-based restricted share units awarded under our 2017 Inducement Equity Incentive Plan and (2) a decrease in executive severance payments of $2.1 million and a decrease in key executive benefits of $1.8 million in connection with the transition of the Executive Chairman of our board of directors to non-executive

Chairman during fiscal year 2018.

The decrease was offset by (1) an increase of $2.4 million in executive cash bonuses under our fiscal year 2019 executive incentive plan due to our expectation that certain pre-defined

revenue targets and non-U.S.

GAAP gross margin targets would be achieved;

(2) an increase in severance payment of $1.0 million in connection with non-executive

management separations;

(3) an increase in public company cost of $0.6 million;

and (4) an increase in severance liability expense of $0.4 million due to an increase in headcount as well as a change in labor protection law in Thailand that increased the required severance payment compensation for employees with 20 or more years of service from 300 days of wage to 400 days of wage.

Our SG&A expenses increased by $13.3 million, or 24.2%, to $68.4 million, or 4.2% of total revenues, for fiscal year 2020, compared with $55.1 million, or 3.5% of total revenues, for fiscal year 2019.

(2) a goodwill impairment loss related to our UK subsidiary of $3.5 million;

(3) an increase in new business start-up costs incurred by our Israel and Thailand subsidiaries of $1.5 million;

and (5) an increase in executive and management expenses of $0.4 million from bonuses and other benefits.

Operating income .

Our operating income increased by $28.8 million to $122.6 million, or 7.7% of total revenues, for fiscal year 2019, compared with $93.8 million, or 6.9% of total revenues, for fiscal year 2018.

Our operating income decreased by $5.2 million to $117.4 million, or 7.1% of total revenues, for fiscal year 2020, compared with $122.6 million, or 7.7% of total revenues, for fiscal year 2019.

Interest income .

Our interest income increased by $0.9 million to $7.6 million for fiscal year 2020, compared with $6.7 million for fiscal year 2019.

The increase was primarily due to the higher weighted average interest rate compared to the same period in the last year and an increase in the average balance of our outstanding cash and cash equivalents and short-term investments.

The increase was primarily due to an increase in the average balance of our outstanding cash and cash equivalents and short-term investments.

Interest expense .

Our interest expense increased by $1.8 million to $5.4 million for fiscal year 2019, compared with $3.6 million for fiscal year 2018.

The increase was due to (1) unrealized loss of $2.6 million from mark-to-market

of interest rate swap related to our term loan;

and (2) an increase of $0.5 million from increase in fixed interest rate from interest rate swap.

The increase was offset by (1) the amortization and the write off of deferred debt issuance costs from loan borrowing paid up in fiscal year 2018 of $1.0 million;

and (2) a decrease in loan commitment fee of $0.3 million.

Our interest expense decreased by $2.4 million to $3.0 million for fiscal year 2020, compared with $5.4 million for fiscal year 2019.

The decrease was primarily due to lower unrealized loss from mark-to-market of interest rate swaps recognized to earnings as a result of applying cash flow hedge accounting in fiscal year 2020.

In fiscal year 2020, there was unrealized loss from mark-to-market of interest rate swaps of $1.7 million recognized to earnings for the three months ended September 27, 2019, before applying cash flow hedge, as compared to an unrealized loss of $2.6 million for fiscal year 2019.

In addition, there was amortization of the fair value of interest rate swaps as of the hedge inception date of $1.2 million during fiscal year 2020 in relation to applying hedge accounting which results in a decrease in interest expense.

Foreign exchange gain (loss), net .

We recorded foreign exchange gain, net of $1.4 million for fiscal year 2019, compared with foreign exchange loss, net of $6.6 million for fiscal year 2018.

The foreign exchange gain for fiscal year 2019 was mainly due to unrealized gain of $4.8 million for mark-to-market

of forward contracts related to hedging of Thai baht spending, compared to unrealized loss of $2.6 million in fiscal year 2018.

Moreover, we recorded realized foreign exchange loss from receipts and payments of $4.6 million in fiscal year 2018.

We recorded foreign exchange loss, net of $3.8 million for fiscal year 2020, compared with foreign exchange gain, net of $1.4 million for fiscal year 2019.

The increase in foreign exchange loss was mainly due to an unrealized foreign exchange loss from mark-to-market of forward contracts of $1.2 million in fiscal year 2020, as compared to an unrealized foreign exchange gain from mark-to-market of forward contracts of $4.8 million in fiscal year 2019.

Income before income taxes .

1 unchanged sentence

Income tax expense .

Our provision for income tax reflects an effective tax rate of 4.6% for fiscal year 2019 and 5.0% for fiscal year 2018.

Our provision for income tax reflects an effective tax rate of 4.8% and 4.2% for fiscal year 2020 and fiscal year 2019, respectively.

The increase was primarily due to the fact that we had higher income subject to tax in fiscal year 2020, as compared to fiscal year 2019.

We recorded net income of $113.5 million, or 6.9% of total revenues, for fiscal year 2020, compared with net income of $121.0 million, or 7.6% of total revenues, for fiscal year 2019.

Other comprehensive loss.

Our other comprehensive loss increased by $0.2 million to $1.1 million for fiscal year 2019 compared with $0.9 million for fiscal year 2018.

Other comprehensive income (loss) .

Our other comprehensive income increased by $2.4 million to $1.2 million for fiscal year 2020 compared with other comprehensive loss of $1.1 million for fiscal year 2019.

Liquidity and Capital Resources

5 unchanged sentences

Our cash investments are made in accordance with an investment policy approved by the audit committee of our board of directors.

In general, our investment policy requires that securities purchased be rated A1, P-1,

F1 or better.

In general, our investment policy requires that securities purchased be rated A1, P-1, F1 or better.

No security may have an effective maturity that exceeds three years.

Our investments in fixed income securities are primarily classified as available-for-sale

and are recorded at fair value.

The cost of securities sold is based on the specific identification method.

Unrealized gains and losses on these securities are recorded as other comprehensive income (loss) and are reported as a separate component of shareholders’ equity.

Our investments in fixed income securities are primarily classified as available-for-sale and and held-to-maturity.

Investments in debt securities that we have the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity.

Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as available-for-sale with any unrealized gains and losses included in AOCI in the consolidated balance sheets.

We determine realized gains or losses on sale of available-for-sale debt securities on a specific identification method and records such gains or losses as interest income in the consolidated statements of operations and comprehensive income.

During fiscal year 2020, (1) we paid off a term loan of $60.9 million under our previous credit facility agreement with Bank of America, (2) our subsidiary in Thailand drew down a new term loan of $60.9 million under a new credit facility agreement with the Bank of Ayudhya Public Company Limited, and (3) we repaid $9.1 million of the new term loan under the new credit facility agreement.

As a result, as of June 26, 2020, we had a long-term borrowing of $51.7 million under our new credit facility agreement.

(See Note 16 for further details.) We anticipate that our internally generated working capital, along with our cash and cash equivalents will be adequate to repay these obligations.

As of June 25, 2021, we had a long-term borrowing of $39.5 million under our new credit facility agreement (see Note 15 for further details).

We anticipate that our internally generated working capital, along with our cash and cash equivalents will be adequate to repay these obligations.

To better manage our cash on hand, we held short-term investments of $245.0 million as of June 25, 2021.

3 unchanged sentences

The following table shows our cash flows for the periods indicated:

(amount in thousands)

June 26, 2020

June 28, 2019

June 29, 2018

(amount in thousands) June 25, 2021 June 26, 2020 June 28, 2019

Net cash provided by operating activities $ 118,665 $ 150,660 $ 147,394

5 unchanged sentences

Operating Activities

Net cash provided by operating activities increased by $3.3 million, or 2.2%, to $150.7 million for fiscal year 2020, compared with net cash provided by operating activities of $147.4 million for fiscal year 2019 due to better working capital management.

This increase in cash was primarily due to (1) an increase in share-based compensation of $5.0 million;

(2) goodwill impairment loss in fiscal 2020 of $3.5 million;

(3) an increase in cash receipts related to the timing of collection of trade accounts receivable of $1.2 million;

and (4) an increase in depreciation and amortization of $0.9 million.

These increases in cash were offset by a decrease in net income of $7.5 million.

Net cash provided by operating activities increased by $9.3 million, or 6.7%, to $147.4 million for fiscal year 2019, compared with net cash provided by operating activities of $138.1 million for fiscal year 2018 due to better working capital management.

This increase was due to an increase in net income of $36.8 million and a decrease in cash paid to settle accounts payable of $35.3 million.

These increases in cash were offset by a decrease in cash receipts related to the timing of collection of trade accounts receivable of $31.3 million, an increase in gain on exchange rate and fair value of derivative instruments of $11.2 million, an increase in ending inventories intended for sale in future quarters of $24.6 million and a decrease in share-based compensation of $5.4 million.

Net cash provided by operating activities of $118.7 million for fiscal year 2021 was primarily due to (1) net income of $148.3 million;

(2) an increase in trade accounts payable of $96.3 million;

(3) depreciation and amortization of $36.3 million;

and (4) share-based compensation of $25.5 million;

offset by (1) an increase in inventories of $112.3 million to support new business;

(2) an increase in trade accounts receivable of $63.8 million due to higher sales and timing of collection;

and (3) increase in other current and non-current assets of $15.2 million.

Net cash provided by operating activities of $150.7 million for fiscal year 2020 was primarily due to (1) net income of $113.5 million;

(2) depreciation and amortization of $30.9 million;

(3) share-based compensation of $22.2 million;

and (4) an increase in other current liabilities and non-current liabilities of $11.0 million;

offset by (1) an increase in inventories of $16.2 million;

and (2) an increase in trade accounts receivable of $12.3 million.

Investing Activities

Net cash used in investing activities decreased by $26.8 million, or 27.3 %, to $71.2 million for fiscal year 2020, compared with net cash used in investing activities of $98.1 million for fiscal year 2019.

The decrease was primarily due to a net decrease in investment in short-term investments of $74.7 million, offset by funds provided

to a customer of $24.3 million to support the customer’s transfer of certain manufacturing operations from Berlin, Germany to our facilities in Thailand, which the customer has agreed to repay by September 30, 2020, and an increase of $23.5 million in the net movement of property, plant and equipment and intangible assets.

Net cash used in investing activities increased by $39.4 million, or 67.2 %, to $98.1 million for fiscal year 2019, compared with net cash used in investing activities of $58.6 million for fiscal year 2018.

The increase was primarily due to a net increase in investment in short-term investments of $56.0 million, offset by a decrease of $16.5 million in the purchase of property, plant and equipment and intangible assets.

Net cash used in investing activities of $5.4 million for fiscal year 2021 was primarily due to (1) purchase of property, plant and equipment of $42.5 million;

and (2) purchase of intangibles assets of $2.0 million;

offset by (1) funds repayment from a customer of $24.3 million;

and (2) net proceeds from sales and maturities of short-term investments of $14.6 million.

Net cash used in investing activities of $71.2 million for fiscal year 2020 was primarily due to (1) purchase of property, plant and equipment of $42.3 million;

(2) funds provided to our customer in the amount of $24.3 million to support the customer’s transfer of certain manufacturing operations from Berlin, Germany to our facilities in Thailand in fiscal year 2020;

(3) a net purchase of short-term investments of $5.1 million;

and (4) purchase of intangibles assets of $1.2 million;

offset by proceeds from disposal of property, plant and equipment of $1.6 million.

Financing Activities

Net cash used in financing activities increased by $12.1 million, or 52.0%, to $35.3 million for fiscal year 2020, compared with net cash used in financing activities of $23.2 million for fiscal year 2019.

This increase was primarily due to (1) an increase in cash paid for the repurchase of ordinary shares of $15.3 million;

(2) an increase of $5.9 million in net repayments of loans to banks;

and (3) an increase in debt issuance costs payment of $0.2 million.

These were offset by a decrease in cash paid for withholding tax related to net share settlement of restricted share units of $5.8 million and the release of restricted cash in connection with a business acquisition of $3.5 million in fiscal year 2019.

Net cash used in financing activities decreased by $30.9 million, or 57.1%, to $23.2 million for fiscal year 2019, compared with net cash used in financing activities of $54.1 million for fiscal year 2018.

This decrease was primarily due to a decrease in cash paid for the repurchase of ordinary shares of $37.0 million and a decrease in cash paid for long-term loans of $8.0 million.

These were offset by (1) an increase in cash paid for withholding tax related to net share settlement of restricted share units of $5.1 million, (2) a decrease in cash received from short-term loans from bank of $5.0 million, and (3) the release of restricted cash in connection with a business acquisition of $3.5 million.

Net cash used in financing activities of $42.8 million for fiscal year 2021 was primarily due to (1) repurchase of ordinary shares of $18.8 million;

(2) repayment of loans to banks of $12.2 million;

and (3) cash paid for withholding tax related to net share settlement of restricted share units of $11.6 million.

Net cash used in financing activities of $35.3 million for fiscal year 2020 was primarily due to (1) repurchase of ordinary shares of $20.7 million;

(2) repayment of loans to banks of $9.1 million;

(3) cash paid for withholding tax related to net share settlement of restricted share units of $4.9 million;

and (4) repayment of finance lease liabilities of $0.4 million.

Contractual Obligations

1 unchanged sentence

Payments Due by Period

(amount in thousands)

Long-term debt obligations

(amount in thousands) Total Less than

1 year 1-3years 3-5years More than

Long-term borrowing obligations $ 39,609 $ 12,188 $ 27,421 $ — $ —

Interest expense obligation (1)

Finance lease obligations

911 487 423 1 —

Operating lease obligations 6,734 2,775 3,959 — —

Severance liabilities (2)

19,782 1,176 2,647 3,515 12,444

Provision for uncertain income tax position 922 — 309 498 115

Interest expense obligation reflects the interest rate on long-term debt obligation as of June 26, 2020.

Total $ 67,958 $ 16,626 $ 34,759 $ 4,014 $ 12,559

(1) I nterest expense obligation reflects the interest rate on long-term debt obligation as of June 25, 2021.

The interest rates ranged between 1.5% and 1.6%.

For further discussion of long-term and short-term debt obligations, see Note 16 of our audited consolidated financial statements.

For further discussion of long-term borrowing obligations, see Note 15 of our audited consolidated financial statements.

(2) Severance liabilities as of June 25, 2021 are determined based on management assumptions and calculated as expected future cash flows basis.

1 unchanged sentence

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 June 26, 2020) 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 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 Company’s previous credit facility agreement with Bank of America, N.A.

The term loan accrues interest at 3-month

LIBOR plus 1.35% and is repayable in quarterly installments of $3.0 million, commencing on September 30, 2019.

The proceeds from the term loan, together with cash on hand, were used to repay outstanding obligations under the Company’s previous syndicated senior credit 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.

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

During the year ended June 25, 2021, the Company recorded $0.7 million of interest expense in connection with this term loan.

6 unchanged sentences

As of June 25, 2021, 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.

As of June 26, 2020, $51.7 million of the term loan was outstanding under the Credit Facility Agreement.

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.

As of June 25, 2021, there was $39.5 million outstanding under the term loan.

As of June 25, 2021, we also had certain operating lease arrangements in which the lease payments are calculated using the straight-line method.

2 unchanged sentences

The following table sets forth our capital expenditures, which include amounts for which payments have been accrued, for the periods indicated.

(amount in thousands)

June 26, 2020

June 28, 2019

June 29, 2018

(amount in thousands) June 25, 2021 June 26, 2020 June 28, 2019

Capital expenditures $ 48,563 $ 51,317 $ 20,834

Our capital expenditures for fiscal year 2020, fiscal year 2019 and fiscal year 2018 principally related to investment in our new facilities in Thailand and the U.S..

During fiscal year 2020, we purchased equipment to support the expansion of our manufacturing facilities in Thailand, the PRC and Israel.

During fiscal year 2021 and fiscal year 2020, we purchased equipment to support the expansion of our manufacturing facilities in Thailand, the PRC and Israel.

During fiscal year 2019, we purchased additional equipment to continue to support the expansion of our manufacturing facilities in Thailand.

During fiscal year 2018, we purchased additional equipment to continue to support the expansion of our manufacturing facilities in Thailand and the U.

During fiscal year 2021, we expect our capital expenditures to increase compared to fiscal year 2020 mainly related to investment in existing and new manufacturing facilities.

Sheet Commitments and Arrangements

As of June 26, 2020, we had an outstanding standby letter of credit of 6.0 million Euros related to our support of a customer with the transfer of certain manufacturing operations from Berlin, Germany to our facilities in Thailand.

As of June 26, 2020, the standby letter of credit was backed by cash collateral of $7.4 million.

We expect our capital expenditures for fiscal year 2022 to increase compared to fiscal year 2021 mainly related to investment in existing and new manufacturing facilities.

Recent Accounting Pronouncements

1 unchanged sentence

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 7. Management’s Discussion and Analysis