Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

February 6, 2017

 

 

Fabrinet

(Exact name of registrant as specified in its charter)

 

 

 

Cayman Islands   001-34775   Not Applicable

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

  (IRS Employer
Identification No.)

c/o Intertrust Corporate Services (Cayman) Limited

190 Elgin Avenue

George Town

Grand Cayman

KY1-9005

Cayman Islands

(Address of principal executive offices, including zip code)

+66 2-524-9600

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02 Results of Operations and Financial Condition.

On February 6, 2017, Fabrinet (the “Company”) issued a press release regarding its financial results for the fiscal quarter ended December 30, 2016. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

The information set forth in Item 8.01 of this Current Report on Form 8-K is incorporated herein by reference.

 

Item 8.01 Other Events.

On February 6, 2017, the Company announced that Tom Mitchell, CEO and Chairman of the Board, will transition from his CEO role after a successor is identified and appointed. The Company’s Board has retained an executive search firm to assist in identifying and evaluating candidates. There is no set timeline for this process.

A copy of the press release relating to this announcement is attached as Exhibit 99.1 and incorporated herein by reference.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit
No.

  

Description

99.1    Press release dated February 6, 2017


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

FABRINET
By:   /s/ Toh-Seng Ng
  Toh-Seng Ng
  Executive Vice President, Chief Financial Officer

Date: February 6, 2017


EXHIBIT INDEX

 

Exhibit
No.

  

Description

99.1    Press release dated February 6, 2017
EX-99.1

Exhibit 99.1

Fabrinet Announces Second Quarter Fiscal-Year 2017

Financial Results

Revenue and Earnings Exceed High-End of Guidance Ranges

Tom Mitchell to Transition Following CEO Search

BANGKOK, Thailand – February 6, 2017 – Fabrinet (NYSE: FN), a leading provider of advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers of complex products, today announced its financial results for the second fiscal quarter ended December 30, 2016.

Tom Mitchell, Chief Executive Officer of Fabrinet, said: “We exceeded our guidance for the second quarter, with revenue that grew 51% from a year ago. We are enthusiastic about our continued business momentum, driven by on-going strength in the optical market and new customer programs. We’re also excited to see the beginning of the transfer of programs from our new product introduction facility in Santa Clara to Thailand, and believe our growing NPI pipeline will support our growth in the years ahead.”

Mr. Mitchell added, “On a personal note, at my request, our board of directors has initiated a CEO succession plan. We have retained an executive search firm to assist in identifying and evaluating candidates. We have no set timeline for this process. I intend to continue to play a leadership role in the Company after we appoint a new CEO.”

Second Quarter Fiscal-Year 2017 Financial Highlights

GAAP Results

 

    Revenue for the second quarter of fiscal year 2017 was $351.2 million, an increase of 51% compared to revenue of $233.0 million for the comparable period in fiscal year 2016.

 

    GAAP net income for the second quarter of fiscal year 2017 was $25.3 million, compared to GAAP net income of $19.8 million in the second quarter of fiscal year 2016.

 

    GAAP net income per diluted share for the second quarter of fiscal year 2017 was $0.67, compared to GAAP net income per diluted share of $0.54 in the second quarter of fiscal year 2016.

Non-GAAP Results

 

    Non-GAAP net income in the second quarter of fiscal 2017 was $34.5 million, an increase of 89% compared to non-GAAP net income of $18.2 million in the same period a year ago.

 

    Non-GAAP net income per diluted share in the second quarter of fiscal 2017 was $0.91, an increase from non-GAAP net income per diluted share of $0.50 in the same period a year ago.

Business Outlook

Based on information available as of February 6, 2017, Fabrinet is issuing guidance for the third quarter of fiscal-year 2017 ending March 31, 2017, as follows:

 

    Fabrinet expects revenue for the third quarter to be in the range of $360 million to $364 million.

 

    GAAP net income per diluted share is expected to be in the range of $0.66 to $0.68, based on approximately 38.0 million fully diluted shares outstanding.

 

    Non-GAAP net income per diluted share is expected to be in the range of $0.87 to $0.89, based on approximately 38.0 million fully diluted shares outstanding.

 

1


Conference Call Information

 

What:    Fabrinet Second Quarter Fiscal-Year 2017 Financial Results Conference Call
When:    Monday, February 6, 2017
Time:    5:00 p.m. ET
Live Call:    (888) 357-3694, domestic
   (253) 237-1137, international
   Passcode: 52651124
Replay:    (855) 859-2056, domestic
   (404) 537-3406, international
   Passcode: 52651124
Webcast:    http://investor.fabrinet.com (live and replay)

This press release and any other information related to the call also will be posted on Fabrinet’s website at http://investor.fabrinet.com. A recorded version of this webcast will be available approximately two hours after the call and will be archived on Fabrinet’s website for a period of one year.

About Fabrinet

Fabrinet is a leading provider of advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services to original equipment manufacturers of complex products, such as optical communication components, modules and subsystems, industrial lasers and sensors. Fabrinet 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, advanced packaging, integration, final assembly and test. Fabrinet focuses on production of high complexity products in any mix and any volume. Fabrinet maintains engineering and manufacturing resources and facilities in Thailand, the United States of America, the People’s Republic of China and the United Kingdom. For more information visit: www.fabrinet.com.

Forward-Looking Statements

“Safe Harbor” Statement Under U.S. Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include our expectation that we will continue to achieve profitable growth and scale our business, as well as all of the statements under the “Business Outlook” section regarding our expected revenue and GAAP and non-GAAP net income per share for the third quarter of fiscal-year 2017. These forward-looking statements involve risks and uncertainties, and actual results could vary materially from these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: less customer demand for our products and services than forecasted; less growth in the optical communications, industrial lasers and sensors markets than we forecast; difficulties expanding into additional markets, such as the semiconductor processing, biotechnology, metrology and materials processing markets; increased competition in the optical manufacturing services markets; difficulties in delivering products and services that compete effectively from a price and performance perspective; our reliance on a small number of customers and suppliers; difficulties in managing our operating costs; difficulties in managing and operating our business across multiple countries (including Thailand, the People’s Republic of China, the U.S. and the U.K.); and other important factors as described in reports and documents we file from time to time with the Securities and Exchange Commission (SEC), including the factors described under the section captioned “Risk Factors” in our Quarterly Report on Form 10-Q, filed on November 9, 2016. We disclaim any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise.

 

2


Use of Non-GAAP Financials

The Company refers to the non-GAAP financial measures cited above in making operating decisions because they provide meaningful supplemental information regarding the Company’s ongoing operational performance. Non-GAAP net income excludes share-based compensation expenses, executive separation costs, income or expense related to flooding, amortization of debt issuance costs, unrealized gain or loss on foreign currency, business combination expenses, and amortization of intangible assets. We have excluded these items in order to enhance investors’ understanding of our underlying operations. The use of these non-GAAP financial measures has material limitations because they should not be used to evaluate our company without reference to their corresponding GAAP financial measures. As such, we compensate for these material limitations by using these non-GAAP financial measures in conjunction with GAAP financial measures.

These non-GAAP financial measures are used to: (1) measure company performance against historical results, (2) facilitate comparisons to our competitors’ operating results, and (3) allow greater transparency with respect to information used by management in financial and operational decision making. In addition, these non-GAAP financial measures are used to measure company performance for the purposes of determining employee incentive plan compensation.

SOURCE: Fabrinet

Investor Contact:

Garo Toomajanian

ir@fabrinet.com

 

3


FABRINET

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

(in thousands of U.S. dollars, except share data)    December 30,
2016
    June 24,
2016
 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 85,619      $ 142,804   

Marketable securities

     170,508        141,709   

Trade accounts receivable, net

     240,887        196,145   

Inventory, net

     214,375        181,499   

Deferred tax assets

     —          1,358   

Prepaid expenses

     2,407        3,114   

Other current assets

     4,604        6,662   
  

 

 

   

 

 

 

Total current assets

     718,400        673,291   
  

 

 

   

 

 

 

Non-current assets

    

Restricted cash in connection with business acquisition

     3,126        —     

Property, plant and equipment, net

     213,987        178,410   

Intangibles, net

     5,048        499   

Goodwill

     2,529        —     

Deferred tax assets

     1,879        1,806   

Deferred debt issuance costs on revolving loan and other non-current assets

     950        1,851   
  

 

 

   

 

 

 

Total non-current assets

     227,519        182,566   
  

 

 

   

 

 

 

Total Assets

   $ 945,919      $ 855,857   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current liabilities

    

Bank borrowings, net of unamortized debt issuance costs

   $ 38,287      $ 24,307   

Trade accounts payable

     187,306        172,052   

Fixed assets payable

     17,094        20,628   

Capital lease liability, current portion

     362        —     

Income tax payable

     2,491        2,010   

Accrued payroll, bonus and related expenses

     11,365        12,300   

Accrued expenses

     13,712        8,072   

Other payables

     12,440        16,356   
  

 

 

   

 

 

 

Total current liabilities

     283,057        255,725   
  

 

 

   

 

 

 

Non-current liabilities

  

Long-term loan from bank, non-current portion, net of unamortized debt issuance costs

     29,412        36,100   

Deferred tax liability

     —          854   

Capital lease liability, non-current portion

     1,108        —     

Deferred liability in connection with business acquisition

     3,126        —     

Severance liabilities

     7,277        6,684   

Other non-current liabilities

     2,274        2,075   
  

 

 

   

 

 

 

Total non-current liabilities

     43,197        45,713   
  

 

 

   

 

 

 

Total Liabilities

     326,254        301,438   
  

 

 

   

 

 

 

Commitments and contingencies (Note 16)

    

Shareholders’ equity

    

Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and outstanding as of December 30, 2016 and June 24, 2016)

     —          —     

Ordinary shares (500,000,000 shares authorized, $0.01 par value; 36,918,462 shares and 36,156,446 shares issued and outstanding as of December 30, 2016 and June 24, 2016, respectively)

     369        362   

Additional paid-in capital

     121,366        102,325   

Accumulated other comprehensive (loss) income

     (1,269     591   

Retained earnings

     499,199        451,141   
  

 

 

   

 

 

 

Total Shareholders’ Equity

     619,665        554,419   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 945,919      $ 855,857   
  

 

 

   

 

 

 

 

4


FABRINET

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

 

     Three Months Ended     Six Months Ended  
(in thousands of U.S. dollars, except per share amounts)    December 30,
2016
    December 25,
2015
    December 30,
2016
    December 25,
2015
 

Revenues

   $ 351,156      $ 233,038      $ 683,199      $ 449,471   

Cost of revenues

     (308,110     (204,545     (600,545     (394,967
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     43,046        28,493        82,654        54,504   

Selling, general and administrative expenses

     (17,651     (13,715     (33,483     (25,615

Other expense related to flooding

     —          —          —          (864
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     25,395        14,778        49,171        28,025   

Interest income

     320        455        757        897   

Interest expense

     (555     (419     (1,876     (821

Foreign exchange gain (loss), net

     1,945        6,166        3,602        (4,326

Other income

     147        106        289        209   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     27,252        21,086        51,943        23,984   

Income tax expense

     (1,960     (1,283     (3,885     (2,578
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     25,292        19,803        48,058        21,406   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss, net of tax:

        

Change in net unrealized loss on marketable securities

     (353     (310     (540     (223

Change in net unrealized loss on derivative instruments

     —          —          (158     —     

Change in foreign currency translation adjustment

     (1,903     —          (1,162     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

     (2,256     (310     (1,860     (223
  

 

 

   

 

 

   

 

 

   

 

 

 

Net comprehensive income

   $ 23,036      $ 19,493      $ 46,198      $ 21,183   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

        

Basic

   $ 0.69      $ 0.55      $ 1.31      $ 0.60   

Diluted

   $ 0.67      $ 0.54      $ 1.28      $ 0.59   

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

        

Basic

     36,848        35,812        36,626        35,695   

Diluted

     37,805        36,826        37,567        36,570   

 

5


FABRINET

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Six Months Ended  
(in thousands of U.S. dollars)    December 30,
2016
    December 25,
2015
 

Cash flows from operating activities

    

Net income for the period

   $ 48,058      $ 21,406   

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

    

Depreciation and amortization

     10,758        8,294   

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

     19        (49

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

     15        124   

Amortization of investment premium

     228        457   

Amortization of deferred debt issuance costs

     1,072        358   

Reversal of allowance for doubtful accounts

     (40     (7

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

     (3,033     5,566   

Share-based compensation

     14,208        5,783   

Deferred income tax

     938        413   

Other non-cash expenses

     586        765   

Reversal of inventory obsolescence

     (100     (478

Loss from written-off inventory due to flood loss

     —          233   

Changes in operating assets and liabilities

    

Trade accounts receivable

     (40,779     (12,486

Inventory

     (29,286     (10,004

Other current assets and non-current assets

     4,747        1,019   

Trade accounts payable

     11,026        (405

Income tax payable

     448        320   

Other current liabilities and non-current liabilities

     887        2,395   
  

 

 

   

 

 

 

Net cash provided by operating activities

     19,752        23,704   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchase of marketable securities

     (83,405     (53,258

Proceeds from sales of marketable securities

     15,682        25,709   

Proceeds from maturities of marketable securities

     38,142        34,460   

Payments in connection with business acquisition, net of cash acquired

     (9,917     —     

Purchase of property, plant and equipment

     (44,412     (26,407

Purchase of intangibles

     (319     (210

Proceeds from disposal of property, plant and equipment

     127        58   
  

 

 

   

 

 

 

Net cash used in investing activities

     (84,102     (19,648
  

 

 

   

 

 

 

Cash flows from financing activities

    

Payment of debt issuance costs

     —          (359

Proceeds of short-term loans from banks

     15,744        18,000   

Repayment of long-term loans from bank

     (9,800     (3,000

Repayment of capital lease liability

     (92     —     

Proceeds from issuance of ordinary shares under employee share option plans

     5,848        2,025   

Withholding tax related to net share settlement of restricted share units

     (1,008     (1,711
  

 

 

   

 

 

 

Net cash provided by financing activities

     10,692        14,955   
  

 

 

   

 

 

 

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

     (53,658     19,011   
  

 

 

   

 

 

 

Movement in cash, cash equivalents and restricted cash

    

Cash, cash equivalents and restricted cash at beginning of period

     142,804        112,978   

(Decrease) increase in cash, cash equivalents and restricted cash

     (53,658     19,011   

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

     (401     (630
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of period

   $ 88,745      $ 131,359   
  

 

 

   

 

 

 

Non-cash investing and financing activities

    

Construction, software-related and equipment-related payables

   $ 17,094      $ 6,657   

 

6


FABRINET

Reconciliation of GAAP measures to non-GAAP measures

 

(in thousands of U.S. dollars, except per share data)    Three Months Ended     Six Months Ended  
     December 30, 2016      December 25, 2015     December 30, 2016     December 25, 2015  
     Net
income
     Diluted
EPS
     Net
income
    Diluted
EPS
    Net
income
    Diluted
EPS
    Net
income
     Diluted
EPS
 

GAAP measures

     25,292         0.67         19,803        0.54        48,058        1.28        21,406         0.59   

Items reconciling GAAP net income (loss) & EPS to non-GAAP net income & EPS:

               

Related to cost of revenues:

               

Share-based compensation expenses

     1,514         0.04         540        0.01        2,528        0.07        1,077         0.03   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total related to gross profit

     1,514         0.04         540        0.01        2,528        0.07        1,077         0.03   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Related to selling, general and administrative expenses:

               

Share-based compensation expenses

     7,083         0.19         2,570        0.07        11,680        0.31        4,706         0.13   

Executive separation cost

     —           —           552        0.01        577        0.02        552         0.01   

Amortization of intangible assets

     229         0.01         —          —          229        0.01        —           —     

Business combination expenses

     99         0.00         —          —          1,510        0.04        —           —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total related to selling, general and administrative expenses

     7,411         0.20         3,122        0.08        13,996        0.37        5,258         0.14   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Related to other incomes and other expenses:

               

Expenses/(income) related to flooding

     —           —           —          —          —          —          864         0.02   

Amortization of debt issuance costs

     281         0.01         187        0.01        1,344        0.04        358         0.01   

(Gain)/loss on foreign currency

     —           —           (5,418     (0.15     (1,713     (0.05     5,479         0.15   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total related to other incomes and other expenses

     281         0.01         (5,231     (0.14     (369     (0.01     6,701         0.18   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total related to net income & EPS

     9,206         0.24         (1,569 )      (0.04 )      16,155        0.43        13,036         0.35   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Non-GAAP measures

     34,498         0.91         18,234        0.50        64,213        1.71        34,442         0.94   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Shares used in computing diluted net income per share

               

GAAP diluted shares

        37,805           36,826          37,567           36,570   

Non-GAAP diluted shares

        37,805           36,826          37,567           36,570   

 

7


Fabrinet Guidance for Quarter Ending March 31, 2017

Items reconciling GAAP EPS to non-GAAP EPS:

 

     Diluted
EPS
 

GAAP net income per diluted share:

   $ 0.66 to $0.68   

Related to cost of revenues:

  

Share-based compensation expenses

   $ 0.04   
  

 

 

 

Related to selling, general and administrative expenses:

  

Share-based compensation expenses

   $ 0.15   

Business combination expenses

   $ 0.00   

Amortization of intangible assets

   $ 0.01   
  

 

 

 

Share-based compensation expenses

   $ 0.16   
  

 

 

 

Related to other incomes and other expenses:

  

Amortization of debt issuance costs

   $ 0.00   
  

 

 

 

Total related to net income & EPS

   $ 0.21   
  

 

 

 

Non-GAAP net income per diluted share

   $ 0.87 to $0.89   
  

 

 

 

 

8