What changed in this filing

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Item 1A. Risk Factors

2024-08-20 compared with 2023-08-22 · 30 added, 39 removed, 484 unchanged (12% of the section changed)

9 unchanged sentences

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

During fiscal years 2023 and 2022, we had four and three customers, respectively, that each contributed 10% or more of our revenues.

During fiscal years 2024 and 2023, we had two and four customers, respectively, that each contributed 10% or more of our revenues.

Such customers together accounted for 48.5% and 55.9% of our revenues during the respective periods.

38 unchanged sentences

• our ability to acquire new customers and retain our existing customers;

• the cyclicality of the optical communications, industrial lasers, medical and sensors markets;

• the cyclicality of the optical communications, automotive, industrial lasers, medical, and sensors markets;

• competition;

20 unchanged sentences

Competitors in the market for optical manufacturing services include Benchmark Electronics, Inc., Celestica Inc., Sanmina-SCI Corporation, Jabil Circuit, Inc., and Venture Corporation Limited.

Our customized optics and glass operations face competition from companies such as Browave Corporation, Fujian Castech Crystals, Inc., Photop Technologies, Inc., and Research Electro-Optic, Inc.

Our customized optics and glass operations face competition from companies such as Fujian Castech Crystals, Inc., Photop Technologies, Inc., and Research Electro-Optic, Inc.

Other existing contract manufacturing companies, original design manufacturers or outsourced semiconductor assembly and test companies could also enter our target markets.

19 unchanged sentences

Our exposure to financially troubled customers or suppliers could harm our business, financial condition and operating results.

Some of our customers and suppliers have in the past and may in the future experience financial difficulty, particularly in light of the global economic downturn and uncertainty due to COVID-19 and subsequent adverse conditions in the credit markets that have affected access to capital and liquidity.

In addition, the recent failures of Silicon Valley Bank and Signature Bank created significant market disruption and uncertainty within the U.S.

Some of our customers and suppliers have in the past and may in the future experience financial difficulty, particularly in light of adverse conditions in the credit markets that have affected access to capital and liquidity.

In addition, the failures of Silicon Valley Bank and Signature Bank in March 2023 created significant market disruption and uncertainty within the U.S.

banking sector, in particular with respect to regional banks.

During challenging economic times, our customers may face difficulties in gaining timely access to sufficient credit, which could impact their ability to make timely payments to us.

As a result, we devote significant resources to monitor

receivables and inventory balances with certain of our customers.

If our customers experience financial difficulty, we could have difficulty recovering amounts owed to us from these customers, or demand for our services from these customers could decline.

As a result, we devote significant resources to monitor receivables and inventory balances with certain of our customers.

customers experience financial difficulty, we could have difficulty recovering amounts owed to us from these customers, or demand for our services from these customers could decline.

If our suppliers experience financial difficulty, we could have trouble sourcing materials necessary to fulfill production requirements and meet scheduled shipments.

Any such financial difficulty could adversely affect our operating results and financial condition by resulting in a reduction in our revenues, a charge for inventory write-offs, a provision for doubtful accounts, and larger working capital requirements due to increased days in inventory and days in accounts receivable.

Any such financial difficulty could adversely affect our operating results and financial condition by resulting in a reduction in our revenues, a charge for inventory write-offs, a provision for expected credit losses, and larger working capital requirements due to increased days in inventory and days in accounts receivable.

We purchase some of the critical materials used in certain of our products from a single source or a limited number of suppliers.

8 unchanged sentences

At the same time, wafer foundries that support chipmakers have not invested enough in recent years to increase capacities to the levels needed to support the increased demand from all of their customers.

Further exacerbating the shortage is the long production lead-time for wafers, which can take up to 30 weeks in some cases.

Further exacerbating the shortage is the long production lead-time for wafers, which can be as long as 30 weeks in some cases.

A shortage of semiconductors or other key components can cause a significant disruption to our production schedule and have a substantial adverse effect on our business, financial condition and operating results.

94 unchanged sentences

As of June 28, 2024, the U.S.

dollar had appreciated approximately 10.4% against the GBP since June 25, 2021.

dollar had depreciated approximately 2.9% against the GBP since June 24, 2022.

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

11 unchanged sentences

• unanticipated restrictions on our ability to sell to foreign customers where sales of products and the provision of services may require export licenses or are prohibited by government action (for example, the U.S.

Department of Commerce prohibited the export and sale of a broad category of U.S.

products, as well as the provision of services, to ZTE Corporation in early 2018, and to Huawei in 2019, both of which are customers of certain of our customers);

Department of Commerce has prohibited the export and sale of a broad category of U.S.

products, as well as the provision of services, to ZTE Corporation and to Huawei, both of which are customers of certain of our customers);

• fluctuations in currency exchange rates;

• inadequate protection of intellectual property rights in some countries;

• political, legal and economic instability, foreign conflicts, and the impact of regional and global infectious illnesses in the countries in which we and our customers and suppliers are located (for example, disruptions to international operations associated with the occurrence of the COVID-19 pandemic or the ongoing armed conflict in Ukraine).

• political, legal and economic instability, foreign armed conflicts (such as the Israel-Hamas war and the Russia-Ukraine war), and the impact of regional and global infectious illnesses in the countries in which we and our customers and suppliers are located.

Our failure to manage the risks and challenges associated with our international operations could have a material adverse effect on our business.

We are subject to governmental export and import controls in several jurisdictions that subject us to a variety of risks, including liability, impairment of our ability to compete in international markets, and decreased sales and customer orders.

We are subject to governmental export and import controls in Thailand, the PRC, the United Kingdom and the United States that may limit our business opportunities.

We are subject to governmental export and import controls in Thailand, the PRC, Israel and the United States that may limit our business opportunities.

Various countries regulate the import of certain technologies and have enacted laws or taken actions that could limit (1) our ability to export or sell the products we manufacture and (2) our customers’ ability to export or sell products that we manufacture for them.

6 unchanged sentences

To ensure compliance, some of our customers immediately suspended shipments to Huawei in order to assess whether their products were subject to the restrictions resulting from the ban.

immediate impact on our customer orders in the three months ended June 28, 2019, which affected our revenue for that quarter.

This had an immediate impact on our customer orders in the three months ended June 28, 2019, which affected our revenue for that quarter.

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

40 unchanged sentences

For example, the outbreak of COVID-19 resulted in a two-week suspension of operations at our facility in Fuzhou, the PRC in February 2020 and caused labor shortages for us and some of our suppliers and customers in the PRC during the three months ended March 27, 2020, which negatively affected our revenues during the same period.

Although we continue to take precautionary measures, including leaves of absence for affected employees and their close contacts, stringent contact tracing, and enhanced safe distancing measures, any worsening of the COVID-19 pandemic or the emergence of other infectious diseases may result in more stringent measures being implemented by local authorities, such as shutting down our manufacturing facilities, which would have a significant negative impact on our operations.

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

In addition, increased international political instability, the threat or occurrence of terrorist attacks, conflicts in the Middle East, Asia and Europe (including the Israel-Hamas war and the Russia-Ukraine war), strained international relations arising from these conflicts and the related decline in consumer confidence and economic weakness, may hinder our ability to do business.

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

6 unchanged sentences

Unfavorable worldwide economic conditions (including inflation and supply chain disruptions) may negatively affect our business, financial condition and operating results.

The current global economic downturn and volatility and adverse conditions in the capital and credit markets have negatively affected levels of business and consumer spending, heightening concerns about the likelihood of a global recession and potential default of various national bonds and debt backed by individual countries.

The current volatility and adverse conditions in the capital and credit markets have negatively affected levels of business and consumer spending, heightening concerns about the likelihood of a global recession and potential default of various national bonds and debt backed by individual countries.

Such developments, as well as the policies impacting these, could adversely affect our financial results.

2 unchanged sentences

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

Inflation has also risen globally to historically high levels.

If the inflation rate continues to increase, the costs of labor and other expenses could also increase.

In 2022 and 2023, inflation increased globally to levels not seen in decades.

Although inflation rates have recently declined, inflation can adversely affect us by increasing the costs of labor and other expenses.

There is no assurance that our revenues will increase at the same rate to maintain the same level of profitability.

Inflation and government efforts to combat inflation, such as raising the benchmark interest rate, could increase market volatility and have an adverse effect on the financial market and global economy.

In addition, we expect that disruptions in our supply chain and fluctuations in the availability of parts and materials will continue to have a significant

impact on our ability to generate revenue, despite strong demand from our customers.

In addition, we expect that disruptions in our supply chain and fluctuations in the availability of parts and materials will continue to have a significant impact on our ability to generate revenue, despite strong demand from our customers.

Such adverse conditions could negatively impact demand for our products, which could adversely affect our business, financial condition and operating results.

The loan agreements for our long-term debt obligations and other credit facilities contain financial ratio covenants that may impair our ability to conduct our business.

The loan agreements for our long-term and short-term debt obligations contain financial ratio covenants that may limit management’s discretion with respect to certain business matters.

These covenants require us to maintain a specified maximum total leverage ratio, minimum debt service coverage ratio (earnings before interest and depreciation and amortization plus cash on hand minus short-term debt), a minimum tangible net worth and a minimum quick ratio, which may restrict our ability to incur additional indebtedness and limit our ability to use our cash.

In the event of our default on these loans or a breach of a covenant, the lenders may immediately cancel the loan agreement, deem the full amount of the outstanding indebtedness immediately due and payable, charge us interest on a monthly basis on the full amount of the outstanding indebtedness and, if we cannot repay all of our outstanding obligations, sell the assets pledged as collateral for the loan in order to fulfill our obligation.

We may also be held responsible for any damages and related expenses incurred by the lender as a result of any default.

Any failure by us or our subsidiaries to comply with these agreements could harm our business, financial condition and operating results.

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

20 unchanged sentences

Our current property and casualty insurance covers loss or damage to our property and third-party property over which we have custody and control, as well as losses associated with business interruption, subject to specified exclusions and limitations such as coinsurance, facilities location sub-limits and other policy limitations and covenants.

Even with insurance coverage, natural disasters or other catastrophic events, including acts of war, could cause us to suffer substantial losses in our

operational capacity and could also lead to a loss of opportunity and to a potential adverse impact on our relationships with our existing customers resulting from our inability to produce products for them, for which we might not be compensated by existing insurance.

Even with insurance coverage, natural disasters or other catastrophic events, including acts of war, could cause us to suffer substantial losses in our operational capacity and could also lead to a loss of opportunity and to a potential adverse impact on our relationships with our existing customers resulting from our inability to produce products for them, for which we might not be compensated by existing insurance.

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

41 unchanged sentences

However, our tax position is subject to review and possible challenge by tax authorities and to possible changes in law, which may have retroactive effect.

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

Fabrinet (the “Cayman

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

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

18 unchanged sentences

The Organization for Economic Co-operation and Development (OECD) announced that it has reached agreement among its member countries to implement Pillar Two rules, a global minimum tax at 15% for certain multinational enterprises.

Many countries are expected to issue laws and regulations to conform to this regime.

Many jurisdictions have enacted tax laws that will take effect in 2024 and 2025 to implement Pillar Two rules.

Other countries have announced plans to adopt tax laws to implement similar legislation with varying effective dates in the future.

Certain jurisdictions in which we operate have not adopted corresponding legislation to date.

These changes could increase tax uncertainty and may adversely affect our provision for income taxes and operating results.

We will continue to monitor legislative and regulatory developments to assess the impact on our business, financial condition and operating results.

20 unchanged sentences

ISO 45001 for Occupational Health and Safety Management Systems;

ISO/IEC 17025 for Testing and Calibration Laboratories Certification;

and ISO 22301 for Business Continuity Management Systems.

12 unchanged sentences

Compliance with these rules has resulted in additional cost and expense, including for due diligence to determine and verify the sources of any conflict minerals used in the products we manufacture, and may result in additional costs of remediation and other changes to processes or sources of supply as a consequence of such verification activities.

These rules may also affect the sourcing and availability of

minerals used in the products we manufacture, as there may be only a limited number of suppliers offering “conflict free” metals that can be used in the products we manufacture for our customers.

These rules may also affect the sourcing and availability of minerals used in the products we manufacture, as there may be only a limited number of suppliers offering “conflict free” metals that can be used in the products we manufacture for our customers.

Although we do not anticipate any material adverse effects based on the nature of our operations and these laws and regulations, we will need to ensure that we and, in some cases, our suppliers comply with applicable laws and regulations.

52 unchanged sentences

An objection can be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.

jurisdiction in the U.S., providing rights to receive payment in cash for the judicially determined value of the shares.

If the arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of a corporation incorporated in a jurisdiction in the U.S., providing rights to receive payment in cash for the judicially determined value of the shares.

This may make it more difficult for our shareholders to assess the value of any consideration they may receive in a merger or consolidation or to require that the offeror give them additional consideration if they believe the consideration offered is insufficient.

23 unchanged sentences

We may not be able to increase our prices to adequately offset these increased costs, and any increase in our prices may reduce our future customer orders, which could harm our business, financial condition and operating results.

UNRESOLVED STAFF COMMENTS.

Not applicable.

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 1A. Risk Factors