SEC Filing | Fabrinet

View:

fn-20211224

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 December 24, 2021


☐			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 class

Trading Symbol(s)

Name of each exchange on which registered

Ordinary Shares, $0.01 par value

New 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 filer	x	Accelerated 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 January 21, 2022, the registrant had 36,995,336 ordinary shares, $0.01 par value, outstanding.

Table of Contents

FABRINET

FORM 10-Q

QUARTER ENDED DECEMBER 24, 2021

Table of Contents


			Page No.
RISK FACTORS SUMMARY			3
PART I. FINANCIAL INFORMATION			5

Item 1. Financial Statements			5

Condensed Consolidated Balance Sheets as of December 24, 2021 and June 25, 2021 (unaudited)			5

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended December 24, 2021 and December 25, 2020 (unaudited)			6

Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended December 24, 2021 and December 25, 2020 (unaudited)			7

Condensed Consolidated Statements of Cash Flows for the six months ended December 24, 2021 and December 25, 2020 (unaudited)			9

Notes to Condensed Consolidated Financial Statements (unaudited)			11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31

Item 3. Quantitative and Qualitative Disclosures About Market Risk			43

Item 4. Controls and Procedures			45

PART II. OTHER INFORMATION			46

Item 1. Legal Proceedings			46

Item 1A. Risk Factors			46

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			63

Item 6. Exhibits			64

Signature			65

Table of Contents

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.

Table of Contents

•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 (including COVID-19), 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.

Table of Contents

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)	December 24, 2021		June 25, 2021
Assets
Current assets
Cash and cash equivalents	$	276,531	$	302,969
Short-term restricted cash	157		—
Short-term investments	243,339		244,963
Trade accounts receivable, net of allowance for doubtful accounts of $70 and $100, respectively	384,725		336,547
Contract assets	13,148		11,878
Inventories	484,873		422,133
Prepaid expenses	8,765		11,398
Other current assets	28,449		22,619
Total current assets	1,439,987		1,352,507
Non-current assets
Long-term restricted cash	157		154
Property, plant and equipment, net	290,683		241,129
Intangibles, net	3,878		4,371
Operating right-of-use assets	5,478		6,699
Deferred tax assets	10,025		9,428
Other non-current assets	587		1,834
Total non-current assets	310,808		263,615
Total Assets	$	1,750,795	$	1,616,122
Liabilities and Shareholders’ Equity
Current liabilities
Long-term borrowings, current portion, net	$	12,156	$	12,156
Trade accounts payable	391,176		346,555
Fixed assets payable	28,740		19,206
Contract liabilities	1,894		1,680
Operating lease liabilities, current portion	2,631		2,593
Income tax payable	2,200		3,612
Accrued payroll, bonus and related expenses	18,382		20,464
Accrued expenses	19,826		17,134
Other payables	23,032		20,958
Total current liabilities	500,037		444,358
Non-current liabilities
Long-term borrowings, non-current portion, net	21,279		27,358
Deferred tax liability	5,082		5,107
Operating lease liability, non-current portion	2,581		3,850
Severance liabilities	19,834		19,485
Other non-current liabilities	2,791		3,444
Total non-current liabilities	51,567		59,244
Total Liabilities	551,604		503,602
Commitments and contingencies (Note 15)
Shareholders’ equity
Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and outstanding as of December 24, 2021 and June 25, 2021)	—		—
Ordinary shares (500,000,000 shares authorized, $0.01 par value; 39,008,996 shares and 38,749,045 shares issued at December 24, 2021 and June 25, 2021, respectively; and 36,987,138 shares and 36,765,456 shares outstanding at December 24, 2021 and June 25, 2021, respectively)	390		388
Additional paid-in capital	185,940		189,445
Less: Treasury shares (2,021,858 shares and 1,983,589 shares as of December 24, 2021 and June 25, 2021 respectively)	(91,776)		(87,343)
Accumulated other comprehensive income (loss)	(5,189)		(6,266)
Retained earnings	1,109,826		1,016,296
Total Shareholders’ Equity	1,199,191		1,112,520
Total Liabilities and Shareholders’ Equity	$	1,750,795	$	1,616,122

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

Table of Contents

FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)


	Three Months Ended				Six Months Ended
(in thousands of U.S. dollars, except per share data)	December 24, 2021		December 25, 2020		December 24, 2021		December 25, 2020
Revenues	$	566,633	$	453,827	$	1,109,955	$	890,466
Cost of revenues	(497,262)		(400,806)		(976,987)		(786,965)
Gross profit	69,371		53,021		132,968		103,501
Selling, general and administrative expenses	(17,791)		(17,156)		(38,378)		(34,019)
Expenses related to reduction in workforce	(135)		—		(135)		—
Operating income	51,445		35,865		94,455		69,482
Interest income	295		1,111		1,056		2,215
Interest expense	(238)		(265)		(274)		(516)
Foreign exchange gain (loss), net	(364)		(533)		1,408		(405)
Other income (expense), net	(1,055)		158		(1,315)		279
Income before income taxes	50,083		36,336		95,330		71,055
Income tax expense	(1,204)		(952)		(1,800)		(2,620)
Net income	48,879		35,384		93,530		68,435
Other comprehensive income (loss), net of tax:
Change in net unrealized gain (loss) on available-for-sale securities	(947)		(42)		(1,160)		(367)
Change in net unrealized gain (loss) on derivative instruments	3,294		2,385		2,077		(823)
Change in net retirement benefits plan – prior service cost	126		50		324		223
Change in foreign currency translation adjustment	—		(146)		(164)		457
Total other comprehensive income (loss), net of tax	2,473		2,247		1,077		(510)
Net comprehensive income (loss)	$	51,352	$	37,631	$	94,607	$	67,925
Earnings per share
Basic	$	1.32	$	0.96	$	2.53	$	1.86
Diluted	$	1.30	$	0.94	$	2.50	$	1.83
Weighted-average number of ordinary shares outstanding (thousands of shares)
Basic	37,017		36,936		36,947		36,877
Diluted	37,552		37,551		37,440		37,467

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

Table of Contents

FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

For the Three Months Ended December 24, 2021


	Ordinary Share			Additional Paid-in Capital		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
(in thousands of U.S. dollars, except share data)	Shares	Amount
Balances at September 24, 2021	39,000,843	$	390	$	179,670	$	(87,343)	$	(7,662)	$	1,060,947	$	1,146,002
Net income	—	—		—		—		—		48,879		48,879
Other comprehensive income (loss)	—	—		—		—		2,473		—		2,473
Share-based compensation	—	—		6,686		—		—		—		6,686
Issuance of ordinary shares	8,153	—		—		—		—		—		—
Repurchase of 38,269 shares held as treasury shares	—	—		—		(4,433)		—		—		(4,433)
Tax withholdings related to net share settlement of restricted share units	—	—		(416)		—		—		—		(416)
Balances at December 24, 2021	39,008,996	$	390	$	185,940	$	(91,776)	$	(5,189)	$	1,109,826	$	1,199,191

For the Six Months Ended December 24, 2021


	Ordinary Share			Additional Paid-in Capital		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
(in thousands of U.S. dollars, except share data)	Shares	Amount
Balances at June 25, 2021	38,749,045	$	388	$	189,445	$	(87,343)	$	(6,266)	$	1,016,296	$	1,112,520
Net income	—	—		—		—		—		93,530		93,530
Other comprehensive income (loss)	—	—		—		—		1,077		—		1,077
Share-based compensation	—	—		15,978		—		—		—		15,978
Issuance of ordinary shares	259,951	2		(2)		—		—		—		—
Repurchase of 38,269 shares held as treasury shares	—	—		—		(4,433)		—		—		(4,433)
Tax withholdings related to net share settlement of restricted share units	—	—		(19,481)		—		—		—		(19,481)
Balances at December 24, 2021	39,008,996	$	390	$	185,940	$	(91,776)	$	(5,189)	$	1,109,826	$	1,199,191

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

Table of Contents

FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited) (Continued)

For the Three Months Ended December 25, 2020


	Ordinary Share			Additional Paid-in Capital		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
(in thousands of U.S. dollars, except share data)	Shares	Amount
Balances at September 25, 2020	38,680,659	$	387	$	171,715	$	(68,501)	$	(3,904)	$	901,006	$	1,000,703
Net income	—	—		—		—		—		35,384		35,384
Other comprehensive income (loss)	—	—		—		—		2,247		—		2,247
Share-based compensation	—	—		5,851		—		—		—		5,851
Issuance of ordinary shares	17,409	—		—		—		—		—		—
Repurchase of 101,549 shares held as treasury shares	—	—		—		(7,074)		—		—		(7,074)
Tax withholdings related to net share settlement of restricted share units	—	—		(441)		—		—		—		(441)
Balances at December 25, 2020	38,698,068	$	387	$	177,125	$	(75,575)	$	(1,657)	$	936,390	$	1,036,670

For the Six Months Ended December 25, 2020


	Ordinary Share			Additional Paid-in Capital		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
(in thousands of U.S. dollars, except share data)	Shares	Amount
Balances at June 26, 2020	38,471,967	$	385	$	175,610	$	(68,501)	$	(1,147)	$	868,062	$	974,409
Net income	—	—		—		—		—		68,435		68,435
Other comprehensive income (loss)	—	—		—		—		(510)		—		(510)
Cumulative effect adjustment from adoption of ASC 326	—	—		—		—		—		(107)		(107)
Share-based compensation	—	—		11,878		—		—		—		11,878
Issuance of ordinary shares	226,101	2		(2)		—		—		—		—
Repurchase of 101,549 shares held as treasury shares	—	—		—		(7,074)		—		—		(7,074)
Tax withholdings related to net share settlement of restricted share units	—	—		(10,361)		—		—		—		(10,361)
Balances at December 25, 2020	38,698,068	$	387	$	177,125	$	(75,575)	$	(1,657)	$	936,390	$	1,036,670

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

Table of Contents

FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Six Months Ended
(in thousands of U.S. dollars)	December 24, 2021		December 25, 2020
Cash flows from operating activities
Net income for the period	$	93,530	$	68,435
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	19,114		17,650
Gain on disposal of property, plant and equipment	(135)		(24)
Gain from sales and maturities of available-for-sale securities	(13)		(86)
Amortization of investment discount	2,079		1,003
Amortization of deferred debt issuance costs	16		16
(Reversal of) allowance for doubtful accounts	(30)		(321)
Unrealized gain on exchange rate and fair value of foreign currency forward contracts	(673)		(290)

Amortization of fair value at hedge inception of interest rate swaps	(513)		(695)
Share-based compensation	15,978		11,878
Deferred income tax	(986)		(461)
Other non-cash expenses	268		(657)
Changes in operating assets and liabilities
Trade accounts receivable	(48,046)		(45,410)
Contract assets	(1,270)		(2,967)
Inventories	(62,740)		(62,211)
Other current assets and non-current assets	(5,568)		(11,983)
Trade accounts payable	44,078		45,179
Contract liabilities	214		248
Income tax payable	(1,323)		548
Severance liabilities	1,708		1,350
Other current liabilities and non-current liabilities	1,880		20,112
Net cash provided by operating activities	57,568		41,314
Cash flows from investing activities
Purchase of short-term investments	(78,786)		(126,701)
Proceeds from sales of short-term investments	19,463		57,486
Proceeds from maturities of short-term investments	57,721		68,807
Purchase of property, plant and equipment	(51,917)		(22,693)
Purchase of intangibles	(446)		(1,271)
Proceeds from disposal of property, plant and equipment	188		26
Net cash used in investing activities	(53,777)		(24,346)
Cash flows from financing activities
Repayment of long-term borrowings	(6,094)		(6,094)
Repayment of finance lease liability	—		(100)
Repurchase of ordinary shares	(4,198)		(7,074)
Withholding tax related to net share settlement of restricted share units	(19,481)		(10,361)
Net cash used in financing activities	(29,773)		(23,629)
Net decrease in cash, cash equivalents and restricted cash	$	(25,982)	$	(6,661)
Movement in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of period	$	303,123	$	232,832
Decrease in cash, cash equivalents and restricted cash	(25,982)		(6,661)
Effect of exchange rate on cash, cash equivalents and restricted cash	(296)		605
Cash, cash equivalents and restricted cash at the end of period	$	276,845	$	226,776
Non-cash investing and financing activities
Construction, software and equipment-related payables	$	28,740	$	7,748

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

Table of Contents

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 December 24, 2021		As of December 25, 2020
Cash and cash equivalents	$	276,531	$	219,221
Restricted cash	314		7,555
Cash, cash equivalents and restricted cash	$	276,845	$	226,776

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

Table of Contents

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 December 24, 2021 and for the three and six months ended December 24, 2021 and December 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 and six months ended December 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 based 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.

Table of Contents

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 December 24, 2021 and December 25, 2020 each consisted of 13 weeks. The six months ended December 24, 2021 and December 25, 2020 each consisted of 26 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.

New Accounting Pronouncements – not yet adopted by the Company

In November 2021, the Financial Accounting Standards Board issued ASU 2021-10, “Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance,” which requires annual disclosures that increase the transparency of transactions involving government assistance, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for all entities within the ASU's scope for financial statements issued for annual periods beginning after December 15, 2021. This ASU will be effective for the Company in the first quarter of fiscal year 2023. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this update on its condensed consolidated financial statements.

Table of Contents

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 December 24, 2021		As a % of Total Revenues		Six Months Ended December 24, 2021		As a % of Total Revenues
North America
U.S.	243,720				488,994
Others (1)	3,557				4,873
Total revenue in North America	247,277		43.6	%	493,867		44.5	%
Asia-Pacific and others
India	74,121				139,054
Malaysia	60,369				112,118
Hong Kong	23,206				44,237
Israel	22,801				50,434
Japan	15,832				30,809
China	14,146				27,781
Others	11,565				23,790
Total revenue in Asia-Pacific and others	222,040		39.2	%	428,223		38.6	%
Europe
Ireland	54,900				104,384
U.K.	22,941				42,519
Germany	8,985				17,410
Others	10,490				23,552
Total revenue in Europe	$	97,316	17.2	%	$	187,865	16.9	%
Total revenue	$	566,633	100.0	%	$	1,109,955	100.0	%

Table of Contents


(amount in thousands, except percentages)	Three Months Ended December 25, 2020		As a % of Total Revenues		Six Months Ended December 25, 2020		As a % of Total Revenues
North America
U.S.	224,046				430,996
Others (1)	626				1,078
Total revenue in North America	224,672		49.5	%	432,074		48.5	%
Asia-Pacific and others
Malaysia	34,546				80,188
India	28,865				28,885
Israel	27,102				57,217
Hong Kong	18,092				41,598
Japan	17,309				37,642
China	12,563				26,340
Others	15,257				27,510
Total revenue in Asia-Pacific and others	153,734		33.9	%	299,380		33.6	%
Europe
Ireland	48,954				102,730
U.K.	10,004				25,315
Germany	6,253				12,052
Others	10,210				18,915
Total revenue in Europe	$	75,421	16.6	%	$	159,012	17.9	%
Total revenue	$	453,827	100.0	%	$	890,466	100.0	%

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

The following table presents revenues by end market.


(amount in thousands, except percentages)	Three Months Ended December 24, 2021		As a % of Total Revenues		Six Months Ended December 24, 2021		As a % of Total Revenues
Optical communications	$	450,783	79.6	%	$	878,084	79.1	%
Lasers, sensors and other	115,850		20.4	%	231,871		20.9	%
Total	$	566,633	100.0	%	$	1,109,955	100.0	%


(amount in thousands, except percentages)	Three Months Ended December 25, 2020		As a % of Total Revenues		Six Months Ended December 25, 2020		As a % of Total Revenues
Optical communications	$	347,840	76.6	%	$	691,757	77.7	%
Lasers, sensors and other	105,987		23.4	%	198,709		22.3	%
Total	$	453,827	100.0	%	$	890,466	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.

Table of Contents

The following tables summarize the activity in the Company’s contract assets and contract liabilities during the six months ended December 24, 2021:


(amount in thousands)	Contract Assets
Beginning balance, June 25, 2021	$	11,878
Revenue recognized	26,241
Amounts collected or invoiced	(24,971)
Ending balance, December 24, 2021	$	13,148


(amount in thousands)	Contract Liabilities
Beginning balance, June 25, 2021	$	1,680
Advance payment received during the period	3,281
Revenue recognized	(3,067)
Ending balance, December 24, 2021	$	1,894

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				Six Months Ended
(amount in thousands except per share amounts)	December 24, 2021		December 25, 2020		December 24, 2021		December 25, 2020
Net income attributable to shareholders	$	48,879	$	35,384	$	93,530	$	68,435
Weighted-average number of ordinary shares outstanding (thousands of shares)	37,017		36,936		36,947		36,877
Incremental shares arising from the assumed vesting of restricted share units and performance share units (thousands of shares)	535		615		493		590
Weighted-average number of ordinary shares for diluted earnings per ordinary share (thousands of shares)	37,552		37,551		37,440		37,467
Basic earnings per ordinary share	$	1.32	$	0.96	$