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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
____________________________
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 24, 2021
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from__________to__________
Commission File Number: 001-34775
____________________________
FABRINET
(Exact name of registrant as specified in its charter)
____________________________
Cayman Islands
(State or other jurisdiction of
incorporation or organization)
98-1228572
(I.R.S. Employer
Identification No.)

c/o Intertrust Corporate Services
One Nexus Way, Camana Bay
Grand Cayman
Cayman Islands
(Address of principal executive offices)
KY1-9005
(Zip Code)
+66 2-524-9600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Ordinary Shares, $0.01 par valueFNNew York Stock Exchange
____________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes    x  No
As of October 22, 2021, the registrant had 37,018,474 ordinary shares, $0.01 par value, outstanding.

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FABRINET
FORM 10-Q
QUARTER ENDED SEPTEMBER 24, 2021
Table of Contents
Page No.

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RISK FACTORS SUMMARY

You should carefully consider the information set forth below under the heading “Risk Factors” in Part II, Item 1A before deciding whether to invest in our securities. Below is a summary of the principal risks associated with an investment in our securities.

Our sales depend on a small number of customers. A reduction in orders from any of these customers, the loss of any of these customers, or a customer exerting significant pricing and margin pressures on us could harm our business, financial condition and operating results.

Consolidation in the markets we serve could harm our business, financial condition and operating results.

If the optical communications market does not expand as we expect, our business may not grow as fast as we expect.

Our quarterly revenues, gross profit margins and operating results have fluctuated significantly and may continue to do so in the future, which may cause the market price of our ordinary shares to decline or be volatile.

If we are unable to continue diversifying our precision optical and electro-mechanical manufacturing services across other markets within the optics industry, or if these markets do not grow as fast as we expect, our business may not grow as fast as we expect.

If we are unable to compete successfully against our current and future competitors, our business, financial condition and operating results could be harmed.

Cancellations, delays or reductions of customer orders and the relatively short-term nature of the commitments of our customers could harm our business, financial condition and operating results.

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

We purchase some of the critical materials used in certain of our products from a single source or a limited number of suppliers. Supply shortages have in the past, and could in the future, impair the quality, reduce the availability or increase the cost of materials, which could harm our revenues, profitability and customer relations.

Managing our inventory is complex and may require write-downs due to excess or obsolete inventory, which could cause our operating results to decrease significantly in a given fiscal period.

If we fail to adequately expand our manufacturing capacity, we will not be able to grow our business, which would harm our business, financial condition and operating results. Conversely, if we expand too much or too rapidly, we may experience excess capacity, which would harm our business, financial condition and operating results.

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

If the products that we manufacture contain defects, we could incur significant correction costs, demand for our services may decline and we may be exposed to product liability and product warranty claims, which could harm our business, financial condition, operating results and customer relations.

If we fail to attract additional skilled employees or retain key personnel, our business, financial condition and operating results could suffer.

We conduct operations in a number of countries, which creates logistical and communications challenges for us and exposes us to other risks and challenges that could harm our business, financial condition and operating results.

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

Fluctuations in foreign currency exchange rates and changes in governmental policies regarding foreign currencies could increase our operating costs, which would adversely affect our operating results.

Political unrest and demonstrations, as well as changes in the political, social, business or economic conditions in Thailand, could harm our business, financial condition and operating results.

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We expect to continue to invest in our manufacturing operations in the People's Republic of China ("PRC"), which will continue to expose us to risks inherent in doing business in the PRC, any of which risks could harm our business, financial condition and operating results.

Natural disasters, epidemics, acts of terrorism and other political and economic developments could harm 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 phase-out of the London Interbank Offered Rate ("LIBOR") could affect interest rates under our existing credit facility agreement, as well as our ability to seek future debt financing.

Unfavorable worldwide economic conditions may negatively affect 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.

Our investment portfolio may become impaired by deterioration of the capital markets.

We are not fully insured against all potential losses. Natural disasters or other catastrophes could adversely affect our business, financial condition and operating results.

There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with U.S. GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect on our business, financial condition and operating results.

Our business and operations would be adversely impacted in the event of a failure of our information technology infrastructure and/or cyber security attacks.

Intellectual property infringement claims against our customers or us could harm our business, financial condition and operating results.

Any failure to protect our customers’ intellectual property that we use in the products we manufacture for them could harm our customer relationships and subject us to liability.

We are subject to the risk of increased income taxes, which could harm our business, financial condition and operating results.

We have incurred and will continue to incur significant increased costs as a result of operating as a public company, and our management will be required to continue to devote substantial time to various compliance initiatives.

Failure to comply with applicable environmental laws and regulations could have a material adverse effect on our business, financial condition and operating results.

If we are unable to meet regulatory quality standards applicable to our manufacturing and quality processes for the products we manufacture, our business, financial condition and operating results could be harmed.

Our share price may be volatile due to fluctuations in our operating results and other factors, including the activities and operating results of our customers or competitors, any of which could cause our share price to decline.

If securities or industry analysts do not publish research or if they publish misleading or unfavorable research about our business, the market price and trading volume of our ordinary shares could decline.

We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.

Our business and share price could be negatively affected as a result of activist shareholders.

Certain provisions in our constitutional documents may discourage our acquisition by a third party, which could limit your opportunity to sell shares at a premium.

Our shareholders may face difficulties in protecting their interests because we are incorporated under Cayman Islands law.

Certain judgments obtained against us by our shareholders may not be enforceable.

Energy price volatility may negatively impact our business, financial condition and operating results.
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FABRINET
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands of U.S. dollars, except share data and par value)September 24,
2021
June 25,
2021
Assets
Current assets
Cash and cash equivalents$269,911 $302,969 
Short-term investments258,501 244,963 
Trade accounts receivable, net of allowance for doubtful accounts of $99 and $100, respectively
346,689 336,547 
Contract assets13,120 11,878 
Inventories465,251 422,133 
Prepaid expenses10,404 11,398 
Other current assets24,729 22,619 
Total current assets1,388,605 1,352,507 
Non-current assets
Long-term restricted cash155 154 
Property, plant and equipment, net271,659 241,129 
Intangibles, net4,107 4,371 
Operating right-of-use assets6,086 6,699 
Deferred tax assets9,491 9,428 
Other non-current assets518 1,834 
Total non-current assets292,016 263,615 
Total Assets$1,680,621 $1,616,122 
Liabilities and Shareholders’ Equity
Current liabilities
Long-term borrowings, current portion, net$12,156 $12,156 
Trade accounts payable373,663 346,555 
Fixed assets payable24,174 19,206 
Contract liabilities1,755 1,680 
Operating lease liabilities, current portion2,613 2,593 
Income tax payable2,776 3,612 
Accrued payroll, bonus and related expenses19,336 20,464 
Accrued expenses20,147 17,134 
Other payables22,599 20,958 
Total current liabilities479,219 444,358 
Non-current liabilities
Long-term borrowings, non-current portion, net24,319 27,358 
Deferred tax liability5,425 5,107 
Operating lease liability, non-current portion3,220 3,850 
Severance liabilities19,157 19,485 
Other non-current liabilities3,279 3,444 
Total non-current liabilities55,400 59,244 
Total Liabilities534,619 503,602 
Commitments and contingencies (Note 17)
Shareholders’ equity
Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and outstanding as of September 24, 2021 and June 25, 2021)
  
Ordinary shares (500,000,000 shares authorized, $0.01 par value; 39,000,843 shares and 38,749,045 shares issued at September 24, 2021 and June 25, 2021, respectively; and 37,017,254 shares and 36,765,456 shares outstanding at September 24, 2021 and June 25, 2021, respectively)
390 388 
Additional paid-in capital179,670 189,445 
Less: Treasury shares (1,983,589 shares and 1,983,589 shares as of September 24, 2021 and June 25, 2021 respectively)
(87,343)(87,343)
Accumulated other comprehensive income (loss)(7,662)(6,266)
Retained earnings1,060,947 1,016,296 
Total Shareholders’ Equity1,146,002 1,112,520 
Total Liabilities and Shareholders’ Equity$1,680,621 $1,616,122 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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FABRINET
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)
Three Months Ended
(in thousands of U.S. dollars, except per share data)September 24,
2021
September 25,
2020
Revenues$543,322 $436,639 
Cost of revenues(479,725)(386,159)
        Gross profit63,597 50,480 
Selling, general and administrative expenses(20,587)(16,863)
Operating income43,010 33,617 
Interest income761 1,104 
Interest expense(36)(251)
Foreign exchange gain (loss), net1,772 128 
Other income (expense), net(260)121 
Income before income taxes45,247 34,719 
Income tax expense(596)(1,668)
Net income44,651 33,051 
Other comprehensive income (loss), net of tax:
       Change in net unrealized gain (loss) on available-for-sale securities(213)(325)
       Change in net unrealized gain (loss) on derivative instruments(1,217)(3,208)
       Change in net retirement benefits plan – prior service cost198 173 
       Change in foreign currency translation adjustment(164)603 
Total other comprehensive income (loss), net of tax(1,396)(2,757)
Net comprehensive income (loss)$43,255 $30,294 
Earnings per share
       Basic$1.21 $0.90 
       Diluted$1.20 $0.88 
Weighted-average number of ordinary shares outstanding (thousands of shares)
       Basic36,877 36,818 
       Diluted37,328 37,383 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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FABRINET
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)
For the Three Months Ended September 24, 2021
 Ordinary ShareAdditional
Paid-in
Capital
Treasury
Shares
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
(in thousands of U.S. dollars, except share data)SharesAmount
Balances at June 25, 202138,749,045 $388 $189,445 $(87,343)$(6,266)$1,016,296 $1,112,520 
Net income— — — — — 44,651 44,651 
Other comprehensive income (loss)— — — — (1,396)— (1,396)
Share-based compensation— — 9,292 — — — 9,292 
Issuance of ordinary shares251,798 2 (2)— — —  
Tax withholdings related to net share settlement of restricted share units— — (19,065)— — — (19,065)
Balances at September 24, 2021
39,000,843 $390 $179,670 $(87,343)$(7,662)$1,060,947 $1,146,002 
For the Three Months Ended September 25, 2020
 Ordinary ShareAdditional
Paid-in
Capital
Treasury
Shares
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
(in thousands of U.S. dollars, except share data)SharesAmount
Balances at June 26, 202038,471,967 $385 $175,610 $(68,501)$(1,147)$868,062 $974,409 
Net income— — — — — 33,051 33,051 
Other comprehensive income (loss)— — — — (2,757)— (2,757)
Cumulative effect adjustment from adoption of ASC 326— — — — — (107)(107)
Share-based compensation— — 6,027 — — — 6,027 
Issuance of ordinary shares208,692 2 (2)— — —  
Tax withholdings related to net share settlement of restricted share units— — (9,920)— — — (9,920)
Balances at September 25, 2020
38,680,659 $387 $171,715 $(68,501)$(3,904)$901,006 $1,000,703 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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FABRINET
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 Three Months Ended
(in thousands of U.S. dollars)September 24,
2021
September 25,
2020
Cash flows from operating activities
Net income for the period$44,651 $33,051 
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization9,535 8,570 
(Gain) loss on disposal of property, plant and equipment(98)(19)
(Gain) loss from sales and maturities of available-for-sale securities(13) 
Amortization of investment discount1,109 481 
Amortization of deferred debt issuance costs8 8 
(Reversal of) allowance for doubtful accounts(1)(257)
Unrealized (gain) loss on exchange rate and fair value of foreign currency forward contracts(1,436)(890)
Amortization of fair value at hedge inception of interest rate swaps(268)(359)
Share-based compensation9,292 6,027 
Deferred income tax(104)56 
Other non-cash expenses257 96 
Changes in operating assets and liabilities
Trade accounts receivable(10,160)(16,497)
Contract assets(1,242)1,499 
Inventories(43,135)(29,643)
Other current assets and non-current assets(385)7,812 
Trade accounts payable27,541 33,546 
Contract liabilities75 (590)
Income tax payable(747)871 
Severance liabilities893 745 
Other current liabilities and non-current liabilities3,243 (10,001)
Net cash provided by operating activities39,015 34,506 
Cash flows from investing activities
Purchase of short-term investments(78,101)(79,103)
Proceeds from sales of short-term investments19,463  
Proceeds from maturities of short-term investments43,791 33,750 
Purchase of property, plant and equipment(34,616)(12,572)
Purchase of intangibles(321)(530)
Proceeds from disposal of property, plant and equipment145 21 
Net cash used in investing activities(49,639)(58,434)
Cash flows from financing activities
Repayment of long-term borrowings(3,047)(3,047)
Repayment of finance lease liability (100)
Withholding tax related to net share settlement of restricted share units(19,065)(9,920)
Net cash used in financing activities(22,112)(13,067)
Net increase (decrease) in cash, cash equivalents and restricted cash$(32,736)$(36,995)
Movement in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of period$303,123 $232,832 
Increase (decrease) in cash, cash equivalents and restricted cash(32,736)(36,995)
Effect of exchange rate on cash, cash equivalents and restricted cash(321)766 
Cash, cash equivalents and restricted cash at the end of period$270,066 $196,603 
Non-cash investing and financing activities
Construction, software and equipment-related payables$24,174 $9,616 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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FABRINET
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statements of cash flows:
(amount in thousands)
As of
September 24, 2021
As of
September 25, 2020
Cash and cash equivalents$269,911 $189,201 
Restricted cash155 7,402 
Cash, cash equivalents and restricted cash$270,066 $196,603 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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FABRINET
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of U.S. dollars unless otherwise noted)
1.Business and organization
General
Fabrinet (“Fabrinet” or the “Parent Company”) was incorporated on August 12, 1999, and commenced operations on January 1, 2000. The Parent Company is an exempted company incorporated in the Cayman Islands, British West Indies. 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, high-mix products. The principal subsidiaries of Fabrinet include Fabrinet Co., Ltd. (“Fabrinet Thailand”), Casix, Inc. (“Casix”), Fabrinet West, Inc. (“Fabrinet West”) and Fabrinet UK Limited (“Fabrinet UK”).
2.Accounting policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements for Fabrinet as of September 24, 2021 and for the three months ended September 24, 2021 and September 25, 2020 include normal recurring adjustments necessary for a fair statement of the financial statements set forth herein, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such information does not include all of the information and footnotes required by U.S. GAAP for annual financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in Fabrinet’s Annual Report on Form 10-K for the year ended June 25, 2021.
The balance sheet as of June 25, 2021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
The results for the three months ended September 24, 2021 may not be indicative of results for the year ending June 24, 2022 or any future periods.
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of total revenues and expenses during the year. The Company bases estimates on historical experience and various assumptions about the future that are believed to be reasonable based on available information. The Company’s reported financial position or results of operations may be materially different under different conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies, which are discussed below. Significant assumptions are used in accounting for share-based compensation, allowance for doubtful accounts, allowance for expected credit losses, income taxes, inventory obsolescence, goodwill and valuation of intangible assets related to business acquisition, among others. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates. In the event that the Company's estimates or assumptions prove to be different from actual results, adjustments will be made in subsequent periods to reflect more current information. Additionally, the extent to which the evolving COVID-19 pandemic impacts the Company’s unaudited condensed consolidated financial statements will depend on a number of factors, including the magnitude and duration of the pandemic. These estimates may change, as new events occur and additional information is obtained, as well as upon the occurrence of other factors related to the COVID-19 pandemic that could result in material impacts to the Company's unaudited condensed consolidated financial statements in future reporting periods.

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Fiscal years
The Company utilizes a 52-53 week fiscal year ending on the Friday in June closest to June 30. The three months ended September 24, 2021 and September 25, 2020 each consisted of 13 weeks. Fiscal year 2022 will be comprised of 52 weeks and will end on June 24, 2022.
Adoption of New Accounting Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “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. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted this standard in the first quarter of fiscal year 2022 with no material impact on its unaudited condensed consolidated financial statements.
3.Revenues from contracts with customers
Revenue by Geographic Area and End Market
Revenues are attributed to a particular geographic area based on the bill-to-location of the Company’s customers. The Company operates in three geographic regions: North America, Asia-Pacific and others and Europe.
The following table presents total revenues by geographic region:


(amount in thousands, except percentages)Three Months Ended
September 24, 2021
As a % of Total
Revenues
Three Months Ended
September 25, 2020
As a % of Total
Revenues
North America
   U.S.245,274 206,950 
   Others 1,316 452 
   Total revenue in North America246,590 45.4 %207,402 47.5 %
Asia-Pacific and others
   India64,932 (1)19 
   Malaysia51,749 43,911 
   Israel27,634 30,115 
   Hong Kong21,031 23,505 
   Japan14,977 20,332 
   China13,635 13,787 
   Others12,225 13,977 
   Total revenue in Asia-Pacific and others206,183 37.9 %145,646 33.4 %
Europe
   Ireland49,484 53,611 
   U.K.19,578 15,311 
   Germany8,425 5,799 
   Others13,062 8,870 
   Total revenue in Europe$90,549 16.7 %$83,591 19.1 %
         Total revenue$543,322 100.0 %$436,639 100.0 %
(1)Due to change in bill-to-location for certain customer.



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The following table presents revenues by end market.
(amount in thousands, except percentages)Three Months Ended
September 24, 2021
As a % of Total
Revenues
Three Months Ended
September 25, 2020
As a % of Total
Revenues
Optical communications$427,301 78.6 %$343,917 78.8 %
Lasers, sensors and other116,021 21.4 %92,722 21.2 %
Total$543,322 100.0 %$436,639 100.0 %

Contract Assets and Liabilities
A contract asset is recognized when the Company has recognized revenues prior to generating an invoice for payment. Contract assets are classified separately within the unaudited condensed consolidated balance sheets and transferred to accounts receivable when rights to payment become unconditional.
A contract liability is recognized when the Company has advance payment arrangements with customers. 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 three months ended September 24, 2021:
(amount in thousands)Contract
Assets
Beginning balance, June 25, 2021
$11,878 
Revenue recognized13,197 
Amounts collected or invoiced(11,955)
Ending balance, September 24, 2021
$13,120 

(amount in thousands)Contract
Liabilities
Beginning balance, June 25, 2021
$1,680 
Advance payment received during the period1,941 
Revenue recognized(1,866)
Ending balance, September 24, 2021
$1,755 






















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4.Earnings per ordinary share
Basic earnings per ordinary share is computed by dividing reported net income by the weighted-average number of ordinary shares outstanding during each period. Diluted earnings per ordinary share is computed by calculating the effect of potential dilutive ordinary shares outstanding during the period using the treasury stock method. Dilutive ordinary equivalent shares consist of restricted share units and performance share units.
Earnings per ordinary share was calculated as follows:
Three Months Ended
(amount in thousands, except per share amounts)September 24,
2021
September 25,
2020
Net income attributable to shareholders$44,651 $33,051 
Weighted-average number of ordinary shares outstanding (thousands of shares)36,877 36,818 
Incremental shares arising from the assumed vesting of restricted share units and performance share units (thousands of shares)
451 565 
Weighted-average number of ordinary shares for diluted earnings per ordinary share (thousands of shares)
37,328 37,383 
Basic earnings per ordinary share$1.21 $0.90 
Diluted earnings per ordinary share$1.20 $0.88 
Outstanding performance share units excluded from the computation of diluted earnings per ordinary share (thousands of shares)(1)
 61 
(1)These performance share units were not included in the computation of diluted earnings per ordinary share because they are not expected to vest based on the Company’s current assessment of the related performance obligations.

5.Cash, cash equivalents and short-term investments
The Company’s cash, cash equivalents, and short-term investments are as follows:
Fair Value
(amount in thousands)Carrying
Cost
Unrealized
Gain/
(Loss)
Cash and
Cash
Equivalents
Marketable
Securities
Other
Investments
As of September 24, 2021
Cash$223,409 $— $223,409 $— $— 
Cash equivalents46,502 — 46,502 — — 
Liquidity funds31,278 — — — 31,278 
Corporate debt securities203,069 9 — 203,078 — 
U.S. agency and U.S. Treasury securities24,058 87 — 24,145 — 
Total$528,316 $96 $269,911 $227,223 $31,278 
As of June 25, 2021
Cash$222,664 $— $222,664 $— $— 
Cash equivalents80,305 — 80,305 — — 
Liquidity funds30,000 1,226 — — 31,226 
Certificates of deposit10,500 — — — 10,500 
Corporate debt securities171,626 164 — 171,790 — 
U.S. agency and U.S. Treasury securities31,301 146 — 31,447 — 
Total$546,396 $1,536 $302,969 $203,237 $41,726 

All highly liquid investments with original maturities of three months or less at the date of purchase are classified as cash equivalents. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the designations at each balance sheet date. The Company may sell certain of its short-term investments prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and
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duration management. The maturities of the Company’s short-term investments generally range from three months to three years.
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 September 24, 2021 and June 25, 2021:
September 24, 2021June 25, 2021
(amount in thousands)Carrying
Cost
Fair ValueCarrying
Cost
Fair Value
Due within one year$69,219 $69,211 $30,000 $31,226 
Due between one to five years189,186 189,290 202,927 203,237 
Total$258,405 $258,501 $232,927 $234,463 

As of September 24, 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 assesses impairment at the individual security level according to applicable accounting standards by comparing fair value/market value with 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 ratings 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 three months ended September 24, 2021.

The following table summarizes the carrying cost of short-term investments classified as held-to-maturity securities based on stated effective maturities as of September 24, 2021 and June 25, 2021:
(amount in thousands)As of September 24, 2021As of June 25, 2021
Due within one year$ 
(1)
$10,500 
Due between one to five years  
Total$ $10,500 
(1)Short-term investments classified as held-to-maturity securities as of June 25, 2021 matured in July 2021.
6.Fair value of financial instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs for the valuation of an asset or liability as of the measurement date. The three levels of inputs that may be used to measure fair value are defined as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for assets or liabilities, either directly or indirectly. If the assets or liabilities have a specified (contractual) term, Level 2 inputs must be observable for substantially the full term of assets or liabilities.
Level 3 inputs are unobservable inputs for assets or liabilities, which require the reporting entity to develop its own valuation techniques and assumptions.
The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
The following table provides details of the financial instruments measured at fair value on a recurring basis, including:
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Fair Value Measurements at Reporting Date Using
(amount in thousands)Level 1Level 2Level 3Total
As of September 24, 2021
Assets
Cash equivalents$ $46,502 $ $46,502 
Liquidity funds 31,278  31,278 
Corporate debt securities 203,078  203,078 
U.S. agency and U.S. treasury securities 24,145  24,145 
Total$ $305,003 $ $305,003 
Liabilities
       Derivative liabilities – current portion$ $7,798 $ $7,798 
Derivative liabilities – non-current portion 1,554  1,554 
Total$ $9,352 
(1)
$ $9,352 
Fair Value Measurements at Reporting Date Using
(amount in thousands)Level 1Level 2Level 3Total
As of June 25, 2021
Assets
Cash equivalents$ $80,305 $ $80,305 
Liquidity funds 31,226  31,226 
Corporate debt securities 171,790  171,790 
U.S. agency and U.S. Treasury securities 31,447  31,447 
Derivative assets – current portion 1 
(2)
 1 
Total$ $314,769 $ $314,769 
Liabilities
       Derivative liabilities – current portion$ $5,654 $ $5,654 
Derivative liabilities – non-current portion 1,977  1,977 
Total$ $7,631 
(3)
$ $7,631 

(1)Foreign currency forward contracts with a notional amount of $135.0 million and Canadian dollars 0.2 million and two interest rate swap agreements with an aggregate notional amount of $125.1 million.
(2)Foreign currency forward contracts with an aggregate notional amount of $2.0 million.
(3)Foreign currency forward contracts with an aggregate notional amount of $128.0 million and Canadian dollars 0.4 million and two interest rate swap agreements with an aggregate notional amount of $125.1 million.
Derivative Financial Instruments
The Company utilizes derivative financial instruments to hedge (i) foreign exchange risk associated with certain foreign currency denominated assets and liabilities and other foreign currency transactions, and (ii) interest rate risk associated with its long-term debt.
The Company minimizes the credit risk associated with its derivative instruments by limiting the exposure to any single counterparty and by entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard.
Foreign currency forward and option contracts
As a result of foreign currency rate fluctuations, the U.S. dollar equivalent values of the Company’s foreign currency denominated assets and liabilities fluctuate. The Company uses foreign currency forward and option contracts to manage the foreign exchange risk associated with a portion of its foreign currency denominated assets and liabilities and other foreign currency transactions. The Company enters into foreign currency forward and option contracts to hedge fluctuations in the U.S. dollar value of forecasted transactions denominated in Thai baht and Canadian dollars with counterparties that meet the Company’s minimum credit quality standard.
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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. The Company considers these forward contracts as dual-purpose hedges, that hedge the foreign exchange fluctuation (i) from inception through the forecasted expenditure, and (ii) any subsequent revaluation of the account payable or accrual. The Company may designate the forward contracts that hedge the foreign exchange fluctuation from inception through the forecasted expenditure as cash flow hedges. The gain or loss on a derivative instrument designated and qualified as a cash flow hedging instrument is recorded as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. 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 to foreign exchange gain (loss), net in the consolidated statements of operations and comprehensive income.
As of September 24, 2021, the Company had 135 outstanding U.S. dollar foreign currency forward contracts against Thai baht, with an aggregate notional amount of $135.0 million and maturity dates ranging from October 2021 through April 2022 and one outstanding Canadian dollar foreign currency forward contract with a notional amount of 0.2 million Canadian dollars and a maturity date in December 2021.
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 $130.0 million and maturity dates ranging from July 2021 through January 2022, and two foreign currency contracts with an aggregate notional amount of 0.4 million Canadian dollars and maturity dates in September 2021.
As of September 24, 2021, the hedging relationship over foreign currency forward contracts that were designated for hedge accounting was determined to be highly effective based on the performance of retrospective and prospective regression testing. As of September 24, 2021, the amount in accumulated other comprehensive income ("AOCI") that is expected to be reclassified into earnings within 12 months was a loss of $4.1 million.
As of June 25, 2021, the hedging relationship over foreign currency forward contracts that were designated for hedge accounting was determined 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 was a gain of $2.7 million.
During the three months ended September 24, 2021, the Company recorded an unrealized loss of $0.6 million from changes in the fair value of a foreign currency forward contract that was not designated for hedge accounting in earnings as foreign exchange gain (loss), net in the unaudited condensed consolidated statements of operations and comprehensive income.
During the three months ended September 25, 2020, the Company recorded an unrealized loss of $1.5 million from changes in the fair value of a foreign currency forward contract that was not designated for hedge accounting in earnings as foreign exchange gain (loss), net in the unaudited condensed 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 September 24, 2021 and June 25, 2021, 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 to a fixed interest rate of 2.86% per annum through the scheduled maturity of the term loan in June 2023 (see Note 12). The Company did not designate this interest rate swap for hedge accounting.
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 12) and on September 10, 2019, the Company repaid in full the outstanding term loan under the Bank of America credit facility agreement (see Note 12). In conjunction with the funding of the new term loan, the Company entered into a second interest rate swap agreement. The combination of both of
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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 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 unaudited condensed 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 September 24, 2021, the amount in AOCI that is expected to be reclassified into earnings within 12 months is a loss of $0.9 million.
As of June 25, 2021, the amount in AOCI that is expected to be reclassified into earnings within 12 months is a loss of $0.8 million.
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 unaudited condensed consolidated statements of operations and other comprehensive income:
Three Months Ended
(amount in thousands)Financial
statements
line item
September 24,
2021
September 25,
2020
Derivatives gain (loss) recognized in other comprehensive income (loss):
Foreign currency forward contractsOther comprehensive
income
$(2,136)$(2,340)
Interest rate swapsOther comprehensive
income
408 357 
Total derivatives gain (loss) recognized in other comprehensive income (loss)$(1,728)$(1,983)
Derivatives loss (gain) reclassified from accumulated other comprehensive income (loss) into earnings:
Foreign currency forward contractsCost of revenues$2,115 $(2,057)
Foreign currency forward contractsSG&A88 (87)
Foreign currency forward contractsForeign exchange loss, net(1,424)1,278 
Interest rate swapsInterest expense(268)(359)
Total derivatives (gain) loss reclassified from accumulated other comprehensive income (loss) into earnings$511 $(1,225)
Change in net unrealized gain (loss) on derivatives
instruments
$(1,217)$(3,208)
Fair Value of derivatives
The following table provides the fair values of the Company’s derivative financial instruments for the periods presented:
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September 24,
2021
June 25,
2021
(amount in thousands)Derivative
Assets
Derivative
Liabilities
Derivative
Assets
Derivative
Liabilities
Derivatives not designated as hedging instruments
Foreign currency forward and option contracts$ $(2,149)$ $(1,379)
Interest rate swaps    
Derivatives designated as hedging instruments
Foreign currency forward contracts (4,063)1 (2,703)
Interest rate swaps (3,140) (3,549)
Derivatives, gross balances$ $(9,352)$1 $(7,631)
The Company recorded the fair value of derivative financial instruments in the unaudited condensed consolidated balance sheets as follows:
Derivative Financial InstrumentsBalance Sheet line item
Fair Value of Derivative AssetsOther current assets
Fair Value of Derivative LiabilitiesAccrued expenses
Fair Value of Derivative LiabilitiesOther non-current liabilities
7.Inventories
(amount in thousands)As of September 24,
2021
As of June 25,
2021
Raw materials$234,923 $196,345 
Work in progress190,964 174,654 
Finished goods15,194 15,471 
Goods in transit24,170 35,663 
Inventories$465,251 $422,133 

8.Restricted cash
As of September 24, 2021 and June 25, 2021, the Company had long-term restricted cash of Renminbi 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.













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9.Leases
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, the PRC, the U.S., the U.K., Israel and Singapore under operating lease arrangements that expire at various dates through 2025. 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 has excluded all lease extension options from its right of use ("ROU") assets and lease liabilities as the Company is not reasonably assured that it will exercise these options. None of the lease agreements contains residual value guarantees provided by the lessee. The Company also has one intercompany lease transaction in the form of a lease of office and manufacturing space between Fabritek and Fabrinet West.
Operating leases
As of September 24, 2021, the maturities of the Company’s operating lease liabilities were as follows:
(amount in thousands)As of September 24,
2021
2022 (remaining 9 months)$2,085 
20232,686 
20241,257 
202543 
Total undiscounted lease payments6,071 
Less imputed interest(238)
Total present value of lease liabilities$5,833 (1)
(1)Included current portion of operating lease liabilities of $2.6 million.
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 three months ended September 24, 2021 and September 25, 2020 was $0.7 million and $0.6 million, respectively. Rental expense for short-term leases for the three months ended September 24, 2021 and September 25, 2020 was immaterial.
The following summarizes additional information related to the Company’s operating leases:
 
As of
September 24, 2021
As of
June 25, 2021
Weighted-average remaining lease term (in years)