What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-08-17 compared with 2020-08-18 · 611 added, 646 removed, 886 unchanged (59% of the section changed)

8 unchanged sentences

Notes to Consolidated Financial Statements

Supplementary Financial Data

Selected Quarterly Financial Data (unaudited) for the Years Ended June 26, 2020 and June 28, 2019

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

1 unchanged sentence

Opinions on the Financial Statements and Internal Control over Financial Reporting

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

We have audited the accompanying consolidated balance sheets of Fabrinet and its subsidiaries (the “Company”) as of June 25, 2021 and June 26, 2020, and the related consolidated statements of operations and comprehensive income, consolidated statements of shareholders’ equity and consolidated statements of cash flows, for each of the three years in the period ended June 25, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of June 25, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

2 unchanged sentences

Basis for Opinions

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

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

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

11 unchanged sentences

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

A company’s internal control over financial reporting

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

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

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

3 unchanged sentences

Critical Audit Matters

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

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

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

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

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

9 unchanged sentences

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

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

These procedures included testing the effectiveness of internal

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

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

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

These procedures also included, among others:

1 unchanged sentence

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

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

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

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

(iii) selected a sample of sales transaction from the period within a defined period before and after the Company’s fiscal year ended and obtained the invoice, customer contract, bill of lading and proof of delivery, to evaluate whether revenue was recognized in the appropriate fiscal year;

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

/s/ PricewaterhouseCoopers ABAS Ltd.

4 unchanged sentences

(in thousands of U.S.

dollars, except share data and par value)

dollars, except share data and par value) June 25,

2021 June 26,

Current assets

2 unchanged sentences

Short-term investments 244,963 262,693

Trade accounts receivable, net

Trade accounts receivable, net of allowance for doubtful accounts of $ 100 and $ 336 , respectively

336,547 272,665

Contract assets 11,878 13,256

Inventories 422,133 309,786

Other receivable — 24,310

2 unchanged sentences

Total current assets 1,352,507 1,135,449

Non-current assets

Long-term restricted cash 154 —

1 unchanged sentence

Intangibles, net 4,371 4,312

Operating right-of-use

Operating right-of-use assets 6,699 8,068

Deferred tax assets 9,428 5,675

Other non-current

Total non-current

Other non-current assets 1,834 202

Total non-current assets 263,615 246,531

Total Assets $ 1,616,122 $ 1,381,980

Liabilities and Shareholders’ Equity

11 unchanged sentences

Non-current liabilities

Long-term borrowings, non-current

Long-term borrowings,non-current portion, net 27,358 39,514

Deferred tax liability 5,107 4,729

Operating lease liabilities, non-current

Operating lease liabilities,non-current portion 3,850 5,873

Severance liabilities 19,485 17,379

Other non-current

Total non-current

Other non-current liabilities 3,444 5,655

Total non-current liabilities 59,244 73,150

Total Liabilities 503,602 407,571

1 unchanged sentence

Shareholders’ equity

Preferred shares ( 5,000,000

shares authorized, $ 0.01 par value;

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

no shares issued and outstanding as of June 25, 2021 and June 26, 2020)

Ordinary shares ( 500,000,000

shares authorized, $ 0.01

shares and 38,230,753

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

and 36,727,864

shares and 36,841,650

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

Additional paid-in

Treasury shares ( 1,744,103

shares and 1,389,103

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

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

38,749,045 shares and 38,471,967 shares issued as of June 25, 2021 and June 26, 2020, respectively;

and 36,765,456 shares and 36,727,864 shares outstanding as of June 25, 2021 and June 26, 2020, respectively)

Additional paid-in capital 189,445 175,610

Treasury shares ( 1,983,589 shares and 1,744,103 shares as of June 25, 2021 and June 26, 2020, respectively)

( 87,343 ) ( 68,501 )

Accumulated other comprehensive loss ( 6,266 ) ( 1,147 )

5 unchanged sentences

(in thousands of U.S.

dollars, except per share data)

June 26, 2020

June 28, 2019

June 29, 2018

dollars, except per share data) 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:

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

Change in net unrealized gain (loss) on available-for-sale securities ( 1,182 ) 538 2,043

Change in net unrealized gain (loss) on derivative instruments ( 5,106 ) 570 ( 1 )

2 unchanged sentences

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

Net comprehensive income

Net comprehensive income (loss) $ 143,222 $ 114,718 $ 119,826

Earnings per share

Basic 4.02 3.07 3.29

Diluted 3.95 3.01 3.23

Weighted average number of ordinary shares outstanding

(thousands of shares)

Basic 36,872 36,908 36,798

Diluted 37,555 37,665 37,415

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

2 unchanged sentences

dollars, except

Ordinary Share

share data) Ordinary Share Additional

Capital Treasury

Shares Accumulated

Comprehensive

Income (Loss)

Income (Loss) Retained

Earnings Total

Shares Amount

Balances at June 29, 2018 37,723,733 377 151,797 ( 42,401 ) ( 1,257 ) 632,423 740,939

Other comprehensive loss

Net income — — — — — 120,955 120,955

Other comprehensive income (loss) — — — — ( 1,129 ) — ( 1,129 )

Cumulative effect adjustment from adoption of ASC 606

Share-based compensation — — 17,157 — — — 17,157

1 unchanged sentence

Repurchase of 100,000 shares held as treasury shares

— — — ( 5,378 ) — — ( 5,378 )

Tax withholdings related to net share settlement of restricted share units — — ( 10,649 ) — — — ( 10,649 )

Balances at June 28, 2019 38,230,753 382 158,299 ( 47,779 ) ( 2,386 ) 754,583 863,099

Other comprehensive loss

Cumulative effect adjustment from adoption of ASC 606

Net income — — — — — 113,479 113,479

Other comprehensive income (loss) — — — — 1,239 — 1,239

Share-based compensation — — 22,203 — — — 22,203

1 unchanged sentence

Repurchase of 355,000 shares held as treasury shares

— — — ( 20,722 ) — — ( 20,722 )

Tax withholdings related to net share settlement of restricted share units

— — ( 4,889 ) — — — ( 4,889 )

Balances at June 26, 2020 38,471,967 385 175,610 ( 68,501 ) ( 1,147 ) 868,062 974,409

Other comprehensive income

Net income — — — — — 148,341 148,341

Other comprehensive income (loss) — — — — ( 5,119 ) — ( 5,119 )

Cumulative effect adjustment from adoption of ASC 326

— — — — — ( 107 ) ( 107 )

Share-based compensation — — 25,462 — — — 25,462

1 unchanged sentence

Repurchase of 239,486 shares held as treasury shares

— — — ( 18,842 ) — — ( 18,842 )

Tax withholdings related to net share settlement of restricted share units — — ( 11,624 ) — — — ( 11,624 )

3 unchanged sentences

(in thousands of U.

dollars) June 25,

2021 June 26,

2020 June 28,

Cash flows from operating activities

Net income $ 148,341 $ 113,479 $ 120,955

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

Depreciation and amortization 36,252 30,875 29,944

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

Loss on disposal of intangibles

impairment of goodwill

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

(Gain) loss on disposal and impairment of property, plant and equipment 13 329 ( 4 )

(Gain) loss on disposal of intangibles — — 149

Loss on impairment of goodwill — 3,514 —

(Gain) loss from sales and maturities of available-for-sale securities ( 187 ) ( 96 ) 135

Accretion of premiums on short-term investments 2,093 ( 508 ) ( 592 )

2 unchanged sentences

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

( 859 ) 1,963 ( 6,980 )

Unrealized loss on fair value of interest rate swaps — 1,672 2,591

2 unchanged sentences

Deferred income tax ( 3,473 ) 1,262 879

Other non-cash

Other non-cash expenses ( 450 ) ( 619 ) ( 450 )

Changes in operating assets and liabilities

1 unchanged sentence

Contract assets 1,378 ( 809 ) ( 2,570 )

Other current assets and non-current

Inventories ( 112,349 ) ( 16,174 ) ( 44,598 )

Other current assets and non-current assets ( 15,190 ) ( 775 ) ( 2,777 )

Trade accounts payable 96,312 ( 5,990 ) 38,807

2 unchanged sentences

Severance liabilities 3,180 2,802 3,343

Other current liabilities and non-current

Other current liabilities and non-current liabilities 2,085 10,987 1,532

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

3 unchanged sentences

Proceeds from maturities of short-term investments 179,532 142,508 54,215

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

Funds repayment from (provided to) customer to support transfer of manufacturing operations (Note 10) 24,310 ( 24,310 ) —

Purchase of property, plant and equipment ( 42,532 ) ( 42,327 ) ( 18,661 )

2 unchanged sentences

Net cash used in investing activities ( 5,442 ) ( 71,248 ) ( 98,067 )

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands of U.

Cash flows from financing activities

Payment of debt issuance costs — ( 153 ) —

Proceeds from

short-term borrowings

Repayment of short-term borrowings

Proceeds from long-term borrowings — 60,938 —

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands of U.

dollars) June 25,

2021 June 26,

2020 June 28,

Repayment of long-term borrowings ( 12,188 ) ( 70,079 ) ( 3,250 )

Proceeds from issuance of ordinary shares under employee share option plan

Repayment of finance lease liabilities ( 100 ) ( 400 ) ( 468 )

11 unchanged sentences

Cash paid for

Interest $ 2,438 $ 1,688 $ 2,605

Taxes $ 7,945 $ 8,466 $ 7,637

Cash received for interest $ 4,445 $ 9,676 $ 5,811

investing and financing activities

Non-cash investing and financing activities

Construction, software and equipment related payables $ 19,206 $ 15,127 $ 7,317

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

(amount in thousands)

(amount in thousands) June 25,

2021 June 26,

2020 June 28,

Cash and cash equivalents $ 302,969 $ 225,430 $ 180,839

9 unchanged sentences

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

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

industrial lasers, automotive components, medical devices and sensors.

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

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

The Company focuses primarily on the production of low-volume, high-mix products.

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

4 unchanged sentences

Principles of consolidation

The Company utilizes a 52-53

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

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

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

16 unchanged sentences

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

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

Year ended June 28, 2019

(amount in thousands)

As previously

As of June 26, 2020, the derivative assets and liabilities were measured at fair value and recognized by offsetting the fair value amounts under master netting arrangements.

Also, the Company chose not to separate a derivative into current and non-current portions as follows:

(i) A derivative for which the fair value is a net liability is classified in total as current.

(ii) A derivative for which the fair value is a net asset and the current portion is an asset is classified in total as non-current.

If the current portion is a liability, it is presented as a current liability.

As of June 25, 2021, the derivative assets and liabilities were measured at fair value, but the gross fair value amount is presented in the consolidated balance sheets.

Additionally, a classification of current and non-current portion is determined by the maturity date of that derivative (e.g., a derivative that matures within one year is classified as current).

The reclassifications have been made to the consolidated balance sheet as of June 26, 2020 and the consolidated statement of cash flows for the year ended June 26, 2020 as following table:

June 26, 2020

(amount in thousands) As previously

reported Reclassification After

reclassification

Consolidated Balance Sheets

Consolidated Balance Sheet

Current assets

Other current assets $ 13,915 $ 593 $ 14,508

Current liabilities

Fixed assets payable

Finance lease liabilities, current portion

Other payables

Finance lease liabilities, non-current

Other non-current

Accrued expenses $ 12,104 $ ( 3,125 ) $ 8,979

Non-current liabilities

Other non-current liabilities $ 1,937 $ 3,718 $ 5,655

Consolidated Statement of Cash Flows

Cash flows from operating activities

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

Unrealized loss on fair value of interest rate swaps

Severance liabilities

(Reversal of) Inventory obsolescence

Changes in operating assets and liabilities

Other current assets and non-current

Severance liabilities

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

Other current assets and non-current assets $ ( 182 ) $ ( 593 ) $ ( 775 )

Other current liabilities and non-current liabilities $ 10,394 $ 593 $ 10,987

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

Changes in accounting policies

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

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

Except for the adoption of the Accounting Standards Codification (“ASC”) 326, “Financial Instruments—Credit Losses”, ASC 820, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” and ASC 848, “Reference Rate Reform,” described within the sub-heading “New Accounting Pronouncements – adopted by the Company,” the Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements.

Foreign currency transactions and translation

5 unchanged sentences

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

Revenue and expenses for such

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

Revenue and expenses for such subsidiaries are translated using rates that approximate those in effect during the period.

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

Cash and cash equivalents

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

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

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

Short-term investments

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

the designations at each balance sheet date.

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

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

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

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

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

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

securities and reported at fair value.

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

Changes in the fair value of available-for-sale

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

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

The Company reviews its short-term investments on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value.

The Company considers factors such as the length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issue and the Company’s intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s amortized cost basis.

If the Company believes that an other-than-temporary decline exists in one of these securities, the Company will write down these investments to fair value.

The short-term investments in debt securities are carried at either amortized cost or fair value.

Investments in debt securities that the Company has 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.

The Company determines 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.

Held-to-maturity debt securities are required to use the current expected credit losses (“CECL”) impairment model to assess the expected credit loss.

According to the CECL model, the Company requires the immediate recognition of estimated expected credit losses over the life of the financial instrument through the allowance for credit losses account.

The allowance for credit losses is a valuation account that is deducted from, or added to, the amortized cost basis of the financial asset to present the net amount expected to be collected on the financial asset.

In determining expected credit losses, the Company considers relevant qualitative factors including, but not limited to, term and structure of the instrument, credit rating by rating agencies and historic credit losses adjusted for current conditions and reasonable and supportable forecasts.

Available-for-sale debt securities are required to be individually evaluated for impairment.

A security is considered impaired if the fair value of the security is less than its amortized cost basis.

An impairment is considered when (i) the Company has the intent to sell the security, (ii) it is more likely than not that the Company will be required to sell the security before recovery of the entire amortized cost basis, or (iii) the Company does not expect to recover the entire amortized cost basis of the security.

If an impairment is considered based on condition (i) or (ii), the entire difference between the amortized cost and the fair value of the debt security is recognized as interest income and other income (expense), net in the consolidated statements of operations and comprehensive income.

If an impairment is considered based on condition (iii), the amount representing credit losses (defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security) is recognized in interest and other income (expense), net in the consolidated statements of operations and comprehensive income, and any remaining unrealized losses are included in AOCI in the consolidated balance sheets.

Trade accounts receivable

Accounts receivable are carried at anticipated realizable value.

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

Bad debts are written-off

when identified.

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

Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts.

The Company estimates expected credit losses for the allowance for doubtful accounts based upon its assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers.

The estimated credit loss allowance is recorded as selling, general and administrative expenses in the consolidated statements of operations and comprehensive income.

Contract assets

1 unchanged sentence

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

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

The Company estimates expected credit losses for the allowance for contract assets based upon its assessment of various factors, including historical experience, the age of the contract assets balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers.

The estimated credit loss allowance is recorded as selling, general and administrative expenses in the Company's consolidated statements of operations and comprehensive income.

Contract liabilities

2 unchanged sentences

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

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

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

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

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

14 unchanged sentences

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

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

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

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

Finance leases

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

The right-of-use

asset is amortized to amortization expense.

The right-of-use asset is amortized to amortization expense.

Interest expense is recorded in connection with the lease liability.

3 unchanged sentences

Repair and maintenance costs are expensed as incurred.

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

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

Land improvements

Building and building improvements

Leasehold improvements

Shorter of useful life or lease term

Manufacturing equipment

Office equipment

Motor vehicles

Computer hardware

Depreciation is calculated using the straight-line method to write-off the cost of each asset to its residual value over its estimated useful life as follows:

Land improvements 10 years

Building and building improvements 5 - 30 years

Leasehold improvements Shorter of useful life or lease term

Manufacturing equipment 3 - 7 years

Office equipment 3 - 7 years

Motor vehicles 3 - 5 years

Computer hardware 3 - 5 years

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

24 unchanged sentences

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

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

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

Gains and losses in excess of par value on the subsequent reissuance of shares are credited or charged to additional paid-in capital in the consolidated balance sheets using the average-cost method.

Borrowing costs

17 unchanged sentences

The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.

The derivative assets and liabilities are measured at fair value and recognized on the consolidated balance sheets by offset fair value amounts under master netting arrangements.

For presentation in consolidated balance sheets, the Company may choose not to separate a derivative into its current and non-current

portion as follows:

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

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

The derivative assets and liabilities are measured at fair value and recognized on the consolidated balance sheets by offsetting the fair value amounts under master netting arrangements.

For presentation in consolidated balance sheets, the Company may choose not to separate a derivative into its current and non-current portion as follows:

• A derivative for which the fair value is a net liability is classified in total as current.

• A derivative for which the fair value is a net asset and the current portion is an asset is classified in total as non-current.

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

13 unchanged sentences

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

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

F1, or better.

The Company limits its short-term investments in marketable securities to securities with a maturity not in excess of three years and securities that are rated A1, P-1, F1, or better.

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

3 unchanged sentences

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

The Company recognizes revenue relating to

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

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

In order to meet this requirement, the Company applies the following five steps:

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

(1) identify the contract with a customer, (2) identify the performance obligations under

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

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

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

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

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

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

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

9 unchanged sentences

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

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

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

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

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

4 unchanged sentences

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

These standard warranties are assurance-type warranties ,

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

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

These standard warranties are assurance-type warranties, and the Company does not offer any services in addition to the assurance that the product will continue to work as specified.

The Company recognized revenue net of rebates and other similar allowances.

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

The Company bases its estimates on historical results taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

The Company estimates 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.

The Company considers 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.

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

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

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

In many cases, although the nature of work performed is that of a service, revenue is only recognized upon shipment of the product because the customer has specific requirements as to how many items can be shipped at any given point in time, i.e.

at point-in-time.

3 unchanged sentences

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

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

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

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

During the years

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

Incremental costs of obtaining a contract are costs that the Company would not

have incurred if the contract had not been obtained (e.g., sales commissions or similar incentive payments linked directly to new or modified customer contracts).

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

During the years ended June 25, 2021 and June 26, 2020, the Company did not have any incremental costs of obtaining a contract.

Shipping and Handling

6 unchanged sentences

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

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

Warranty cost allowances of $ 0.09 million, $ 0.02 million and $ 0.07 million were recognized in the consolidated statements of operations and comprehensive income for the years ended June 25, 2021, June 26, 2020 and June 28, 2019, respectively.

Share-based compensation

1 unchanged sentence

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

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

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

2 unchanged sentences

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

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

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

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

The Company sponsors the Fabrinet U.S.

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

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

Severance liabilities

10 unchanged sentences

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

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

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

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

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

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

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

active employees.

Employee entitlements to annual leave are recognized when earned by

the employee.

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

Employee entitlements to annual leave are recognized when earned by the employee.

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

17 unchanged sentences

The accounting interpretation also provides guidance on measurement methodology, derecognition thresholds, financial statement classification and disclosures, recognition of interest and penalties, and accounting for the cumulative-effect adjustment at the date of adoption.

New Accounting Pronouncements—adopted by the Company

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” This standard requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

The standard replaces the existing incurred loss impairment model with an expected loss methodology, which will

result in more timely recognition of credit losses.

The new standard also expands the required quantitative and qualitative disclosures surrounding expected credit losses.

On June 27, 2020, the Company adopted ASC 326 using the modified retrospective transition approach.

The modified retrospective method requires the Company to recognize the cumulative effect of the adoption of ASC 326 on the opening accumulated retained earnings.

Accordingly, the Company’s comparative financial statements as of June 26, 2020 have not been adjusted.

The Company implemented internal controls to enable the preparation of financial information upon adoption.

Management estimates the expected credit losses of financial assets using relevant available information from internal and external sources relating to historical credit loss experience, current conditions and reasonable forecasts over a financial asset’s contractual term.

Adjustments to historical loss information are made from qualitative and quantitative factors if economic conditions on the reporting date reflect stronger or weaker economic performance than the historical data implies based on management’s expectations of economic conditions on certain indicators of the Company, industry and economy.

The Company reviews factors such as past collection experience, age of the accounts receivable and contract assets balance, significant trends in current balances, internal operations and macroeconomic conditions.

In addition, the Company modified its impairment model to the AFS debt security impairment model for AFS debt securities and discontinued using the concept of “other than temporary” impairment on these AFS debt securities.

The Current Expected Credit Losses (“CECL”) on the AFS debt securities are recognized in interest income and other income (expense), net on the Company’s consolidated statements of operations and comprehensive income, and any remaining unrealized losses are included in AOCI in the Company's consolidated balance sheet.

As of June 27, 2020, the Company recorded a cumulative adjustment from CECL in the amount of $ 0.1 million, net of tax impact, to accumulated retained earnings in the Company's consolidated balance sheet.

On June 27, 2020, the Company also adopted ASC 820, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This standard seeks to improve the effectiveness of disclosures in the notes to the financial statements and includes (1) the development of a framework that promotes consistent decisions by the FASB about disclosure requirements and (2) the appropriate exercise of discretion by reporting entities.

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

The Company adopted this standard with no impact on the Company's consolidated financial statements.

On January 7, 2021, FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848).” This standard requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

The amendments in this update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The Company immediately adopted this standard with no impact on the Company's consolidated financial statements.

New Accounting Pronouncements—not yet adopted by the Company

In December 2019, the Financial

Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12,

“Income Taxes (Topic 740):

In December 2019, the FASB issued ASU2019-12, “Income Taxes (Topic 740):

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

4 unchanged sentences

Early adoption is permitted.

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

In August 2018, the FASB issued ASU 2018-13

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

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

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

fiscal years.

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

In June 2016, the FASB issued ASU

“Financial Instruments—Credit Losses (Topic 326):

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

available-for-sale

debt securities.

The FASB issued subsequent amendments to Topic 326, including ASU

which provided further guidance and transition relief.

For public business entities, this update is effective for fiscal years beginning after December 15

, 2019, including interim periods within those fiscal years.

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

Early adoption is permitted.

The Company assessed the preliminary impact from

of this update and expected

no impact on its consolidated financial statements.

New Accounting Pronouncements—adopted by the Company

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

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

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

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

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

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

Future minimum lease payments due under non-cancelable

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

(amount in thousands)

Total future minimum operating lease payments

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

for further details.

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

“Derivatives and Hedging (Topic 815):

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

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

Prior to the adoption of ASU 2017-12,

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

Upon the adoption of ASU 2017-12,

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

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

See Note 7 for further details.

In March 2020, the FASB issued ASU 2020-04,

“Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which temporarily simplifies the accounting for

contract modifications, including hedging relationships, due to the transition from LIBOR and other interbank offered rates to alternative reference interest rates.

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

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

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

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

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

“Intangibles—Goodwill and Other (Topic 350):

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

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

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

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

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

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

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

Revenues from contracts with customers

5 unchanged sentences

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

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

ended June 26, 2020 and June 28, 2019:

(amount in thousands)

Contract Assets

The following tables summarize the activity in the Company’s contract assets and contract liabilities during the years ended June 25, 2021 and June 26, 2020:

(amount in thousands) Contract

Beginning balance, June 27, 2020 $ 13,256

2 unchanged sentences

Ending balance, June 25, 2021 $ 11,878

(amount in thousands)

Contract Assets

(amount in thousands) Contract

Beginning balance, June 29, 2019 $ 12,447

Cumulative effect adjustment upon adoption of ASC 606

Revenue recognized 73,476

1 unchanged sentence

Ending balance, June 26, 2020 $ 13,256

(amount in thousands)

(amount in thousands) Contract

Beginning balance, June 27, 2020 $ 1,556

2 unchanged sentences

Ending balance, June 25, 2021 $ 1,680

(amount in thousands)

(amount in thousands) Contract

Beginning balance, June 29, 2019 $ 2,239

3 unchanged sentences

Revenue by Geographic Area and End Market

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

the Company’s customers.

Total revenues are attributed to a particular geographic area based on the bill-to-location of the Company’s customers.

The Company operates primarily in three geographic regions:

1 unchanged sentence

The following table presents total revenues by geographic regions:

(amount in thousands, except percentages)

(amount in thousands, except percentages) Year ended June 25,

Revenues Year ended June 26,

Revenues Year ended June 28,

North America $ 887,536 47.2 % $ 830,888 50.6 % $ 756,278 47.7 %

Asia-Pacific 668,597 35.6 552,923 33.7 608,386 38.4

Europe 323,217 17.2 258,025 15.7 219,671 13.9

$ 1,879,350 100.0 % $ 1,641,836 100.0 % $ 1,584,335 100.0 %

The following table sets forth revenues by end market.

(amount in thousands, except percentages)

(amount in thousands, except percentages) Year ended June 25,

Revenues Year ended June 26,

Revenues Year ended June 28,

Optical communications $ 1,441,338 76.7 % $ 1,248,174 76.0 % $ 1,184,936 74.8 %

Lasers, sensors and other 438,012 23.3 393,662 24.0 399,399 25.2

$ 1,879,350 100.0 % $ 1,641,836 100.0 % $ 1,584,335 100.0 %

Cayman Islands

3 unchanged sentences

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

The Company wa

s not subject to tax from July 2012 through June 2020 on income generated from the manufacture of products at Pinehurst Building 6, and is not subject to tax from July 2018 through June 2026 on income generated from the manufacture of products at its Chonburi campus.

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

Such preferential tax treatment is

contingent on various factors, including the export of our customers’ products out of Thailand and our agreement not to move our manufacturing facilities out of our current province in Thailand for at least

15 years from the date on which preferential tax treatment was granted.

The Company was not subject to tax from July 2012 through June 2020 on income generated from the manufacture of products at Pinehurst Building 6, and is not subject to tax from July 2018 through June 2026 on income generated from the manufacture of products at its Chonburi campus.

After June 2020, 50 % of our income generated from products manufactured at our Pinehurst campus Building 6 will be exempted from tax through June 2025.

Such preferential tax treatment is contingent on various factors, including the export of our customers’ products out of Thailand and our agreement not to move our manufacturing facilities out of our current province in Thailand for at least 15 years from the date on which preferential tax treatment was granted.

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

2 unchanged sentences

The United States

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

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

corporate income tax

rate to 21 % effective January 1, 2018.

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

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

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

Accordingly, the Company’s U.S.

subsidiaries were subject to a Federal statutory tax rate

for fiscal year 2020 and fiscal year 2019.

subsidiaries were subject to a Federal statutory tax rate of 21 % for fiscal year 2021 and fiscal year 2020.

The United Kingdom

1 unchanged sentence

subsidiaries is 19 %.

The corporate income tax rate for Israel subsidiaries is 23 %.

The Company’s income tax expense consisted of the following:

(amount in thousands)

(amount in thousands) June 25,

2021 June 26,

2020 June 28,

Current $ 6,355 $ 6,274 $ 4,384

Deferred ( 4,212 ) ( 511 ) 894

Total income tax expense $ 2,143 $ 5,763 $ 5,278

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

(amount in thousands)

(amount in thousands) June 25,

2021 June 26,

2020 June 28,

Income before income taxes (1)

$ 150,484 $ 119,242 $ 126,233

Tax expense calculated at a statutory corporate income tax rate of 20%

30,097 23,848 25,247

Effect of income taxes from locations with tax rates different from Thailand

Income not subject to tax (2)

( 23,645 ) ( 20,797 ) ( 21,161 )

Income tax on unremitted earnings 1,395 1,221 1,260

Effect of different tax rate in relation to deferred

tax utilization

Effect of foreign exchange rate adjustment ( 2,855 ) 382 603

3 unchanged sentences

Valuation allowance (reversal of) ( 1,822 ) 2,446 —

Others 944 ( 45 ) ( 770 )

Corporate income tax expense $ 2,143 $ 5,763 $ 5,278

3 unchanged sentences

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

(amount in thousands)

(amount in thousands) June 25,

2021 June 26,

Deferred tax assets:

Depreciation $ 1,565 $ 1,219

Severance liability 3,491 2,958

1 unchanged sentence

Net operating loss carryforwards 1,585 —

(amount in thousands)

Others 1,036 321

Total $ 9,428 $ 5,903

Deferred tax liabilities:

Temporary differences from intangibles and changes in the fair value of assets acquired $ ( 1,202 ) $ ( 336 )

Deferred tax from unremitted earnings ( 5,072 ) ( 4,620 )

Others 1,167 —

Total ( 5,107 ) ( 4,956 )

Net $ 4,321 $ 947

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

(amount in thousands)

Valuation allowances of

(amount in thousands) Valuation allowances of

deferred tax assets

Balance as of June 29, 2018 $ 1,165

Additional 126

Balance as of June 28, 2019 1,291

Additional 2,437

Balance as of June 26, 2020 3,728

Additional 479

Reduction ( 2,146 )

Balance as of June 25, 2021 $ 2,061

During fiscal year 2021, one of the Company’s subsidiaries in the U.S.

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

As of June 29, 2018, such subsidiary in the U.S.

reversed certain deferred tax assets valuation allowance as management expected it was more likely than not that such subsidiary would realize profits in subsequent fiscal years so that the loss carryforwards could be partially utilized.

Consequently, as of June 28, 2019, such subsidiary have assessed and set up a partial valuation allowance for the deferred tax assets at the same level as in fiscal year 2018.

However, in fiscal year 2020, such subsidiary in the U.S.

generated net operating loss and management expected that such subsidiary would continue to have net operating losses in the foreseeable future;

generated taxable income sufficient for the utilization of loss carryforwards due to better operating performance and effective control of operating expenses.

Management determined that it was more likely than not that future taxable income would be sufficient to allow utilization of the deferred tax assets.

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, one of the Company’s subsidiaries in the U.K.

also generated net operating loss and management expected that such subsidiary would continue to have net operating losses in the foreseeable future.

Therefore, management believes it is more likely than not that all of the deferred tax assets of such subsidiary will not be utilized.

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

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

also generated net operating loss and management expected that such subsidiary

would continue to have net operating losses in the foreseeable future;

therefore, management believes it is more likely than not that all of the deferred tax assets of such subsidiary

will not be utilized .

, a full valuation allowance of $ 1.6 million

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

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

2 unchanged sentences

Unrecognized deferred tax liabilities for such unremitted earnings were $ 7.4 million and $ 7.0 million as of June 25, 2021 and June 26, 2020, respectively.

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

deferred tax liability in the consolidated balance sheets.

Deferred tax liabilities of $ 1.3 million and $ 1.1 million have been established for withholding tax on the unremitted earnings of Casix for the years ended June 25, 2021 and June 26, 2020, respectively, which are included in non-current deferred tax liability in the consolidated balance sheets.

Uncertain income tax positions

1 unchanged sentence

The Company had approximately $ 0.1 million and $ 0.5 million of accrued interest and penalties related to uncertain income tax positions on the consolidated balance sheets as of June 25, 2021 and June 26, 2020, respectively.

The Company recorded

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

The Company recorded (reversed) interest and penalties of $ 0.4 million, $ 0.1 million and $( 0.1 ) million for the years ended June 25, 2021, June 26, 2020 and June 28, 2019, respectively, in the consolidated statements of operations and comprehensive income.

With regard to the Thailand jurisdiction, tax years 2015 through 2020 remain open to examination by the local authorities.

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

(amount in thousands)

The following table indicates the changes to the Company’s uncertain income tax positions for the years ended June 25, 2021, June 26, 2020 and June 28, 2019 included in other non-current liabilities.

(amount in thousands) June 25,

2021 June 26,

2020 June 28,

Beginning balance $ 970 $ 1,323 $ 1,445

5 unchanged sentences

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

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

Dilutive ordinary

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

The earnings per ordinary share was calculated as follows:

(amount in thousands except per share amounts)

(amount in thousands except per share amounts) June 25,

2021 June 26,

2020 June 28,

Net income attributable to shareholders $ 148,341 $ 113,479 $ 120,955

Weighted-average number of ordinary shares outstanding (thousands of shares)

36,872 36,908 36,798

Incremental shares arising from the assumed exercise of share options and vesting of restricted share units and performance share units (thousands of shares)

Weighted-average number of ordinary shares for diluted earnings per ordinary share (thousands of shares)

37,555 37,665 37,415

Basic earnings per ordinary share $ 4.02 $ 3.07 $ 3.29

3 unchanged sentences

Cash, cash equivalents and short-term investments

The Company’s cash, cash equivalents,

and short-term investments by category is as follows:

(amount in thousands)

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

(amount in thousands) Carrying

Cost Unrealized

(Loss) Cash and

Equivalents Marketable

Securities Other

As of June 25, 2021

Cash $ 222,664 $ — $ 222,664 $ — $ —

Cash equivalents 80,305 — 80,305 — —

Liquidity funds 30,000 1,226 — — 31,226

Certificates of deposit and time deposits

Certificates of deposit 10,500 — — — 10,500

Corporate debt securities 171,626 164 — 171,790 —

1 unchanged sentence

Treasury securities

31,301 146 — 31,447 —

Total $ 546,396 $ 1,536 $ 302,969 $ 203,237 $ 41,726

As of June 26, 2020

Cash $ 218,117 $ — $ 218,117 $ — $ —

Cash equivalents 7,313 — 7,313 — —

Liquidity funds 40,000 1,051 — — 41,051

Certificates of deposit and time deposits

Time deposits 11,800 — — — 11,800

Corporate debt securities 159,220 948 — 160,168 —

1 unchanged sentence

Treasury securities

49,130 544 — 49,674 —

Total $ 485,580 $ 2,543 $ 225,430 $ 209,842 $ 52,851

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

The effective interest rate on short term bank deposits was 0.7 % and 1.8 % per annum for the years ended June 25, 2021 and June 26, 2020, respectively.

As of June 25, 2021, the Company had $ 10.5 million of investments in certificate of deposit classified as held-to-maturity debt securities.

As of June 26, 2020, the Company had $ 11.8 million of investments in time deposit classified as

held-to-maturity debt securities.

All investments mature within one year.

Held-to-maturity debt securities are recorded at amortized cost, which approximates fair value.

No unrecognized gains and losses were recorded during the years ended June 25, 2021 and June 26, 2020.

As of June 25, 2021 and June 26, 2020, 65 % and 63 %, respectively, of our cash and cash equivalents were held by the Parent Company.

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

securities based on stated effective maturities as of June 26, 2020:

June 26, 2020

June 28, 2019

(amount in thousands)

The following table summarizes the cost and estimated fair value of short-term investments classified as available-for-sale securities based on stated effective maturities as of June 25, 2021:

June 25, 2021 June 26, 2020

(amount in thousands) Carrying

Cost Fair Value Carrying

Cost Fair Value

Due within one year $ 30,000 $ 31,226 $ 116,127 $ 117,247

Due between one to five years 202,927 203,237 132,223 133,646

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

As of June 26, 2020 and June 28, 2019, the Company considered the decline in market value of its short-term investments portfolio to be temporary in nature and did not consider any of its securities other-than-temporarily impaired.

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

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

Total $ 232,927 $ 234,463 $ 248,350 $ 250,893

The following table summarizes the carrying cost of short-term investments classified as held-to-maturity securities based on stated effective maturities as of June 25, 2021:

(amount in thousands) As of June 25, 2021 As of June 26, 2020

Due within one year $ 10,500 $ 11,800

Due between one to five years — —

Total $ 10,500 $ 11,800

During the year ended June 25, 2021, the Company recognized a realized gain of $ 0.4 million from sales of available-for-sale debt securities in interest income in the consolidated statements of operations and comprehensive income.

During the year ended June 26, 2020, the Company recognized a realized gain of $ 0.1 million from sales of available-for-sale debt securities in interest income in the consolidated statements of operations and comprehensive income.

As of June 25, 2021, the Company considered the decline in market value of its available-for-sale debt securities by using the AFS debt security impairment model.

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

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

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

The Company assessed impairment at the individual security level according to accounting standard by comparing its fair value/market value with its amortized cost.

The Company considered factors such as the failure of the issuer of the security to make scheduled interest and principal payments and any changes to the credit rating of the security by a rating agency.

The credit rating of the Company's invested securities are still in compliance with the Company's investment policy.

No impairment losses on available-for-sale debt securities were recorded for the year ended June 25, 2021.

As of June 25, 2021, the Company evaluated the expected credit loss for held-to-maturity debt securities at the individual security level within scope of CECL model by considering the historical information, current and future economic conditions and events.

Additionally, the Company considered the qualitative factors such as term and structure of the instrument and credit rating by rating agencies in determining if a zero-credit loss expectation is supportable.

The credit rating of the Company's invested securities are still in compliance with the Company's investment policy.

No impairment losses on held-to-maturity debt securities were recorded for the year ended June 25, 2021.

As of June 26, 2020, the Company considered the decline in market value of its available-for-sale and held-to-maturity debt securities to be temporary in nature and did not consider any of its securities other-than-temporarily impaired.

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

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

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

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

No impairment losses were recorded for the years ended June 26, 2020 and June 28, 2019.

No impairment losses were recorded for the year ended June 26, 2020.

Fair value of financial instruments

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

ed for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

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

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

6 unchanged sentences

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

The following table provides details of

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

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

Fair Value Measurements at Reporting Date

(amount in thousands)

(amount in thousands) Level 1 Level 2 Level 3 Total

As of June 25, 2021

1 unchanged sentence

Liquidity funds — 31,226 — 31,226

Certificates of deposit and time deposits

Corporate debt securities — 171,790 — 171,790

1 unchanged sentence

Treasury securities — 31,447 — 31,447

Derivative assets

Derivative liabilities

Derivative assets - current portion — 1 (1) — 1

Total $ — $ 314,769 $ — $ 314,769

Derivative liabilities - current portion $ — $ 5,654 $ — $ 5,654

Derivative liabilities - non-current portion $ — $ 1,977 $ — $ 1,977

Total $ — $ 7,631 (2) $ — $ 7,631

Fair Value Measurements at Reporting Date

(amount in thousands)

(amount in thousands) Level 1 Level 2 Level 3 Total

As of June 26, 2020

1 unchanged sentence

Liquidity funds — 41,051 — 41,051

Certificates of deposit and time deposits

Corporate debt securities — 160,168 — 160,168

1 unchanged sentence

Treasury securities — 49,674 — 49,674

Derivative assets

Derivative liabilities

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

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

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

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

Derivative assets - current — 2,823 (3) 2,823

Total $ — $ 261,029 $ — $ 261,029

Derivative liabilities - current portion $ — $ 2,148 $ — $ 2,148

Derivative liabilities - non-current portion $ — $ 3,718 $ — $ 3,718

Total $ — $ 5,866 (4) $ — $ 5,866

(1) Foreign currency forward contracts with an aggregate notional amount of $ 2.0 million.

(2) Foreign currency forward contracts with an aggregate notional amount of $ 128.0 million and Canadian dollars of 0.4 million and two interest rate swap agreements with an aggregate notional amount of $ 125.1 million.

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

(4) Two interest rate swap agreements with an aggregate notional amount of $ 125.1 million.

Derivative Financial Instruments

7 unchanged sentences

dollar value of forecasted transactions denominated in Thai baht and Canadian dollars with counterparties that meet the Company’s minimum credit quality standard.

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

to hedge fluctuations in the U.S.

The Company may enter into foreign currency forward contracts with maturities of up to 12 months to hedge fluctuations in the U.S.

dollar value of forecasted transactions denominated in Thai baht, including inventory purchases, payroll and other operating expenses.

3 unchanged sentences

The reclassified amounts are presented in the same income statement line item as the earnings effect of the hedged item.

Once the forecasted transactions are recorded, the Company will

discontinue the hedging relationship by de-designating

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

The Company may also enter into non-designated

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

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

Changes in the fair value of these non-designated

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

Once the forecasted transactions are recorded, the Company will discontinue the hedging relationship by de-designating the derivative instrument and recording subsequent changes in fair value through contract maturity to foreign exchange gain (loss), net in the consolidated statements of operations and comprehensive income as a natural hedge against the Thai baht denominated assets and liabilities.

The Company may also enter into non-designated foreign currency forward and option contracts to provide an offset to the re-measurement of foreign currency denominated assets and liabilities and to hedge certain forecasted exposures.

Changes in the fair value of these non-designated derivatives are recorded through foreign exchange gain (loss), net in the consolidated statements of operations and comprehensive income.

As of June 25, 2021, the Company had 130 outstanding U.S.

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

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

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

of $ 1.1 million

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

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

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

of $ 2.7 million .

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

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

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

with maturity dates from July through September 2019.

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

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

During the year

ended June 28, 2019, the Company included unrealized

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

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

dollar foreign currency forward contracts against Thai baht with an aggregate notional amount of $130.0 million and with maturity dates ranging from July 2021 through January 2022, and two foreign currency contracts with an aggregate notional amount of Canadian dollars of 0.4 million and with maturity dates in September 2021.

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

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

As of June 25, 2021, the hedging relationship over foreign currency forward contracts which were designated for hedge accounting had been tested to be highly effective based on the performance of retrospective and prospective regression testing.

As of June 25, 2021, the amount in AOCI that is expected to be reclassified into earnings within 12 months as gain was $ 2.7 million.

During the year ended June 25, 2021 and June 26, 2020, the Company included an unrealized loss of $ 1.5 million and $ 1.2 million, respectively, from changes in fair value of foreign currency forward and option contracts which were not designated for hedge accounting in earnings as foreign exchange gain (loss), net in the consolidated statements of operations and comprehensive income.

Interest Rate Swap Agreements

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

As of June 26, 2020, the Company had two outstanding interest rate swap agreements with an aggregate notional amount of $ 125.1 million.

As of June 28, 2019, the Company had one outstanding interest rate swap agreement with a notional amount of $ 64.2 million.

On July 25, 2018, Fabrinet Thailand entered into an interest rate swap agreement to effectively convert the floating interest rate of its term loan under the credit facility agreement with Bank of America (the “BofA Facility Agreement”) to a fixed interest rate

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

As of June 25, 2021 and June 26, 2020, the Company had two outstanding interest rate swap agreements with an aggregate notional amount of $ 125.1 million.

On July 25, 2018, Fabrinet Thailand entered into an interest rate swap agreement to effectively convert the floating interest rate of its term loan under the credit facility agreement with Bank of America Credit Facility Agreement to a fixed interest rate of 2.86 % per annum through the scheduled maturity of the term loan in June 2023 (see Note 15).

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

On September 3, 2019, the Company drew down a term loan under a new Credit Facility Agreement with the Bank of Ayudhya Public Company Limited (the “Bank”) (see Note 16) and on September 10, 2019, repaid in full the outstanding term loan under the BofA Facility Agreement (see Note 16).

On September 3, 2019, the Company entered into a new term loan agreement under a Credit Facility Agreement with the Bank of Ayudhya Public Company Limited (the “Bank”) (see Note 15) and on September 10, 2019, the Company repaid in full the outstanding term loan under the Bank of America Credit Facility (see Note 15).

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

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

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

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

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

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

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

As of June 26, 2020, the hedging relationship was determined to be highly effective based on the performance of a qualitative effectiveness testing.

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

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

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

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

$ 0.3 million.

From September 27, 2019, any gains or losses related to these interest rate swaps will be recorded in AOCI in the consolidated balance sheets.

The Company will reclassify a portion of the gains or losses from AOCI into earnings at each reporting period based on either the accrued interest amount or the interest payment.

As of June 25, 2021, the amount in AOCI that is expected to be reclassified into earnings within 12 months as loss is $ 0.8 million.

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

During the year s

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

During the year ended June 26, 2020, the Company recorded unrealized loss of $ 1.7 million, from changes in the fair value of these interest rate swaps as interest expense in the consolidated statements of operations and comprehensive income.

The following table provides a summary of the impact of derivative gain (loss) of the Company’s foreign currency forward contracts and interest rate swaps which were designated as cash flow hedges on the consolidated statements of operations and other comprehensive income:

(amount in thousands)

Financial statements

Derivatives gain (loss) recognized in other comprehensive income:

Foreign currency forward contracts

Other comprehensive income

Interest rate swaps

Other comprehensive income

Total derivatives gain

recognized in other comprehensive income

Derivatives loss (

gain) reclassified from accumulated other comprehensive income into earnings:

Foreign currency forward contracts

Cost of revenues

Foreign currency forward contracts

Selling, general and administrative expenses

Foreign currency forward contracts

Foreign exchange gain (loss), net

Interest rate swaps

Interest expense

Total derivatives loss

reclassified from accumulated other comprehensive income into earnings

Change in net unrealized gain on derivative instruments

(amount in thousands) Financial statements

line item June 25,

2021 June 26,

Derivatives gain (loss) recognized in other comprehensive income (loss):

Foreign currency forward contracts Other comprehensive income $ ( 6,194 ) $ 1,081

Interest rate swaps Other comprehensive income 1,624 ( 910 )

Total derivatives loss (gain) recognized in other comprehensive income $ ( 4,570 ) $ 171

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

Foreign currency forward contracts Cost of revenues $ ( 966 ) $ 2,512

Foreign currency forward contracts Selling, general and administrative expenses ( 40 ) 105

Foreign currency forward contracts Foreign exchange gain (loss), net 1,769 ( 998 )

Interest rate swaps Interest expense ( 1,299 ) ( 1,220 )

Total derivatives (gain) loss reclassified from accumulated other comprehensive income into earnings $ ( 536 ) $ 399

Change in net unrealized gain (loss) on derivative instruments $ ( 5,106 ) $ 570

Fair value of derivatives

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

(amount in thousands)

2021 June 26,

(amount in thousands) Derivative

Assets Derivative

Liabilities Derivative

Assets Derivative

Derivatives not designated as hedging instruments

5 unchanged sentences

Derivatives, gross balances 1 ( 7,631 ) 2,823 ( 5,866 )

Derivatives, gross balances offset in the balance sheet

Derivatives, net balances

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

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

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

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

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

Derivative Financial Instruments

Balance Sheet Line Item

Fair Value of Derivative Assets

Other current assets

Fair Value of Derivative Liabilities

Accrued expenses

Derivative Financial Instruments Balance Sheet Line Item

Fair Value of Derivative Assets Other current assets

Fair Value of Derivative Liabilities Accrued expenses

Fair Value of Derivative Liabilities Other non-current liabilities

Trade accounts receivable, net

(amount in thousands)

(amount in thousands) As of June 25,

2021 As of June 26,

Trade accounts receivable $ 336,647 $ 273,001

1 unchanged sentence

Trade accounts receivable, net $ 336,547 $ 272,665

(amount in thousands)

(amount in thousands) As of June 25,

2021 As of June 26,

Raw materials $ 196,345 $ 141,522

2 unchanged sentences

Goods in transit 35,663 13,970

Inventories $ 422,133 $ 309,786

Other receivable

On October 1, 2019, the Company provided funds in the amount of $ 24.3 million to a customer to support the customer’s transfer of certain manufacturing operations from Berlin, Germany to the Company’s facilities in Thailand.

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

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

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

On October 1, 2020, the Company extended the payment terms of the funds and the accrued interest from September 30, 2020 to April 1, 2021, and reduced the interest rate effective from October 1, 2020.

The extension was granted in connection with the customer’s agreement to transfer additional manufacturing operations to the Company’s facilities in Thailand beginning in November 2020.

These funds were repaid on April 1, 2021.

Restricted cash

As of June 26, 2020 and June 28, 2019, the Company had one outstanding standby letter of credit of 6.0 million Euros related to the Company’s support of a customer with the transfer of certain manufacturing operations from Berlin, Germany to the Company’s facilities in Thailand.

As of June 26, 2020 and June 28, 2019, the standby letter of credit was backed by cash collateral of $ 7.4 million.

The Company leases facilities under non-cancelable

operating lease agreements.

As of June 25, 2021, the Company had long-term restricted cash of Chinese Renminbi ("RMB") 1.0 million related to bank guarantees of its subsidiary in the PRC to support the subsidiary's operations.

The bank guarantee was backed by cash collateral of $ 0.2 million.

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

The standby letter of credit was backed by cash collateral of $ 7.4 million.

This standby letter of credit expired on December 31, 2020 and the corresponding cash collateral was released in January 2021.

The Company leases facilities under non-cancelable operating lease agreements.

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

1 unchanged sentence

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

However, the Company may

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

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

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

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

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

Amounts of minimum future annual commitments under non-cancelable

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

As of June 28, 2019

(amount in thousands)

Total future minimum operating lease payments

Operating leases

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

Consolidated Balance Sheets

Impact of Adopting ASC 842

(amount in thousands)

June 28, 2019

June 29, 2019

Operating lease ROU assets

Liabilities and Shareholders’ Equity

Operating lease liabilities, current

Operating lease liabilities, non-current

As of June 25, 2021, the maturities of the Company’s operating lease liabilities were as follows:

5 unchanged sentences

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

Rental expense for long-term leases for the year ended June 26, 2020, June 28, 2019 and June 29, 2018 was $ 2.1 million, $ 1.9 million and $ 1.8 million, respectively.

Rental expense for short-term leases for the year ended June 26, 2020, June 28, 2019 and June 29, 2018 was $ 0.2 million, $ 0.1 million and de minimis amount, respectively.

Rental expense for long-term leases for the years ended June 25, 2021, June 26, 2020 and June 28, 2019 was $ 2.6 million, $ 2.1 million and $ 1.9 million, respectively.

Rental expense for short-term leases for the years ended June 25, 2021, June 26, 2020 and June 28, 2019 was $ 0.3 million, $ 0.2 million and de minimis amount, respectively.

Finance leases

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

The equipment can be purchased at pre-determined

prices upon expiration of such contracts.

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

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

June 26, 2020

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

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

As of June 25, 2021

Weighted-average remaining lease term (in years)

Operating leases 2.7

Finance leases

Weighted-average discount rate

Operating leases 3.5 %

Finance leases

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

(amount in thousands)

June 26, 2020

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

(amount in thousands) Year Ended June 25, 2021

Cash paid for amounts included in the measurement of lease liabilities

2 unchanged sentences

ROU assets obtained in exchange for lease liabilities $ 959

Finance lease assets

Property, plant and equipment, net

The components of property, plant and equipment, net were as follows:

(amount in thousands)

Manufacturing

(amount in thousands) Land and

Improvements Building

Improvements Manufacturing

Equipment Office

Equipment Motor

Vehicles Computers Construction

Installation Total

As of June 25, 2021

Cost $ 45,125 $ 163,375 $ 213,981 $ 9,243 $ 627 $ 29,621 $ 9,377 $ 471,349

Accumulated depreciation ( 26 ) ( 58,791 ) ( 141,997 ) ( 6,376 ) ( 509 ) ( 21,715 ) — ( 229,414 )

2 unchanged sentences

As of June 26, 2020

Cost $ 45,099 $ 145,912 $ 198,036 $ 5,600 $ 939 $ 16,766 $ 12,657 $ 425,009

Accumulated depreciation ( 17 ) ( 51,393 ) ( 127,397 ) ( 4,135 ) ( 678 ) ( 12,273 ) — ( 195,893 )

2 unchanged sentences

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

(amount in thousands)

June 26, 2020

June 28, 2019

(amount in thousands) As of June 25, 2021 As of June 26, 2020

Cost—Finance leases $ 1,747 $ 1,992

1 unchanged sentence

Net book value $ — $ 793

Depreciation expense amounted to $

29.7 million, $

28.7 million and $

27.4 million for the years ended June

2019 and June

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

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

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

During the year s

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

$ 0.9 million and zero , respectively.

Depreciation expense amounted to $ 34.7 million, $ 29.7 million and $ 28.7 million for the years ended June 25, 2021, June 26, 2020 and June 28, 2019, respectively, and has been allocated between cost of revenues and selling, general and administrative expenses in the consolidated statements of operations and comprehensive income.

The cost of fully depreciated property, plant and equipment written-off during the years ended June 25, 2021, June 26, 2020 and June 28, 2019 amounted to $ 16.3 million, $ 2.9 million and $ 2.0 million, respectively.

During the years ended June 25, 2021, June 26, 2020 and June 28, 2019, the Company recognized impairment reserves for property, plant and equipment of $ 0.8 million, $ 0.8 million and $ 0.9 million, respectively.

During the years ended June 25, 2021, June 26, 2020 and June 28, 2019, the Company had no borrowing costs capitalized.

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

(amount in thousands)

(amount in thousands) Gross

Amount Accumulated

Amortization Foreign

Adjustment Net

As of June 25, 2021

Software $ 9,767 $ ( 6,632 ) $ — $ 3,135

Customer relationships 4,373 ( 3,195 ) 58 1,236

Backlog 119 ( 119 ) — —

Total intangibles $ 14,259 $ ( 9,946 ) $ 58 $ 4,371

(amount in thousands)

(amount in thousands) Gross

Amount Accumulated

Amortization Foreign

Adjustment Net

As of June 26, 2020

Software $ 8,317 $ ( 5,577 ) $ — $ 2,740

Customer relationships 4,373 ( 2,691 ) ( 110 ) 1,572

Backlog 119 ( 119 ) — —

Total intangibles $ 12,809 $ ( 8,387 ) $ ( 110 ) $ 4,312

4 unchanged sentences

(amount in thousand)

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

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

(amount in thousands)

Balance as of June 28, 2019

Impairment charge

Foreign currency translation adjustment

Balance as of June 26, 2020

As of June 26, 2020, the Company performed the annual impairment test for goodwill.

The impairment test includes both qualitative and quantitative factors to assess the likelihood of an impairment.

The reporting

unit’s carrying value used in an impairment test represents the assignment of various assets and liabilities.

Qualitative factors include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit.

The quantitative impairment test was performed by using an income approach.

Fair value is estimated based on the discounted cash flow model that the subject assets can be expected to generate over their remaining useful life.

Key assumptions used to determine projected cash flow were revenue growth rate, estimated costs and operating expenses and discount rates based on a reporting unit’s weighted average cost of capital.

As a result of goodwill impairment testing, the carrying amount of the reporting unit exceeded its fair value, and the Company recognized goodwill impairment loss of $ 3.5 million in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income.

As of June 28, 2019, no goodwill impairment had been recognized.

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

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

Thereafter 232

Total $ 4,371

The Company’s total borrowings, including current and non-current portions of long-term borrowings, consisted of the following:

(amount in thousands)

June 26, 2020

June 28, 2019

Rate Conditions Maturity As of June 25, 2021 As of June 26, 2020

Long-term borrowings, current portion, net:

1 unchanged sentence

Unamortized debt issuance costs—current portion

( 32 ) ( 32 )

Long-term borrowings, current portion, net $ 12,156 12,156

Long-term borrowings, non-current

portion, net:

Long-term borrowings, non-current portion, net:

Term loan borrowings:

LIBOR + 1.50 % per annum (1)

quarterly installments

LIBOR + 1.35 % per annum (1)

quarterly installments

3-month LIBOR +1.35% per annum (1)

quarterly installments June 2024 39,609 51,797

Current portion ( 12,188 ) ( 12,188 )

Unamortized debt issuance costs— non-current

Long-term borrowings, non-current

Unamortized debt issuance costs—non-current portion ( 63 ) ( 95 )

Long-term borrowings, non-current portion, net $ 27,358 $ 39,514

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

1 unchanged sentence

The movements of long-term borrowings were as follows for the years ended June 25, 2021 and June 26, 2020:

(amount in thousands)

(amount in thousands) June 25,

2021 June 26,

Opening balance $ 51,797 $ 60,938

4 unchanged sentences

(amount in thousand)

2022 $ 12,187

Total $ 39,609

Credit facilities agreements:

4 unchanged sentences

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

The proceeds from the term loan, together with cash on hand, were used to repay outstanding obligations under the

BofA Facility Agreement.

The term loan accrues interest at 3-month

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

The proceeds from the term loan, together with cash on hand, were used to repay outstanding obligations under the BofA Facility Agreement.

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

The term loan will mature on June 30, 2024 .

10 unchanged sentences

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

At June 26, 2020, there was $ 51.8 million outstanding under the term loan.

As of June 25, 2021, there was $ 39.6 million outstanding under the term loan.

Bank of America, N.A.

2 unchanged sentences

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

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

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

During the year s

ended June 26, 2020 and June 28, 2019, the Company recorded $ 0.5 million and $ 2.4 million, respectively, of interest expense in connection with this term loan.

During the year ended June 26, 2020, the Company recorded $ 0.5 million of interest expense in connection with this term loan.

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

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

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

Facility Agreement.

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

Agreement, related to the term loan.

Severance liabilities

The following table provides information regarding severance liabilities:

(amount in thousands)

(amount in thousands) June 25,

2021 June 26,

Changes in severance liabilities

1 unchanged sentence

Current service cost $ 1,627 $ 1,907

Prior service cost

Interest cost 515 462

Actuarial ( gain

loss on obligation

Benefit paid ( 1,198 ) ( 48 )

Actuarial(gain)loss on obligation 1,129 ( 117 )

Foreign currency translation 36 ( 4 )

4 unchanged sentences

Employer contributions 43 18

Benefit paid ( 34 ) —

Foreign currency translation 34 ( 7 )

1 unchanged sentence

Underfunded status $ ( 19,426 ) $ ( 17,379 )

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

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

liabilities and non-current

assets were determined as follows:

(amount in thousands)

The amount recognized in the consolidated balance sheets under non-current liabilities and non-current assets were determined as follows:

(amount in thousands) As of June 25,

2021 As of June 26,

Non-current assets $ 59 $ —

Non-current liabilities $ 19,485 $ 17,379

The following table provides information regarding accumulated benefit obligations:

(amount in thousands)

(amount in thousands) As of June 25,

2021 As of June 26,

Accumulated benefit obligations $ 13,581 $ 11,864

The following table sets forth the plan assets at fair value as of June 25, 2021 and June 26, 2020.

(amount in thousands)

Fair value measurement as of

June 26, 2020

(amount in thousands)

Fair value measurement as of

June 28, 2019

(amount in thousands) Fair value measurement as of June 25, 2021

Total Significant

(Level 2) Significant

$ 356 $ 211 $ 145

Total Assets $ 356 $ 211 $ 145

(amount in thousands) Fair value measurement as of June 26, 2020

Total Significant

(Level 2) Significant

$ 294 $ 160 $ 134

Total Assets $ 294 $ 160 $ 134

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

The Trustees have chosen to invest in the following funds:

Fund As of June 25,

2021 As of June 26,

Old Mutual Wealth Invesco Perpetual High Income — % 38 %

9 unchanged sentences

Weighted average actuarial assumptions used to determine severance liabilities

June 26, 2020

June 28, 2019

June 29, 2018

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

Discount rate 0.2 % - 2.9 %

1 unchanged sentence

2.3 % - 3.2 %

2.5 % - 3.7 %

Future salary increases 3.5 % - 10.0 %

1 unchanged sentence

3.5 % - 10.0 %

Weighted average actuarial assumptions used to determine benefit costs

June 26, 2020

June 28, 2019

June 29, 2018

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

Discount rate 0.4 % - 3.1 %

1 unchanged sentence

2.5 % - 3.7 %

1.9 % - 3.6 %

Expected long-term rate of return on assets 2.3 % 2.1 % 1.6 %

5 unchanged sentences

The effect of recording share-based compensation expense for the years ended June 25, 2021, June 26, 2020 and June 28, 2019 was as follows:

(amount in thousands)

(amount in thousands) June 25,

2021 June 26,

2020 June 28,

Share-based compensation expense by type of award:

5 unchanged sentences

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

(amount in thousands)

(amount in thousands) June 25,

2021 June 26,

2020 June 28,

Cost of revenue $ 6,185 $ 6,098 $ 5,656

1 unchanged sentence

Total share-based compensation expense $ 25,462 $ 22,203 $ 17,157

The Company did no t capitalize any share-based compensation expense as part of any asset costs during the years ended June 26, 2020, June 28, 2019 and June 29, 2018.

The Company did not capitalize any share-based compensation expense as part of any asset costs during the years ended June 25, 2021, June 26, 2020 and June 28, 2019.

Share-based award activity

2 unchanged sentences

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

Upon termination of the 2010 Plan, 1,281,619 ordinary shares were reserved for issuance under the 2020 Plan

pursuant to clause (ii) of the preceding sentence.

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

As of June 25, 2021, there were 238,302 restricted share units outstanding, 188,554 performance share units outstanding and 2,508,074 ordinary shares available for future grant under the 2020 Plan.

As of June 26, 2020, there were 721,514 restricted share units and 436,304 performance share units outstanding under the 2010 Plan.

As of June 25, 2021, there were 391,409 restricted share units outstanding and 238,474 performance share units outstanding under the 2010 Plan.

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

2017 , the Company adopted the

2017 Inducement Equity Incentive Plan (the “

2017 Inducement Plan”) with a reserve of

160,000 ordinary shares authorized for future issuance solely for the granting of inducement share options and equity awards to new employees.

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

June 26, 2020

, there were an aggregate of

24,327 restricted share units outstanding and

111,347 ordinary shares available for future grant under the

2017 Inducement Plan.

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

Share options

Share options have been granted to directors and employees.

Fabrinet’s board of directors has the authority to determine the type of option and the number of shares subject to an option.

Options generally vest and become exercisable over four years and expire, if not exercised, within seven years of the grant date.

In the case of a grantee’s first grant, 25 percent of the underlying shares vest 12 months after the vesting commencement date and 1/48 of the underlying shares vest monthly over each of the subsequent 36 months.

In the case of any additional grants to a grantee, 1/48 of the underlying shares vest monthly over four years, commencing one month after the vesting commencement date.

The following table summarizes share option activity under the 2010 Plan:

Exercise Price

Average Grant

Date Fair Value

Balance as of June 30, 2017

Balance as of June 29, 2018

Balance as of June 28, 2019

During the year ended June 26, 2020, there was no movement of share option.

The fair value of each share option grant was determined by the Company using the methods and assumptions discussed below.

Each of these inputs is subjective and generally requires significant judgment and management estimate to determine.

The total fair value of share options vested during the years ended June 26, 2020, June 28, 2019 and June 29, 2018 was nil .

The total intrinsic value of options exercised during the years ended June 26, 2020, June 28, 2019 and June 29, 2018 was nil , nil and $ 2.0 million, respectively.

In conjunction with these option exercises, there was no tax benefit realized by the Company due to the fact that it is exempted from income tax.

Valuation Method

—The Company estimated the fair value of the Company’s ordinary shares to be used in the BSM by taking into consideration a number of assumptions, as discussed below.

Expected Dividend

—The Company used zero as an annualized dividend yield since it did not anticipate pay ing

any cash dividends in the near future.

Expected Volatility

—The Company determined the expected volatility based on the Company’s historical volatility over the last four years.

Risk-Free Interest Rate

—The Company based the risk-free interest rate on the implied yield currently available on U.S.

Treasury zero-coupon

issues with a remaining term equivalent to the expected term of the option.

Expected Term

—Expected terms used in the BSM represent the periods that the company’s share options are expected to be outstanding and are determined based on the Company’s historical experience of similar awards, giving consideration to the contractual terms of the share options, vesting schedules and expectations of future employee behavior.

Vesting Period

—Fabrinet’s share options generally vest and become exercisable over a four-year period, and expire seven years from the date of grant.

For an initial grant, 25 percent of the underlying shares subject to an option vest 12 months after the vesting commencement date and 1/48 of the underlying shares vest monthly over each of the subsequent 36 months.

In the case of any additional grants to an optionholder, 1/48 of the underlying shares subject to an option vest monthly over four years, commencing one month after the vesting commencement date.

—The fair value of Fabrinet’s share options granted to employees was estimated using the weighted-average for each assumption of expected volatility, risk-free rate of return, and expected term.

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

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

As of June 25, 2021, there were an aggregate of 12,164 restricted share units outstanding and 111,347 ordinary shares available for future grant under the 2017 Inducement Plan.

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

Restricted share units and performance share units

1 unchanged sentence

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

Restricted share units granted to non-employee

directors generally cliff vest 100 % on the first of January, approximately

one year from the grant date, provided the director continues to serve through such date.

Performance share units granted to executives will vest, if at all, at the end of a two -year

performance period based on the Company’s achievement of pre-defined

performance criteria, which consist of revenue and non- U.S.

gross margin or operating margin targets.

Restricted share units granted to non-employee directors generally cliff vest 100 % on the first of January, approximately one year from the grant date, provided the director continues to serve through such date.

Performance share units granted to executives will vest, if at all, at the end of a two-year performance period based on the Company’s achievement of pre-defined performance criteria, which consist of revenue and non-U.S.

margin or operating margin targets.

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

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

Shares Weighted-

Average Grant

1 unchanged sentence

Balance as of June 29, 2018 1,073,580 $ 35.19

Granted 391,328 $ 50.02

Issued ( 515,482 ) $ 34.18

Forfeited ( 148,675 ) $ 38.42

Balance as of June 28, 2019 800,751 $ 42.48

Granted 367,088 $ 50.87

Issued ( 335,355 ) $ 40.98

Forfeited ( 34,727 ) $ 44.59

Balance as of June 26, 2020 797,757 $ 46.88

Granted 230,759 $ 70.53

Issued ( 358,508 ) $ 45.39

Forfeited ( 28,133 ) $ 57.86

Balance as of June 25, 2021 641,875 $ 55.74

1 unchanged sentence

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

Shares Weighted-

Average Grant

1 unchanged sentence

Balance as of June 29, 2018 605,892 $ 38.41

Granted 201,994 $ 48.02

Issued ( 227,268 ) 40.48

Forfeited ( 32,118 ) 40.47

Balance as of June 28, 2019 548,500 $ 40.97

Granted 242,310 $ 48.65

Forfeited ( 350,670 ) $ 36.99

Balance as of June 26, 2020 440,140 $ 48.37

Granted 184,718 $ 69.85

Issued ( 82,185 ) 48.02

Forfeited ( 115,645 ) $ 48.02

Balance as of June 25, 2021 427,028 $ 57.82

1 unchanged sentence

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

The total fair value of restricted share units and performance share units vested during the year s

ended June 26, 2020, June 28, 2019 and June 29, 2018 was $ 13.7 million, $ 26.8 million and $ 12.2 million, respectively.

The total fair value of restricted share units and performance share units vested during the years ended June 25, 2021, June 26, 2020 and June 28, 2019 was $ 22.1 million, $ 13.7 million and $ 26.8 million, respectively.

The aggregate intrinsic value of restricted share units and performance share units outstanding as of June 25, 2021 was $ 101.9 million.

As of June 26, 2020, there was $ 12.2 million and $ 5.6 million of unrecognized share-based compensation expense related to restricted share units and performance share units, respectively, under the Equity

Incentive Plans that is expected to be recorded over a weighted-average period of 2.4 years and 1.1 years, respectively.

As of June 25, 2021, there was $ 10.2 million and $ 7.3 million of unrecognized share-based compensation expense related to restricted share units and performance share units, respectively, under the Equity Incentive Plans that is expected to be recorded over a weighted-average period of 2.3 years and 1.1 years, respectively.

For the years ended June 25, 2021 and June 26, 2020, the Company withheld an aggregate of 163,615 shares and 94,141 shares, respectively, upon the vesting of restricted share units, based upon the closing share price on the vesting date to settle the employees’ minimum statutory obligation for the applicable income and other employment taxes.

For the years ended June 25, 2021 and June 26, 2020, the Company then remitted cash of $ 11.6 million and $ 4.9 million, respectively, to the appropriate taxing authorities, and presented it as a financing activity within the consolidated statements of cash flows.

The payment had the effect on shares issued by the Company as it reduced the number of shares that would have been issued on the vesting date and was recorded as a reduction of additional paid-in

The payment had the effect of reducing the number of shares that the Company would have issued on the vesting date and was recorded as a reduction of additional paid-in capital.

Employee benefit plans

Employee contribution plan

The Company operates a defi n

ed contribution plan, known as a provident fund, in its subsidiaries in Thailand and the United Kingdom.

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

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

11 unchanged sentences

GAAP operating margin or gross margin targets.

During the years ended June 26, 2020, June 28, 2019 and June 29, 2018, discretionary merit-based bonus awards were also available to Fabrinet’s non-executive

During the years ended June 25, 2021, June 26, 2020 and June 28, 2019, discretionary merit-based bonus awards were also available to Fabrinet’s non-executive employees.

Bonus distributions to employees were $ 8.9 million, $ 8.7 million and $ 7.6 million for the years ended June 25, 2021, June 26, 2020 and June 28, 2019, respectively.

3 unchanged sentences

For the year ended June 26, 2020, Fabrinet issued 241,214 ordinary shares upon the vesting of restricted share units and performance share units, net of shares withheld.

For the year ended June 29, 2018, Fabrinet issued 92,288 ordinary shares upon the exercise of options, for cash consideration at a weighted average exercise price of $ 15.56 per share, and 290,949 ordinary shares upon the vesting of restricted share units, net of shares withheld.

For the year ended June 28, 2019, Fabrinet issued 507,020 ordinary shares upon the vesting of restricted share units, net of shares withheld.

All such issued shares are fully paid.

1 unchanged sentence

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

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

During the year ended June 26, 2020, 355,000 shares were repurchased under the program, at an average price per share of $ 58.37 , totaling $ 20.7 million.

As of June 26, 2020, the Company had a remaining authorization to purchase up to $ 41.5 million of its ordinary shares under the share repurchase program.

In February 2018, May 2019 and August 2020, the Company’s board of directors approved an increase of $ 30.0 million, $ 50.0 million and 58.5 million, respectively, to the original share repurchase authorization, bringing the aggregate authorization to $ 168.5 million.

During the year ended June 25, 2021, the Company repurchased 239,486 shares under the program at an average price per share (excluding other direct costs) of $ 78.66 , totaling $ 18.8 million.

As of June 25, 2021, the Company had a

remaining authorization to repurchase up to $ 81.2 million of its ordinary shares under the share repurchase program.

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

1 unchanged sentence

The changes in AOCI for the years ended June 25, 2021 and June 26, 2020 were as follows:

(amount in thousands)

Unrealized Gains

(amount in thousands) Unrealized Gains

Available-for-sale

Securities Unrealized

Gains (Losses)

on Derivative

Instruments Retirement

benefit plan -

Prior service

Adjustment Total

Balance as of June 28, 2019 $ 952 $ 32 $ ( 2,537 ) $ ( 833 ) $ ( 2,386 )

Other comprehensive income before reclassification

634 171 — ( 397 ) 408

Amounts reclassified from AOCI ( 96 ) 399 528 — 831

Tax effects — — — — —

Other comprehensive income 538 570 528 ( 397 ) 1,239

2 unchanged sentences

Amounts reclassified from AOCI ( 179 ) ( 536 ) 584 — ( 131 )

Tax effects — — — — —

Other comprehensive income ( 1,182 ) ( 5,106 ) 584 585 ( 5,119 )

Balance as of June 25, 2021 $ 308 $ ( 4,504 ) $ ( 1,425 ) $ ( 645 ) $ ( 6,266 )

The following table presents the pre-tax

amounts reclassified from AOCI into the consolidated statements of operations and comprehensive income for the years ended June 26, 2020 and June 28, 2019, respectively.

(amount in thousands)

AOCI components

Financial statements

Unrealized gains (losses) on available-for-sale

The following table presents the pre-tax amounts reclassified from AOCI into the consolidated statements of operations and comprehensive income for the years ended June 25, 2021 and June 26, 2020, respectively.

(amount in thousands) Years ended

AOCI components Financial statements

line item June 25,

2021 June 26,

Unrealized gains (losses) on available-for-sale securities

Interest income $ ( 179 ) $ ( 96 )

Unrealized gains

on derivative instruments

Cost of revenues

Unrealized gains

on derivative instruments

Selling, general and administrative expenses

Unrealized gains

on derivative instruments

Foreign exchange loss, net

Unrealized gains

on derivative instruments

Interest expense

Retirement benefit plan – Prior service cost

Selling, general and administrative expenses

Unrealized gains(losses)on derivative instruments Cost of revenues ( 966 ) 2,512

Unrealized gains(losses)on derivative instruments Selling, general and administrative expenses ( 40 ) 105

Unrealized gains(losses)on derivative instruments Foreign exchange loss, net 1,769 ( 998 )

Unrealized gains(losses)on derivative instruments Interest expense ( 1,299 ) ( 1,220 )

Retirement benefit plan – Prior service cost Selling, general and administrative expenses 584 528

Total amounts reclassified from AOCI $ ( 131 ) $ 831

1 unchanged sentence

Letter of credit and bank guarantees

As of June 26, 2020 and June 28, 2019, the Company had one outstanding standby letter of credit of 6.0 million Euros, related to the Company’s support of a customer’s transfer of certain manufacturing operations from Berlin, Germany to the Company’s facilities in Thailand.

As of June 26, 2020 and June 28, 2019, the standby letter of credit was backed by cash collateral of $ 7.4 million.

As of June 26, 2020 and June 28, 2019, there were outstanding bank guarantees given by a bank on behalf of our subsidiary in Thailand for electricity usage and other normal business expenses totaling $ 1.6 million

and there were other bank guarantees given by a bank on behalf of our subsidiaries in China and the U.K.

to support their operations of

$ 0.1 million and $ 25 thousand, respectively.

As of June 25, 2021, the Company had no outstanding standby letter of credit.

As of June 26, 2020, the Company had one outstanding standby letter of credit of 6.0 million Euros, related to the Company’s support of a customer’s transfer of certain manufacturing operations from Berlin, Germany to the Company’s facilities in Thailand.

The standby letter of credit was backed by cash collateral of $ 7.4 million.

This standby letter of credit expired on December 31, 2020 and the corresponding cash collateral was released in January 2021.

As of June 25, 2021 and June 26, 2020, there were outstanding bank guarantees given by a bank on behalf of our subsidiary in Thailand for electricity usage and other normal business expenses totaling $ 1.6 million or Thai Baht 50.2 million and there were other bank guarantees given by a bank on behalf of our subsidiaries in the PRC and the U.K.

to support their operations.

As of June 25, 2021, the Company had an outstanding bank guarantee of its subsidiary in the PRC to support the subsidiary's operations totaling RMB 1.0 million.

The bank guarantee was backed by cash collateral

of $ 0.2 million.

The bank guarantee given on behalf of our subsidiary in the U.K.

was not material.

As of June 26, 2020, these bank guarantees were not material.

Purchase obligations

2 unchanged sentences

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

As of June 26, 2020, the Company had an outstanding commitment to third parties of $ 11.1 million.

As of June 25, 2021, the Company had purchase obligations and other commitments to third parties of $ 918.7 million.

Capital expenditure

In December 2020, the Company entered into a construction contract with a local contractor for construction of a new manufacturing building at the Company’s Chonburi campus.

The contract price is approximately $ 50.3 million.

In June 2021, the Company entered into an agreement to purchase a parcel of land in Pathumthani, Thailand to expand the Company's Pinehurst campus.

The aggregate purchase price was approximately $ 13.2 million or Thai Baht 418.8 million, of which the Company paid a 10 % deposit on May 14, 2021 and fully paid the remainder on June 29, 2021.

As of June 25, 2021 and prior to paying the remaining 90 % of the Pathumthani land purchase price, the Company had total outstanding capital expenditure commitments to third parties of $ 66.6 million.

Indemnification of directors and officers

4 unchanged sentences

Business segments and geographic information

Operating segments are defined as comp one nts of an enterprise that engage in business activities for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (the “CODM”) in deciding how to allocate resources and in assessing performance.

Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (the “CODM”) in deciding how to allocate resources and in assessing performance.

The Company’s CODM is Fabrinet’s Chief Executive Officer.

1 unchanged sentence

Accordingly, the Company does not accumulate discrete information with respect to separate product lines and does not have separate reportable segments.

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

of the Company’s customer.

Total revenues are attributed to a particular geographic area based on the bill-to-location of the Company’s customer.

The Company operates in three geographic regions:

1 unchanged sentence

The following table presents total revenues by geographic regions:

(amount in thousands)

(amount in thousands) June 25,

2021 June 26,

2020 June 28,

North America

As of June 26, 2020 and June 28, 2019, the Company had approximately $ 29.5 million and $ 31.4 million, respectively, of long-lived assets based in North America, with the substantial remainder of assets based in Asia-Pacific and Europe.

884,862 829,567 753,901

2,674 1,321 2,377

Total revenue in North America 887,536 830,888 756,278

Asia-Pacific and others

Malaysia 157,213 190,574 192,048

India 152,249 91 38

Israel 107,584 315 361

Hong Kong 87,235 92,655 110,732

Japan 69,779 101,588 122,226

China 51,597 48,192 62,262

Thailand 27,081 98,330 92,970

Others 15,859 21,178 27,749

Total revenue in Asia-Pacific and others 668,597 552,923 608,386

Ireland 193,103 110,747 109,890

60,516 67,589 31,164

Germany 28,163 45,628 37,431

Others 41,435 34,061 41,186

Total revenue in Europe $ 323,217 $ 258,025 $ 219,671

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

(1) Others includes revenues from external customers based in our country of domicile, the Cayman Islands, which for each year presented is $ 0 .

The following table presents revenues by end market:

(amount in thousands)

(amount in thousands) June 25,

2021 June 26,

2020 June 28,

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

The following table presents long-lived assets by the country in which they are based:

(amount in thousands) June 25,

2021 June 26,

2020 June 28,

Long-Lived Assets:

Thailand $ 190,843 $ 175,738 $ 160,273

27,403 29,507 31,323

China 14,977 14,476 15,014

Israel 5,271 5,224 2

2,223 2,956 3,721

Cayman Islands 412 373 353

241,129 228,274 210,686

Significant customers

Total revenues, by percentage, from individual customers representing 10% or more of total revenues in the respective periods were as follows:

2021 June 26,

2020 June 28,

Cisco Systems Inc.

Lumentum Operations LLC 13.6 % 19.0 % 20.0 %

Acacia Communications Inc.

Infinera Corporation 11.6 % 10.0 % *

Acacia Communications Inc.

* Represents less than 10% of total revenues.

(1) Inclusive of revenue from Acacia Communications, Inc.

from March 1, 2021

Accounts receivable from individual customers representing 10% or more of accounts receivable as of June 25, 2021 and June 26, 2020, respectively, were as follows:

As of June 25,

2021 As of June 26,

Infinera Corporation 18.6 % *

Lumentum Operations LLC 11.6 % 20.0 %

Cisco Systems Inc.

Acacia Communications, Inc.

* Represents less than 10% of accounts receivable.

(1) Includes of Acacia Communications Inc.

as of June 25, 2021

Financial instruments

6 unchanged sentences

The Company enters into short-term foreign currency forward and option contracts to manage foreign currency exposures associated with certain assets, liabilities and other forecasted foreign currency transactions and may designate these instruments as hedging instruments.

The foreign currency forward and option contracts generally have maturities of up to twelve months .

The foreign currency forward and option contracts generally have maturities of

up to twelve months .

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

Gain or loss on the Company’s derivative instruments generally offset the assets, liabilities and transactions economically hedged.

Gain or loss on the Company’s derivative instruments generally offset the assets, liabilities under master netting arrangement and transactions economically hedged.

Foreign currency risk

The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Thai baht, Chinese Renminbi (“RMB”) and Pound sterling (“GBP”).

The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Thai baht, RMB and Pound Sterling ("GBP").

As of June 25, 2021 and June 26, 2020, the Company had outstanding foreign currency assets and liabilities as follows:

As of June 26, 2020

As of June 28, 2019

(amount in thousands)

As of June 25, 2021 As of June 26, 2020

(amount in thousands) Currency $ Currency $

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

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

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

Total $ 68,576 $ 51,745

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

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

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

Total $ 80,687 $ 75,994

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

1 unchanged sentence

The Company manages its exposure to fluctuations in foreign exchange rates by the use of foreign currency contracts and offsetting assets and liabilities denominated in the same currency in accordance with management’s policy.

As of June 26, 2020 there were $ 126 .0 million of foreign currency forward and option contracts outstanding on the Thai baht payables.

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

As of June 26, 2020, there were $ 125.0 million of foreign currency forward contracts and $ 1.0 million of foreign currency option contracts outstanding on the Thai baht payables.

The RMB assets represent cash and cash equivalents, trade accounts receivable and other current assets.

4 unchanged sentences

As of June 25, 2021 and June 26, 2020, there were no derivative contracts denominated in GBP.

For fiscal year 2020, fiscal year 2019, and fiscal year 2018, the Company recorded unrealized loss of $ 1.2 million, unrealized gain of $ 4.8 million, and unrealized loss of $ 1.7 million, respectively, related to derivatives that are not designated as hedging instruments in its consolidated statements of operations and comprehensive income.

For fiscal year 2021, fiscal year 2020, and fiscal year 2019, the Company recorded unrealized loss of $ 1.5 million, unrealized loss of $ 1.2 million, and unrealized gain of $ 4.8 million, respectively, related to derivatives that are not designated as hedging instruments in its consolidated statements of operations and comprehensive income.

Interest Rate Risk

7 unchanged sentences

From September 27, 2019, any gains or losses related to these outstanding interest rate swaps will be recorded in accumulated other comprehensive income in the consolidated balance sheets, with subsequent reclassification to interest expense when settled.

Subsequent Event

In August 2020, the Company’s board of directors approved the repurchase of up to an additional $ 58.5 million of Fabrinet’s outstanding ordinary shares, bringing the aggregate authorization under Fabrinet’s existing share repurchase program to $ 168.5 million.

UNAUDITED QUARTERLY FINANCIAL INFORMATION

The following table sets forth a summary of the Company’s quarterly financial information for each of the four quarters in the fiscal years ended June 26, 2020 and June 28, 2019:

Three Months Ended

(in thousands, except per share data)

Total revenues

Basic net income per share:

Weighted-average shares used in basic net income per share calculations

Diluted net income per share:

Weighted-average shares used in diluted net income per share calculations

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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 8. Financial Statements and Supplementary Data