Fabrinet(FN) - 2022 Q4 - Annual Report

Part I Business Fabrinet provides advanced optical packaging and precision manufacturing services, with FY2022 revenues growing 20.4% to $2.26 billion, primarily from optical communications products Key Financial Metrics | Financial Metric | Fiscal Year 2022 | Fiscal Year 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $2.26 billion | $1.88 billion | +20.4% | | Optical Communications Revenue % | 78.8% | 76.7% | +2.1 p.p. | | Lasers, Sensors, Other Revenue % | 21.2% | 23.3% | -2.1 p.p. | - The company provides manufacturing services for complex products including optical communication devices, industrial lasers, and sensors for automotive and medical applications[22][25] - Fabrinet's growth strategy focuses on strengthening its optical communications presence, diversifying into industrial lasers and medical markets, and expanding its client base globally[40] - The company's main manufacturing facilities are in Thailand, with additional sites globally, totaling approximately 3.7 million square feet[27] Risk Factors The company faces significant risks from customer concentration, supply chain disruptions, foreign currency fluctuations, and geopolitical instability affecting international operations - Dependence on a small number of customers is a key risk, with three customers accounting for 48.2% of total revenues in FY2022[82] - The company is exposed to supply chain risks, relying on single-source suppliers for critical materials, which could impair production and harm profitability[98][100] - Significant international operations, primarily in Thailand, expose the company to political unrest, currency fluctuations, and changes in local laws[111][113][120] - The U.S.-China trade dispute and tariffs could increase material costs, disrupt the supply chain, and reduce sales, impacting revenues[119] Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[178] Properties The company's principal facilities are in Thailand, PRC, U.S., U.K., and Israel, with two owned campuses in Thailand totaling over 3.2 million square feet Principal Facilities Overview | Location | Ownership | Approx. Square Footage | | :--- | :--- | :--- | | Pinehurst Campus, Thailand | Owned | 1,731,000 sq ft | | Hemaraj Campus, Thailand | Owned | 1,496,000 sq ft | | Fuzhou, PRC | Leased | 303,000 sq ft | | Santa Clara, CA, USA | Owned | 72,000 sq ft | | Wiltshire, UK | Leased | 71,000 sq ft | Legal Proceedings The company reports no material legal claims or actions pending or threatened against it - The company may be involved in litigation in the ordinary course of business, but no material claims are present[181] Mine Safety Disclosures This section is not applicable to the company - Not applicable[182] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Fabrinet's ordinary shares trade on the NYSE under 'FN', with no current dividend plans, and an active share repurchase program with $21.3 million remaining - The company's ordinary shares are listed on the New York Stock Exchange under the symbol 'FN'[185] - The company currently intends to retain earnings for business use and does not plan to pay dividends[187] Share Repurchase Program Summary | Metric | Value | | :--- | :--- | | Shares Repurchased in FY2022 | 628,428 | | Average Price Per Share | $95.32 | | Total Purchase Price | $59.9 million | | Remaining Authorization (as of June 24, 2022) | $21.3 million | Reserved This item is reserved and contains no information - Item 6 is reserved[195] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses FY2022 financial performance, including a 20.4% revenue increase to $2.26 billion, improved gross margin, liquidity, and critical accounting policies Results of Operations FY2022 revenue increased 20.4% to $2.26 billion, with net income rising to $200.4 million, driven by optical communications demand and improved margins Consolidated Statements of Operations (in thousands) | (in thousands) | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Revenues | $2,262,224 | $1,879,350 | $1,641,836 | | Gross Profit | $278,594 | $221,363 | $186,105 | | Operating Income | $204,518 | $150,753 | $117,402 | | Net Income | $200,380 | $148,341 | $113,479 | Revenues by End Market (in thousands) | End Market (in thousands) | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Optical communications | $1,782,799 | $1,441,338 | $1,248,174 | | Lasers, sensors, and other | $479,425 | $438,012 | $393,662 | Liquidity and Capital Resources As of June 24, 2022, the company had $478.2 million in cash and investments, $27.4 million in debt, and management believes liquidity is sufficient for the next 12 months Liquidity Position (in millions) | (in millions) | As of June 24, 2022 | As of June 25, 2021 | | :--- | :--- | :--- | | Cash, cash equivalents, and short-term investments | $478.2 | $547.9 | | Outstanding debt | $27.4 | $39.5 | Cash Flow Summary (FY 2022, in millions) | Cash Flow Activity (FY 2022, in millions) | Amount | | :--- | :--- | | Net cash provided by operating activities | $124.2 | | Net cash used in investing activities | $(135.5) | | Net cash used in financing activities | $(92.9) | - Capital expenditures in FY2022 were $80.5 million, primarily for a new manufacturing building in Thailand, with expected decreases in FY2023[288] Critical Accounting Policies and Use of Estimates The company's critical accounting policies involve significant management judgment and estimates, including revenue recognition, inventory valuation, long-lived asset impairment, doubtful accounts, and deferred tax assets - Revenue Recognition: Management uses judgment to identify performance obligations and determine when control of goods transfers, impacting revenue timing[234][236] - Inventory Valuation: Provisions for excess and obsolete inventory are based on demand forecasts; a 10% estimate change would impact FY2022 net income by $0.7 million[239][240] - Deferred Income Taxes: Deferred tax asset valuation assumes sufficient future taxable income, with a valuation allowance for the U.K. subsidiary[241][244] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to interest rate risk, foreign currency risk, and credit risk, managed through swaps, forward contracts, and monitoring of counterparties - Interest Rate Risk: A 100 basis point LIBOR increase would raise interest expense by $0.3 million, managed with interest rate swaps[292][293] - Foreign Currency Risk: Significant exposure to Thai baht, RMB, and GBP, with a 10% USD weakening impacting the net dollar position by $5.3 million, managed with forward contracts[296][299] - Credit Risk: Concentrated with a small number of customers and financial institutions, mitigated by monitoring their financial health[300] Financial Statements and Supplementary Data This section contains the audited consolidated financial statements for FY2022, FY2021, and FY2020, along with the independent auditor's report from PricewaterhouseCoopers ABAS Ltd Consolidated Balance Sheet Highlights (in thousands) | (in thousands) | As of June 24, 2022 | As of June 25, 2021 | | :--- | :--- | :--- | | Total Current Assets | $1,525,171 | $1,352,507 | | Total Assets | $1,835,641 | $1,616,122 | | Total Current Liabilities | $538,487 | $444,358 | | Total Liabilities | $581,959 | $503,602 | | Total Shareholders' Equity | $1,253,682 | $1,112,520 | Consolidated Statements of Operations Highlights (in thousands) | (in thousands, except per share data) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Revenues | $2,262,224 | $1,879,350 | | Net Income | $200,380 | $148,341 | | Diluted EPS | $5.36 | $3.95 | - PricewaterhouseCoopers ABAS Ltd. issued an unqualified opinion, affirming fair financial statement presentation and effective internal controls[306] - A critical audit matter identified was the timing of revenue recognition, involving significant management judgment in evaluating contract terms[313][314] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of June 24, 2022, with no material changes during the quarter - Management concluded that disclosure controls and procedures were effective as of the fiscal year-end[537] - Management's assessment concluded that the company maintained effective internal control over financial reporting as of June 24, 2022[542] - No material changes were made to the internal control over financial reporting during the last fiscal quarter[538] Part III Directors, Executive Compensation, Security Ownership, and Accountant Fees Information for Items 10 through 14, covering Directors, Executive Compensation, Security Ownership, Related Transactions, and Accountant Fees, is incorporated by reference from the 2022 proxy statement - Item 10: Directors, Executive Officers and Corporate Governance information is incorporated by reference from the 2022 Proxy Statement[546] - Item 11: Executive Compensation information is incorporated by reference from the 2022 Proxy Statement[547] - Item 12: Security Ownership information is incorporated by reference from the 2022 Proxy Statement[548] - Item 13: Certain Relationships and Related Transactions information is incorporated by reference from the 2022 Proxy Statement[549] - Item 14: Principal Accountant Fees and Services information is incorporated by reference from the 2022 Proxy Statement[550] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with or incorporated by reference into the Form 10-K, including articles of association, equity plans, agreements, and CEO/CFO certifications - The report includes a list of all exhibits filed, such as the Amended and Restated Memorandum and Articles of Association (Exhibit 3.1)[554] - Management contracts and compensatory plans, including the 2020 Equity Incentive Plan, are filed as exhibits[554][556] - CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 are included as Exhibits 31.1, 31.2, and 32.1[558] Form 10-K Summary This item is not applicable to the company's filing - Not applicable[559]