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What changed in Fabrinet's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Fabrinet's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+230 added−276 removedSource: 10-K (2023-08-22) vs 10-K (2022-08-16)

Top changes in Fabrinet's 2023 10-K

230 paragraphs added · 276 removed · 209 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe believe that both our evolving business practices and industry trends may result in the continued growth of our patent portfolio and its importance to us, particularly as we expand our business. 13 Table of Contents Government Regulations Environmental Compliance We are subject to a variety of international and U.S. laws and regulations relating to the use, disposal, cleanup of and human exposure to hazardous materials.
Biggest changeWe believe that both our evolving business practices and industry trends may result in the continued growth of our patent portfolio and its importance to us, particularly as we expand our business.
Of the aggregate square footage of our facilities, approximately 3.2 million square feet are located in Thailand and the remaining balance is located in the People’s Republic of China (“PRC” or “China”), the United Kingdom, the United States, Israel and the Cayman Islands. See Part I, Item 2. Properties of this Annual Report on Form 10-K.
Of the aggregate square footage of our facilities, approximately 3.2 million square feet are located in Thailand and the remaining balance is located in the People’s Republic of China (“PRC” or “China”), the United States, Israel and the Cayman Islands. See Part I, Item 2. Properties of this Annual Report on Form 10-K.
The implementation of lean manufacturing initiatives helps improve efficiency and reduce waste in the manufacturing process in areas such as inventory on hand, set up times, and floor space and the number of people required for production, while Kaizen and Six Sigma ensures continuous improvement by reducing process variation. 12 Table of Contents Competition Although the manufacturing services market is highly competitive, we believe that there are significant barriers to entry in our existing and target markets, including lengthy sales cycles, the need to demonstrate complex precision optical and electro-mechanical engineering and manufacturing capabilities to a prospective customer and the ability to protect a customer’s intellectual property.
The implementation of lean manufacturing initiatives helps improve efficiency and reduce waste in the manufacturing process in areas such as inventory on hand, set up times, and floor space and the number of people required for production, while Kaizen and Six Sigma ensures continuous improvement by reducing process variation. 11 Table of Contents Competition Although the manufacturing services market is highly competitive, we believe that there are significant barriers to entry in our existing and target markets, including lengthy sales cycles, the need to demonstrate complex precision optical and electro-mechanical engineering and manufacturing capabilities to a prospective customer and the ability to protect a customer’s intellectual property.
We believe industrial laser and sensor OEMs are increasingly recognizing the benefits of outsourcing that OEMs in other industries, such as optical communications, have been able to achieve. 6 Table of Contents Our Competitive Strengths We believe we have succeeded in providing differentiated services to the optical communications, industrial lasers, medical, and sensors industries due to our long-term focus on optical and electro-mechanical process technologies, strategic alignment with our customers and commitment to total customer satisfaction.
We believe industrial laser and sensor OEMs are increasingly recognizing the benefits of outsourcing that OEMs in other industries, such as optical communications, have been able to achieve. 5 Table of Contents Our Competitive Strengths We believe we have succeeded in providing differentiated services to the optical communications, industrial lasers, medical, and sensors industries due to our long-term focus on optical and electro-mechanical process technologies, strategic alignment with our customers and commitment to total customer satisfaction.
As the parent company, we enter into contracts directly with our customers while some of our subsidiaries in the PRC, the U.S. and the U.K. enter into sales contracts or purchase orders directly with their customers.
As the parent company, we enter into contracts directly with our customers while some of our subsidiaries in the PRC and the U.S. enter into sales contracts or purchase orders directly with their customers.
We often transfer production from a customer’s internal prototype or production lines to our own facilities, requiring a copy-exact: the setup of a production process identical to the one used by our customer to minimize the number of variables and expedite qualification. 8 Table of Contents Advanced Optical Packaging We have a dedicated team of experienced engineers supporting our advanced optical packaging development capabilities.
We often transfer production from a customer’s internal prototype or production lines to our own facilities, requiring a copy-exact: the setup of a production process identical to the one used by our customer to minimize the number of variables and expedite qualification. 7 Table of Contents Advanced Optical Packaging We have a dedicated team of experienced engineers supporting our advanced optical packaging development capabilities.
Our manufacturing execution system (“MES”) is directly integrated with our test system 9 Table of Contents and enterprise resource planning (“ERP”) database allowing us to respond to any process deviations in real time. We work with customers to develop product-specific test strategies. We also provide a variety of test management services, including material and process testing and reliability testing.
Our manufacturing execution system (“MES”) is directly integrated with our test system 8 Table of Contents and enterprise resource planning (“ERP”) database allowing us to respond to any process deviations in real time. We work with customers to develop product-specific test strategies. We also provide a variety of test management services, including material and process testing and reliability testing.
We believe that the rigorous product transfer and qualification processes, and the close relationships that we develop with our customers during those processes, result in greater visibility into product life cycles and longer-term customer engagements. 11 Table of Contents Backlog We are substantially dependent on orders we receive and fill on a short-term basis.
We believe that the rigorous product transfer and qualification processes, and the close relationships that we develop with our customers during those processes, result in greater visibility into product life cycles and longer-term customer engagements. 10 Table of Contents Backlog We are substantially dependent on orders we receive and fill on a short-term basis.
We believe our deep expertise, relationships and capabilities in supply chain and materials management often allows us to further reduce costs and cycle times for our customers. 7 Table of Contents Our Growth Strategy The key elements of our growth strategy are to: • Strengthen Our Presence in the Optical Communications Market: We believe we are a leader in manufacturing products for the optical communications market.
We believe our deep expertise, relationships and capabilities in supply chain and materials management often allows us to further reduce costs and cycle times for our customers. 6 Table of Contents Our Growth Strategy The key elements of our growth strategy are to: • Strengthen Our Presence in the Optical Communications Market: We believe we are a leader in manufacturing products for the optical communications market.
Similarly, if our customers experience disruptions to their supplies or materials, or the extension of their lead times, they may reduce, cancel, or alter the timing of their purchases with us, which could have a material adverse effect on our business, financial condition and operating results. Tax Reform We are subject to income taxes in various jurisdictions.
Similarly, if our customers experience disruptions to their supplies or materials, or the extension of their lead times, they may reduce, cancel, or alter the timing of their purchases with us, which could have a material adverse effect on our business, financial condition and operating results. Tax Law Changes We are subject to income taxes in various jurisdictions.
We maintain the following certifications: ISO 9001 for Manufacturing Quality Management Systems; ISO 14001 for Environmental Management Systems; TL 9000 for Telecommunications Industry Quality Certification; IATF 16949 for Automotive Industry Quality Certification; ISO 13485 for Medical Devices Industry Quality Certification; AS 9100 for Aerospace Industry Quality Certification; NADCAP (National Aerospace and Defense Contractors Accreditation Program) for Quality Assurance throughout the Aerospace and Defense Industries; and ISO 45001 for Occupational Health and Safety Management Systems.
We maintain the following certifications: ISO 9001 for Manufacturing Quality Management Systems; ISO 14001 for Environmental Management Systems; TL 9000 for Telecommunications Industry Quality Certification; IATF 16949 for Automotive Industry Quality Certification; ISO 13485 for Medical Devices Industry Quality Certification; AS 9100 for Aerospace Industry Quality Certification; NADCAP (National Aerospace and Defense Contractors Accreditation Program) for Quality Assurance throughout the Aerospace and Defense Industries; ISO 45001 for Occupational Health and Safety Management Systems; and ISO 22301 for Business Continuity Management Systems.
Securities and Exchange Commission (“SEC”). The SEC maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including Fabrinet. 15 Table of Contents
Securities and Exchange Commission (“SEC”). The SEC maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including Fabrinet. 14 Table of Contents
While to date we are not aware of any material exposures, there can be no assurance that environmental matters will not arise in the future or that costs will not be incurred with respect to sites as to which no problem is currently known.
While to date we 12 Table of Contents are not aware of any material exposures, there can be no assurance that environmental matters will not arise in the future or that costs will not be incurred with respect to sites as to which no problem is currently known.
As of June 24, 2022, our facilities comprised approximately 3.7 million total square feet, including approximately 0.9 million square feet of office space used for general administration purposes and approximately 2.8 million square feet devoted to manufacturing and related activities, of which approximately 1.2 million square feet are clean room facilities.
As of June 30, 2023, our facilities comprised approximately 3.7 million total square feet, including approximately 0.9 million square feet of office space used for general administration purposes and approximately 2.8 million square feet devoted to manufacturing and related activities, of which approximately 1.0 million square feet are clean room facilities.
Many optical component package designs require metallized fiber and 10 Table of Contents some designs also require lensing at the tip of the fiber.
Many optical component package designs require metallized fiber and 9 Table of Contents some designs also require lensing at the tip of the fiber.
Historically, patents have not played a significant role in the protection of our proprietary rights. Nevertheless, we currently have a relatively small number of solely-owned and jointly-held PRC patents in various customized optic technologies with expiration dates between 2022 and 2034.
Historically, patents have not played a significant role in the protection of our proprietary rights. Nevertheless, we currently have a relatively small number of solely-owned and jointly-held PRC patents in various customized optic technologies with expiration dates between 2023 and 2040.
Therefore, we expect a significant percentage of our revenues will continue to come from a small number of customers. During each of fiscal years 2022 and 2021, we had three customers that each contributed 10% or more of our revenues.
Therefore, we expect a significant percentage of our revenues will continue to come from a small number of customers. During fiscal years 2023 and 2022, we had four and three customers, respectively, that each contributed 10% or more of our revenues.
We have inter-company agreements with certain of our subsidiaries in Thailand and the U.S. to provide manufacturing services to us, and we have inter-company agreements with certain of our subsidiaries in the U.S. and Singapore to provide certain administrative and business development services to us. 14 Table of Contents Human Capital Resources Our workforce is distributed globally over eight countries.
We have inter-company agreements with certain of our subsidiaries in Thailand and the U.S. to provide manufacturing services to us, and we have inter-company agreements with certain of our subsidiaries in the U.S. and Singapore to provide certain administrative and business development services to us. Human Capital Resources Our workforce is distributed globally over seven countries.
There have been a number of proposed changes in the tax laws that could increase our tax liability. Several governments are considering various tax reform proposals that, if enacted, may contain provisions that could increase our tax expense.
There have been a number of proposed changes in the tax laws that could increase our tax liability. Several governments are considering tax reform proposals that, if enacted, could increase our tax expense.
Of our total workforce, approximately 13,863 employees were involved in manufacturing operations and 372 employees were involved in business development and general and administrative functions. None of our employees are represented by a labor union. We have not experienced any work stoppages, slowdowns, or strikes. We consider our relations with our employees to be positive.
Of our total workforce, approximately 14,217 employees were involved in manufacturing operations and 446 employees were involved in business development and general 13 Table of Contents and administrative functions. None of our employees are represented by a labor union. We have not experienced any work stoppages, slowdowns, or strikes. We consider our relations with our employees to be positive.
During fiscal year 2022, Cisco Systems Inc., Infinera Corporation and Lumentum Operations LLC contributed 25.4%, 12.5% and 10.3%, respectively, of our revenues. During fiscal year 2021, Lumentum Operations LLC, Infinera Corporation and Cisco Systems Inc. contributed 13.6%, 11.6% and 10.7%, respectively, of our revenues. The production of optical devices is characterized by a lengthy qualification process.
During fiscal year 2023, Cisco Systems Inc., Lumentum Operations LLC, Nvidia Corporation, and Infinera Corporation contributed 15.6%, 15.4%, 12.5%, and 12.4% respectively, of our revenues. During fiscal year 2022, Cisco Systems Inc., Infinera Corporation and Lumentum Operations LLC contributed 25.4%, 12.5% and 10.3%, respectively, of our revenues. The production of optical devices is characterized by a lengthy qualification process.
These supply chain disruptions have been exacerbated by recent global events, such as (1) COVID-related lockdowns in China, which have caused freight and logistics issues and unforeseen delays, and (2) the armed conflict between Russia and Ukraine.
These supply chain disruptions were exacerbated by recent global events, such as (1) COVID-related lockdowns in China, which caused freight and logistics issues and unforeseen delays during the first half of fiscal year 2023, and (2) the armed conflict between Russia and Ukraine.
The information posted on our website is not incorporated into this Annual Report on Form 10-K.
Available Information Our website is located at www.fabrinet.com. The information posted on our website is not incorporated into this Annual Report on Form 10-K.
Our percentage of revenues from lasers, sensors and other markets decreased from 23.3% in fiscal year 2021 to 21.2% in fiscal year 2022, while our percentage of revenues from optical communications products increased from 76.7% in fiscal year 2021 to 78.8% in fiscal year 2022.
Our percentage of revenues from lasers, sensors and other markets increased from 21.2% in fiscal year 2022 to 24.1% in fiscal year 2023, while our percentage of revenues from optical communications products decreased from 78.8% in fiscal year 2022 to 75.9% in fiscal year 2023.
The duration of these licenses is limited to the duration of the underlying supply or manufacturing agreement. To meet the demands of certain customers, we created a factory-within-a-factory manufacturing environment that physically separates the manufacturing sites from one another.
We have no rights to disclose, use, sublicense or sell this licensed technology for any other purpose. The duration of these licenses is limited to the duration of the underlying supply or manufacturing agreement. To meet the demands of certain customers, we created a factory-within-a-factory manufacturing environment that physically separates the manufacturing sites from one another.
As of June 24, 2022, we employed approximately 14,235 full-time employees worldwide, with approximately 13,957 employees located in the Asia-Pacific region, 170 employees located in North America, and 108 employees located in Europe or the Middle East.
As of June 30, 2023, we employed approximately 14,663 full-time employees worldwide, with approximately 14,451 employees located in the Asia-Pacific region, 210 employees located in North America, and 2 employees located in Europe or the Middle East.
We license various technologies from our customers on a non-exclusive, royalty-free, non-transferable basis for the sole purpose of allowing us to manufacture products for those customers in accordance with their specifications. We have no rights to disclose, use, sublicense or sell this licensed technology for any other purpose.
Intellectual Property Our success depends, in part, on our ability to protect our customers’ intellectual property. We license various technologies from our customers on a non-exclusive, royalty-free, non-transferable basis for the sole purpose of allowing us to manufacture products for those customers in accordance with their specifications.
To date, such laws and regulations have not materially affected our business. We do not anticipate any material capital expenditures for environmental control facilities for the foreseeable future.
Government Regulations Environmental Compliance We are subject to a variety of international and U.S. laws and regulations relating to the use, disposal, cleanup of and human exposure to hazardous materials. To date, such laws and regulations have not materially affected our business. We do not anticipate any material capital expenditures for environmental control facilities for the foreseeable future.
Our revenues for the year ended June 24, 2022 (“fiscal year 2022”) increased by $382.8 million, or 20.4%, from $1.88 billion for the year ended June 25, 2021 (“fiscal year 2021”) to $2.26 billion for fiscal year 2022.
Our revenues for the year ended June 30, 2023 (“fiscal year 2023”) increased by $383.0 million, or 16.9%, from $2.26 billion for the year ended June 24, 2022 (“fiscal year 2022”) to $2.65 billion for fiscal year 2023.
If implemented by taxing authorities, such changes could have a material adverse effect on our business, financial condition and operating results. Social Responsibility Our corporate social responsibility practices focus on creating better social, economic and environmental outcomes for all stakeholders in the global electronics supply chain.
We will continue to monitor legislative and regulatory developments to assess the impact on our business, financial condition and operating results. Social Responsibility Our corporate social responsibility practices focus on creating better social, economic and environmental outcomes for all stakeholders in the global electronics supply chain.
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Recent Developments Related to COVID-19 The global COVID-19 pandemic has impacted us in several ways and created various challenges. Our PRC subsidiary, which manufactures custom optics components for us and other customers at its facility in Fuzhou, China, experienced a two-week closure in January 2020 in accordance with the Chinese government’s official efforts to mitigate the spread of COVID-19.
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The Organization for Economic Co-operation and Development (OECD) announced that it has reached agreement among its member countries to implement Pillar Two rules, a global minimum tax at 15% for certain multinational enterprises. Many countries are expected to issue laws and regulations to conform to this regime.
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Furthermore, travel restrictions in the PRC during that period resulted in fewer than 90% of our employees in the PRC being able to return to work before early March 2020. Our other global manufacturing facilities also have been affected by government restrictions put in place to slow the spread of COVID-19.
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While our operations in Thailand have not been suspended, we have implemented a number of safety protocols to allow such operations to continue in accordance with government regulations.
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With the exception of approximately one week beginning in late March 2020 when our facility in Santa Clara, California closed before reopening in early April 2020 as a previously classified “essential business,” our facilities in the U.S. and the U.K. have remained open while adhering to the local government restrictions.
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The health and well-being of our employees is our top priority, and we continue to take precautionary measures throughout our worldwide operations to ensure our employees and their families remain safe.
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These measures include leaves of absence for affected employees and their close contacts, stringent contact tracing, enhanced safe distancing measures, and arrangements for the vaccination of our employees in Thailand.
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Although we did not experience any significant disruptions in our operations or decrease in customer demand during the year ended June 24, 2022, any worsening of the pandemic may result in more stringent measures being implemented by local authorities, such as shutting down our manufacturing facilities, which would have a significant negative impact on our operations.
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We expect that disruptions in our supply chain and fluctuations in the availability of parts and materials will continue to have a significant impact on our ability to generate revenue, despite strong demand from our customers.
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Moreover, if the facilities of our subsidiary in Fuzhou, China are locked down, we would also be negatively impacted since we and some of our customers rely on the optics components that are manufactured in such facilities.
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We expect these supply constraints to continue, and potentially worsen, for at least the next 12 months.
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Due to the unprecedented and unpredictable human and economic impact of the COVID-19 pandemic globally, including inflationary pressures and supply chain constraints as the world exits the acute phase of the pandemic, and the evolving and differing national strategies for dealing with COVID-19, it is challenging to provide a forward-looking assessment.
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However, despite uncertainty and concern about the global economy and the health of various industries, we can share some relevant perspectives as we continue to assess the impacts of COVID-19 on our business in the future: 5 Table of Contents • A significant portion of our costs is variable and, because of this, we can adjust manufacturing costs relatively quickly to respond to the changing demand of our customers.
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However, because parts and materials account for the largest portion of our costs, any of the inflationary pressures and supply chain issues noted above will negatively affect our gross margins for the foreseeable future. • The ongoing safety and health of our employees is and will remain a key priority, and we will continue to follow robust safety protocols in all of our facilities.
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To this end, we arranged for the vaccination of our employees in Thailand in the first quarter of fiscal year 2022. • Given our $478.2 million in cash, cash equivalents and short-term investments, and our total debt of approximately $27.4 million, as of June 24, 2022, we believe we are in a solid position from a capital and financial resources perspective.
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We expect that current cash and cash equivalent balances and short-term investments, and cash flows generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months.
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These supply chain disruptions have been exacerbated by recent global events, such as (1) COVID-related lockdowns in China, which have caused freight and logistics issues and unforeseen delays, and (2) the armed conflict between Russia and Ukraine.
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While we have no significant direct business in Ukraine or Russia, the conflict has negatively impacted demand from some of our automotive customers that have other suppliers in the region.
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Moreover, if the facilities of our subsidiary in Fuzhou, China are locked down, we would also be negatively impacted since we and some of our customers rely on the optics components that are manufactured in such facilities.
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Furthermore, in some cases, our efforts to identify and secure alternative supply chain sources has resulted in our customers or their end customers requiring requalification and validation of components, a process that can often be lengthy and has negatively impacted the timing of our revenue.
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We have incurred, and expect to incur for the foreseeable future, costs to address supply chain problems. Although we have generally managed to pass such costs on to our customers, our gross margins could decrease if the problems persist over a sustained period of time.
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Our UK competitors for printed circuit board assemblies include STI Limited, Axiom Manufacturing Services Limited and TT Electronics plc. Intellectual Property Our success depends, in part, on our ability to protect our customers’ intellectual property.
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Further changes in the tax laws of various jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organisation for Economic Co-operation and Development, which represents a coalition of member countries and has recommended changes to numerous long-standing tax principles.
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We have taken a wide variety of measures to protect the health and well-being of our employees, suppliers, and customers during the COVID-19 pandemic, including arranging for our employees in Thailand to receive COVID-19 vaccines beginning in the first quarter of fiscal year 2022. Available Information Our website is located at www.fabrinet.com.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese advantages may allow them to devote greater resources than we can to the development and promotion of service offerings that are similar or superior to our service offerings. These competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies or offer services that achieve greater market acceptance than ours.
Biggest changeThese competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies or offer services that achieve greater market acceptance than ours. These competitors may also compete with us by making more attractive offers to our existing and potential employees, suppliers, and strategic partners.
Volatility and weakness in our share price could mean that investors may not be able to sell their shares at or above the prices they paid and could impair our ability in the future to offer our ordinary shares or convertible securities as a source of additional capital and/or as consideration in the acquisition of other businesses.
Volatility and weakness in our share price could mean that investors may not be able to sell their shares at or above the prices they paid and could also impair our ability in the future to offer our ordinary shares or convertible securities as a source of additional capital and/or as consideration in the acquisition of other businesses.
For example, the 2011 flooding in Thailand forced us to temporarily shut down all of our manufacturing facilities in Thailand and cease production permanently at our Chokchai facility, which adversely affected our ability to meet our customers’ demands during fiscal year 2012.
For example, the 2011 flooding in Thailand forced us to temporarily shut down all of our manufacturing facilities in Thailand and cease production permanently at our former Chokchai facility, which adversely affected our ability to meet our customers’ demands during fiscal year 2012.
In some countries in which we operate, including the PRC, the U.S., the U.K. and Thailand, outbreaks of infectious diseases such as COVID-19, H1N1 influenza virus, severe acute respiratory syndrome (“SARS”) or bird flu could disrupt our manufacturing operations, reduce demand for our customers’ products and increase our supply chain costs.
In some countries in which we operate, including the PRC, the U.S., and Thailand, outbreaks of infectious diseases such as COVID-19, H1N1 influenza virus, severe acute respiratory syndrome or bird flu could disrupt our manufacturing operations, reduce demand for our customers’ products and increase our supply chain costs.
In addition, our customers might pursue legal claims against us for any failure to protect their intellectual property, possibly resulting in harm to our reputation and our business, financial condition and operating results. 27 Table of Contents Tax, Compliance and Regulatory Risks We are subject to the risk of increased income taxes, which could harm our business, financial condition and operating results.
In addition, our customers might pursue legal claims against us for any failure to protect their intellectual property, possibly resulting in harm to our reputation and our business, financial condition and operating results. 25 Table of Contents Tax, Compliance and Regulatory Risks We are subject to the risk of increased income taxes, which could harm our business, financial condition and operating results.
Conducting business outside the United States subjects us to a number of additional risks and challenges, including: • compliance with a variety of domestic and foreign laws and regulations, including trade regulatory requirements; • periodic changes in a specific country or region’s economic conditions, such as recession; • unanticipated restrictions on our ability to sell to foreign customers where sales of products and the provision of services may require export licenses or are prohibited by government action (for example, in early 2018, the U.S.
Conducting business outside the United States subjects us to a number of risks and challenges, including: • compliance with a variety of domestic and foreign laws and regulations, including trade regulatory requirements; • periodic changes in a specific country or region’s economic conditions, such as recession; • unanticipated restrictions on our ability to sell to foreign customers where sales of products and the provision of services may require export licenses or are prohibited by government action (for example, the U.S.
Such developments, as well as the politics impacting these, could adversely affect our financial results. In particular, the economic disruption caused by COVID-19 has led to reduced demand in some of our customers’ optical communications product portfolios and significant volatility in global stock markets and currency exchange rates.
Such developments, as well as the policies impacting these, could adversely affect our financial results. In particular, the economic disruption caused by COVID-19 has led to reduced demand in some of our customers’ optical communications product portfolios and significant volatility in global stock markets and currency exchange rates.
Based upon estimates of the value of our assets, which are based in part on the trading price of our ordinary shares, we do not expect to be a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the taxable year 2022 or for the foreseeable future.
Based upon estimates of the value of our assets, which are based in part on the trading price of our ordinary shares, we do not expect to be a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the taxable year 2023 or for the foreseeable future.
Fabrinet (the “Cayman Islands Parent”) is an exempted company incorporated in the Cayman Islands. We maintain manufacturing operations in Thailand, the PRC, the U.K. and the U.S. We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments in lieu of taxes.
Fabrinet (the “Cayman Islands Parent”) is an exempted company incorporated in the Cayman Islands. We maintain manufacturing operations in Thailand, the PRC, the U.S. and Israel. We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments in lieu of taxes.
Some of our customers and suppliers have in the past and may in the future experience financial difficulty, particularly in light of the sudden and continuing global economic downturn and uncertainty due to COVID-19 and subsequent adverse conditions in the credit markets that have affected access to capital and liquidity.
Some of our customers and suppliers have in the past and may in the future experience financial difficulty, particularly in light of the global economic downturn and uncertainty due to COVID-19 and subsequent adverse conditions in the credit markets that have affected access to capital and liquidity.
Even with insurance coverage, natural disasters or other catastrophic events, including acts of war, could cause us to suffer substantial losses in our operational capacity and could also lead to a loss of opportunity and to a potential adverse impact on our relationships with our existing customers resulting from our inability to produce products for them, for which we might not be compensated by existing insurance.
Even with insurance coverage, natural disasters or other catastrophic events, including acts of war, could cause us to suffer substantial losses in our 24 Table of Contents operational capacity and could also lead to a loss of opportunity and to a potential adverse impact on our relationships with our existing customers resulting from our inability to produce products for them, for which we might not be compensated by existing insurance.
As a manufacturer of products for the optics industry, we are required to meet certain certification standards, including the following: ISO 9001 for Manufacturing Quality Management Systems; ISO 14001 for Environmental Management Systems; TL 9000 for Telecommunications Industry Quality Certification; IATF 16949 for Automotive Industry Quality Certification; ISO 13485 for Medical Devices Industry Quality Certification; AS 9100 for Aerospace Industry Quality Certification; NADCAP (National Aerospace and Defense Contractors Accreditation Program) for Quality Assurance throughout the Aerospace and Defense Industries; and ISO 45001 for Occupational Health and Safety Management Systems.
As a manufacturer of products for the optics industry, we are required to meet certain certification standards, including the following: ISO 9001 for Manufacturing Quality Management Systems; ISO 14001 for Environmental Management Systems; TL 9000 for Telecommunications Industry Quality Certification; IATF 16949 for Automotive Industry Quality Certification; ISO 13485 for Medical Devices Industry Quality Certification; AS 9100 for Aerospace Industry Quality Certification; NADCAP (National Aerospace and Defense Contractors Accreditation Program) for Quality Assurance throughout the Aerospace and Defense Industries; ISO 45001 for Occupational Health and Safety Management Systems; and ISO 22301 for Business Continuity Management Systems.
Our revenues, profitability and customer relations will be harmed by continued fluctuations in the availability of materials, a stoppage or delay of supply, a substitution of more expensive or less reliable parts, the receipt of defective parts or contaminated materials, an increase in the price of supplies, or an inability to obtain reductions in price from our suppliers in 19 Table of Contents response to competitive pressures.
Our revenues, profitability and customer relations will be harmed by continued fluctuations in the availability of materials, a stoppage or delay of supply, a substitution of more expensive or less reliable parts, the receipt of defective parts or contaminated materials, an increase in the price of supplies, or an inability to obtain reductions in price from our suppliers in response to competitive pressures.
Department of Commerce prohibited the export and sale of a broad category of U.S. products, as well as the provision of services, to ZTE Corporation, and in 2019, to Huawei, both of which are customers of certain of our customers); • fluctuations in currency exchange rates; • inadequate protection of intellectual property rights in some countries; and 22 Table of Contents • political, legal and economic instability, foreign conflicts, and the impact of regional and global infectious illnesses in the countries in which we and our customers and suppliers are located (for example, disruptions to international operations associated with the occurrence of the COVID-19 pandemic or the ongoing armed conflict in Ukraine).
Department of Commerce prohibited the export and sale of a broad category of U.S. products, as well as the provision of services, to ZTE Corporation in early 2018, and to Huawei in 2019, both of which are customers of certain of our customers); • fluctuations in currency exchange rates; • inadequate protection of intellectual property rights in some countries; and • political, legal and economic instability, foreign conflicts, and the impact of regional and global infectious illnesses in the countries in which we and our customers and suppliers are located (for example, disruptions to international operations associated with the occurrence of the COVID-19 pandemic or the ongoing armed conflict in Ukraine).
In addition, if the number or type of defects exceeds certain percentage limitations contained in our contractual arrangements, we may be required to conduct extensive failure analysis, re-qualify for production or cease production of the specified products. Product liability claims may include liability for personal injury or property damage.
In addition, if the number or 19 Table of Contents type of defects exceeds certain percentage limitations contained in our contractual arrangements, we may be required to conduct extensive failure analysis, re-qualify for production or cease production of the specified products. Product liability claims may include liability for personal injury or property damage.
If the arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of a corporation incorporated in a jurisdiction in the U.S., providing rights to receive payment in cash for the judicially determined value of the shares.
If the arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of a corporation incorporated in a 29 Table of Contents jurisdiction in the U.S., providing rights to receive payment in cash for the judicially determined value of the shares.
We may not be able to compete successfully against our current and future competitors, and the competitive pressures we face may harm our business, financial condition and operating results. 18 Table of Contents 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.
We may not be able to compete successfully against our current and future competitors, and the competitive pressures we face may harm our business, financial condition and operating results. 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 investment portfolio may become impaired by deterioration of the capital markets. We use professional investment management firms to manage our excess cash and cash equivalents. Our short-term investments as of June 24, 2022 are primarily investments in a fixed income portfolio, including liquidity funds, certificates of deposit and time deposits, corporate debt securities, and U.S. agency and U.S.
Our investment portfolio may become impaired by deterioration of the capital markets. We use professional investment management firms to manage our excess cash and cash equivalents. Our short-term investments as of June 30, 2023 are primarily investments in a fixed income portfolio, including liquidity funds, certificates of deposit and time deposits, corporate debt securities, and U.S. agency and U.S.
As a result, we devote significant resources to monitor receivables and inventory balances with certain of our customers. If our customers experience financial difficulty, we could have difficulty recovering amounts owed to us from these customers, or demand for our services from these customers could decline.
As a result, we devote significant resources to monitor 17 Table of Contents receivables and inventory balances with certain of our customers. If our customers experience financial difficulty, we could have difficulty recovering amounts owed to us from these customers, or demand for our services from these customers could decline.
However, despite our expectations, we guarantee that we will not become a PFIC for the taxable year 2022 or any future year because our PFIC status is determined at the end of each year and depends on the composition of our income and assets during such year.
However, despite our expectations, we cannot guarantee that we will not become a PFIC for the taxable year 2023 or any future year because our PFIC status is determined at the end of each year and depends on the composition of our income and assets during such year.
These rules may also affect the sourcing and availability of minerals used in the products we manufacture, as there may be only a limited number of suppliers offering “conflict free” metals that can be used in the products we manufacture for our customers.
These rules may also affect the sourcing and availability of 27 Table of Contents minerals used in the products we manufacture, as there may be only a limited number of suppliers offering “conflict free” metals that can be used in the products we manufacture for our customers.
Any escalation in these events or similar future events may disrupt our operations and the operations of our customers and suppliers and may affect the availability of materials needed for our manufacturing services. Such events 24 Table of Contents may also disrupt the transportation of materials to our manufacturing facilities and finished products to our customers.
Any escalation in these events or similar future events may disrupt our operations and the operations of our customers and suppliers and may affect the availability of materials needed for our manufacturing services. Such events may also disrupt the transportation of materials to our manufacturing facilities and finished products to our customers.
In addition, tax returns that remain open to examination in Thailand, the PRC, the U.K. and Israel range from the tax years 2015 through 2021. The results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and tax liability.
In addition, tax returns that remain open to examination in Thailand, the PRC, the U.K. and Israel range from the tax years 2016 through 2022. The results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and tax liability.
We face significant competition in our business. If we are unable to compete successfully against our current and future competitors, our business, financial condition and operating results could be harmed. Our current and prospective customers tend to evaluate our capabilities against the merits of their internal manufacturing as well as the capabilities of other third-party manufacturers.
If we are unable to compete successfully against our current and future competitors, our business, financial condition and operating results could be harmed. Our current and prospective customers tend to evaluate our capabilities against the merits of their internal manufacturing as well as the capabilities of other third-party manufacturers.
We may not be able to increase our prices to adequately offset these increased costs, and any increase in our prices may reduce our future customer orders, which could harm our business, financial condition and operating results. ITEM 1B. UNRESOLVED STAFF COMMENTS. Not applicable.
We may not be able to increase our prices to adequately offset these increased costs, and any increase in our prices may reduce our future customer orders, which could harm our business, financial condition and operating results. ITEM 1B. UNRESOLVED STAFF COMMENTS. Not applicable. 30 Table of Contents
While we are able to assert in this Annual Report on Form 10-K that our internal control over financial reporting was effective as of June 24, 2022, we cannot predict the outcome of our testing in future periods.
While we are able to assert in this Annual Report on Form 10-K that our internal control over financial reporting was effective as of June 30, 2023, we cannot predict the outcome of our testing in future periods.
If we fail to timely comply with such laws and regulations, our customers may cease doing business with us, which would have a 29 Table of Contents material adverse effect on our business, financial condition and operating results.
If we fail to timely comply with such laws and regulations, our customers may cease doing business with us, which would have a material adverse effect on our business, financial condition and operating results.
If the opportunities presented by these markets prove to be less than anticipated, if we are less successful than expected in diversifying into these markets, or if our margins in these markets prove to be less than expected, our growth may slow or stall, and we may incur costs that are not offset by revenues in these markets, all of which could harm our business, financial condition and operating results.
If the opportunities presented by these markets prove to be less than anticipated, if we are less successful than expected in diversifying into these markets, or if our margins in these markets prove to be less than expected, our growth may slow or stall, and we may incur costs that are not offset by revenues in these markets, all of which could harm our business, financial condition and operating results. 16 Table of Contents We face significant competition in our business.
Our customers are located throughout the world, and our principal manufacturing facilities are located in Thailand. Revenues from the bill-to-location of customers outside of North America accounted for 50.7%, 52.8% and 49.4% of our revenues for fiscal year 2022, fiscal year 2021 and fiscal year 2020, respectively.
Our customers are located throughout the world, and our principal manufacturing facilities are located in Thailand. Revenues from the bill-to-location of customers outside of North America accounted for 52.0%, 50.7% and 52.8% of our revenues for fiscal year 2023, fiscal year 2022 and fiscal year 2021, respectively.
If we become a PFIC, our U.S. investors will be subject to increased tax liabilities under U.S. tax laws and regulations as well as burdensome reporting requirements. Our business could be negatively affected as a result of activist shareholders.
If we become a PFIC, our U.S. investors will be subject to increased tax liabilities under U.S. tax laws and regulations as well as burdensome reporting requirements. 28 Table of Contents Our business and share price could be negatively affected as a result of activist shareholders.
If we do not meet the yield assumptions and quality metrics used in calculating the price of a product, we may not be able to recover the costs associated with our failure to do so.
If we do not meet the yield assumptions and quality metrics used in calculating the price of a product, we may not be able to recover the costs associated with our failure to do so. Consequently, our operating results and profitability may be harmed.
From time to time, we engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. As of June 24, 2022, our U.S. federal and state tax returns remain open to examination for the tax years 2018 through 2020.
From time to time, we engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. As of June 30, 2023, our U.S. federal and state tax returns remain open to examination for the tax years 2018 through 2021.
Many of our existing and potential customers have substantial debt burdens, have experienced financial distress or have static or declining revenues, all of which may be exacerbated by the sudden and continuing global economic downturn and uncertainty due to COVID-19 and subsequent adverse conditions in the credit markets, as well as the impact of the U.S.-China trade dispute.
Many of our existing and potential customers have substantial debt burdens, have experienced financial distress or have static or declining revenues, all of which may be exacerbated by the current global economic downturn and subsequent adverse conditions in the credit markets, as well as the impact of the U.S.-China trade dispute.
Consequently, our operating results and profitability may be harmed. 20 Table of Contents 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 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.
For example, in the three months ended March 29, 2019, we experienced a $3.1 million foreign exchange loss, which negatively affected our net income per share for the same period by $0.08. Our customer contracts generally require that our customers pay us in U.S. dollars. However, the majority of our payroll and other operating expenses are paid in Thai baht.
For example, in the three months ended December 30, 2022, we experienced a $3.9 million foreign exchange loss, which negatively affected our net income per share for the same period by $0.11. Our customer contracts generally require that our customers pay us in U.S. dollars. However, the majority of our payroll and other operating expenses are paid in Thai baht.
During each of fiscal years 2022 and 2021, we had three customers that each contributed 10% or more of our revenues. Such customers together accounted for 48.2% and 35.9% of our revenues during the respective periods.
During fiscal years 2023 and 2022, we had four and three customers, respectively, that each contributed 10% or more of our revenues. Such customers together accounted for 55.9% and 48.2% of our revenues during the respective periods.
As of June 24, 2022, the U.S. dollar had appreciated approximately 15.0% against the Thai baht since June 26, 2020. While we attempt to hedge against certain exchange rate risks, we typically enter into hedging contracts with maturities of up to 12 months, leaving us exposed to longer term changes in exchange rates.
As of June 30, 2023, the U.S. dollar had appreciated approximately 12.0% against the Thai baht since June 25, 2021. While we attempt to hedge against certain exchange rate risks, we typically enter into hedging contracts with maturities of up to 12 months, leaving us exposed to longer term changes in exchange rates.
In addition, our ability to access capital markets may be restricted, which could have an impact on our ability to react to changing economic and business conditions and could also adversely affect our business, financial condition and operating results.
In addition, our ability to access capital markets may be restricted, which could have an impact on our ability to react to changing economic and business conditions and could also adversely affect our business, financial condition and operating results. Inflation has also risen globally to historically high levels.
In particular, the political and economic climate in the PRC (both at national and regional levels) is fluid and unpredictable. In March 2022, the PRC was assessed as a medium political risk by Marsh. A large part of the PRC’s economy is still being operated under varying degrees of control by the PRC government.
In particular, the political and economic climate in the PRC (both at national and regional levels) is fluid and unpredictable. A large part of the PRC’s economy is still being operated under varying degrees of control by the PRC government.
We hold the following additional certifications: ANSI ESD S20.20 for facilities and manufacturing process control, in compliance with ESD standard; Transported Asset Protection Association ("TAPA") and Custom Trade Partnership Against Terrorism ("C-TPAT") for Logistic Security Management System; and CSR-DIW for Corporate Social Responsibility in Thailand.
We hold the following additional certifications: ANSI ESD S20.20 for facilities and manufacturing process control, in compliance with ESD standard; TAPA and C-TPAT for Logistic Security Management System; and CSR-DIW for Corporate Social Responsibility in Thailand.
In addition to pricing pressures, this consolidation may also reduce overall demand for our manufacturing services if customers obtain new capacity to manufacture products in-house or discontinue duplicate or competing product lines in order to streamline operations. If demand for our manufacturing services decreases, our business, financial condition and operating results could be harmed.
In addition to pricing pressures, this consolidation may also reduce overall demand for our manufacturing services if customers obtain new capacity to manufacture products in-house or discontinue duplicate or competing product lines in order to streamline operations.
In addition, these laws and regulations are relatively new, and published cases are limited in volume and non-binding. Therefore, the interpretation and enforcement of these laws and regulations involve significant uncertainties. Laws may be changed with little or no prior notice, for political or other reasons. These uncertainties could limit the legal protections available to foreign investors.
In addition, these laws and regulations are relatively new, and published cases are limited in volume and non-binding. Therefore, the interpretation and enforcement of these laws and regulations involve significant uncertainties. 22 Table of Contents Laws may be changed with little or no prior notice, for political or other reasons.
As of June 24, 2022, we did not record any impairment charges associated with our portfolio of short-term investments, and although we believe our current investment portfolio has little risk of material impairment, we cannot predict future market conditions or market liquidity, or credit availability, and can provide no assurance that our investment portfolio will remain materially unimpaired. 26 Table of Contents We are not fully insured against all potential losses.
As of June 30, 2023, we did not record any impairment charges associated with our portfolio of short-term investments, and although we believe our current investment portfolio has little risk of material impairment, we cannot predict future market conditions or market liquidity, or credit availability, and can provide no assurance that our investment portfolio will remain materially unimpaired.
If our customers do not believe that we have sufficient manufacturing capacity, they may: (1) outsource all of their production to another manufacturer that they believe can fulfill all of their production requirements; (2) look to a second manufacturer for the manufacture of additional quantities of the products that we currently manufacture for them; (3) manufacture the products themselves; or (4) decide against using our services for their new products.
If our customers do not believe that we have sufficient manufacturing capacity, they may: (1) outsource all of their production to another manufacturer that they believe can fulfill all of their production requirements; (2) look to a second manufacturer for the manufacture of additional quantities of the products that we currently manufacture for them; (3) manufacture the products themselves; or (4) decide against using our services for their new products. 18 Table of Contents Most recently, we expanded our manufacturing capacity by building a new facility at our Chonburi campus in Thailand in 2022.
For example, any of the risks described in this “Risk Factors” section and, in particular, the following factors, could cause our revenues, gross profit margins, and operating results to fluctuate from quarter to quarter: • any reduction in customer demand or our ability to fulfill customer orders as a result of disruptions in our supply chain caused by COVID-19 or geopolitical conflicts such as the ongoing armed conflict in Ukraine; • our ability to acquire new customers and retain our existing customers; • the cyclicality of the optical communications, industrial lasers, medical and sensors markets; • competition; • our ability to achieve favorable pricing for our services; • the effect of fluctuations in foreign currency exchange rates; • our ability to manage our headcount and other costs; and • changes in the relative mix in our revenues. 17 Table of Contents Therefore, we believe that quarter-to-quarter comparisons of our operating results may not be useful in predicting our future operating results.
For example, any of the risks described in this “Risk Factors” section and, in particular, the following factors, could cause our revenues, gross profit margins, and operating results to fluctuate from quarter to quarter: • any reduction in customer demand or our ability to fulfill customer orders as a result of disruptions in our supply chain; • our ability to acquire new customers and retain our existing customers; • the cyclicality of the optical communications, industrial lasers, medical and sensors markets; • competition; • our ability to achieve favorable pricing for our services; • the effect of fluctuations in foreign currency exchange rates; • our ability to manage our headcount and other costs; and • changes in the relative mix in our revenues.
The sudden and continuing global economic downturn and uncertainty due to the effects of COVID-19 and subsequent volatility and adverse conditions in the capital and credit markets have negatively affected levels of business and consumer spending, heightening concerns about the likelihood of a global depression and potential default of various national bonds and debt backed by individual countries.
The current global economic downturn and volatility and adverse conditions in the capital and credit markets have negatively affected levels of business and consumer spending, heightening concerns about the likelihood of a global recession and potential default of various national bonds and debt backed by individual countries.
This restriction may limit our ability to invest the earnings of our PRC subsidiary. As of June 24, 2022, the U.S. dollar had depreciated approximately 5.5% against the RMB since June 26, 2020. There remains significant international pressure on the PRC government to adopt a substantially more liberalized currency policy.
This restriction may limit our ability to invest the earnings of our PRC subsidiary. As of June 30, 2023, the U.S. dollar had appreciated approximately 12.4% against the RMB since June 25, 2021. There remains significant international pressure on the PRC government to adopt a substantially more liberalized currency policy.
This had an immediate impact on our customer orders in the fourth quarter of fiscal year 2019, which affected our revenue for that quarter. We expect this ban to continue to adversely affect orders from our customers for the foreseeable future.
This had an 21 Table of Contents immediate impact on our customer orders in the three months ended June 28, 2019, which affected our revenue for that quarter. We expect this ban to continue to adversely affect orders from our customers for the foreseeable future.
The impact of these events on the volatility of the U.S. and world financial markets also could increase the volatility of the market price of our ordinary shares and may limit the capital resources available to us, our customers and our suppliers. Financial Risks Unfavorable worldwide economic conditions may negatively affect our business, financial condition and operating results.
The impact of these events on the volatility of the U.S. and world financial markets also could increase the volatility of the market price of our ordinary shares and may limit the capital resources available to us, our customers and our suppliers.
You should not rely on our results for one quarter as any indication of our future performance. Quarterly variations in our operations could result in significant volatility in the market price of our ordinary shares.
Therefore, we believe that quarter-to-quarter comparisons of our operating results may not be useful in predicting our future operating results. You should not rely on our results for one quarter as any indication of our future performance. Quarterly variations in our operations could result in significant volatility in the market price of our ordinary shares.
Consolidation among our customers and their customers may result in a smaller number of large customers whose size and purchasing power give them increased leverage that may result in, among other things, decreases in our average selling prices.
Consolidation among our customers and their customers will continue to adversely affect our business, financial condition and operating results in several ways. Consolidation among our customers and their customers may result in a smaller number of large customers whose size and purchasing power give them increased leverage that may result in, among other things, decreases in our average selling prices.
GBP are convertible in connection with trade and service-related foreign exchange transactions and foreign debt service. As of June 24, 2022, the U.S. dollar had appreciated approximately 1.3% against the GBP since June 26, 2020. Any appreciation in the value of the RMB and GBP against the U.S. dollar could negatively impact our operating results.
GBP are convertible in connection with trade and service-related foreign exchange transactions and foreign debt service. As of June 30, 2023, the U.S. 20 Table of Contents dollar had appreciated approximately 10.4% against the GBP since June 25, 2021. Any appreciation in the value of the RMB and GBP against the U.S. dollar could negatively impact our operating results.
Consolidation in the markets we serve has resulted in a reduction in the number of potential customers for our services. For example, Lumentum Holdings Inc.
Consolidation in the markets we serve has resulted in a reduction in the number of potential customers for our services. For example, Lumentum Holdings Inc. completed its acquisition of NeoPhotonics Corporation in August 2022; Coherent Corp.
If customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us because of any such issues, then our business, financial condition and operating results would be adversely affected.
If customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us because of any such issues, then our business, financial condition and operating results would be adversely affected. In addition, our share price could experience periods of increased volatility as a result of shareholder activism.
These competitors may also compete with us by making more attractive offers to our existing and potential employees, suppliers, and strategic partners. Further, consolidation in the optics industry could lead to larger and more geographically diverse competitors. New and increased competition could result in price reductions for our services, reduced gross profit margins or loss of market share.
Further, consolidation in the optics industry could lead to larger and more geographically diverse competitors. New and increased competition could result in price reductions for our services, reduced gross profit margins or loss of market share.
This may make it more difficult for our shareholders to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
This may make it more difficult for our shareholders to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. Subject to limited exceptions, under Cayman Islands law, a minority shareholder may not bring a derivative action against the board of directors.
Subject to limited exceptions, under Cayman Islands law, a minority shareholder may not bring a derivative action against the board of directors. 31 Table of Contents Certain judgments obtained against us by our shareholders may not be enforceable. The Cayman Islands Parent is a Cayman Islands exempted company and substantially all of our assets are located outside of the U.S.
Certain judgments obtained against us by our shareholders may not be enforceable. The Cayman Islands Parent is a Cayman Islands exempted company and substantially all of our assets are located outside of the U.S.
Further, the Thai government may raise the minimum wage standards for labor and could repeal certain promotional certificates that we have received or tax holidays for certain export and value added taxes that we enjoy, either preventing us from engaging in our current or anticipated activities or subjecting us to higher tax rates. 23 Table of Contents We expect to continue to invest in our manufacturing operations in the 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.
Further, the Thai government may raise the minimum wage standards for labor and could repeal certain promotional certificates that we have received or tax holidays for certain export and value added taxes that we enjoy, either preventing us from engaging in our current or anticipated activities or subjecting us to higher tax rates.
Volatility in the functional and non-functional currencies of our entities and the U.S. dollar could seriously harm our business, financial condition and operating results. The primary impact of currency exchange fluctuations is on our cash, receivables, and payables of our operating entities. We may experience significant unexpected losses from fluctuations in exchange rates.
The primary impact of currency exchange fluctuations is on our cash, receivables, and payables of our operating entities. We may experience significant unexpected losses from fluctuations in exchange rates.
There is no assurance that our revenues will increase at the same rate to maintain the same level of profitability. Inflation and government efforts to combat inflation, such as raising the benchmark interest rate, could increase market volatility and have an adverse effect on the financial market and global economy.
Inflation and government efforts to combat inflation, such as raising the benchmark interest rate, could increase market volatility and have an adverse effect on the financial market and global economy.
If implemented by taxing authorities, such changes could have a material adverse effect on our business, financial condition and operating results. 28 Table of Contents 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.
We will continue to monitor legislative and regulatory developments to assess the impact on our business, financial condition and operating results. 26 Table of Contents 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.
Furthermore, any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management’s attention. Natural disasters, epidemics (including COVID-19), acts of terrorism and other political and economic developments could harm our business, financial condition and operating results. Natural disasters could severely disrupt our manufacturing operations and increase our supply chain costs.
These uncertainties could limit the legal protections available to foreign investors. Furthermore, any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management’s attention. Natural disasters, epidemics, acts of terrorism and political and economic developments could harm our business, financial condition and operating results.
Historically, we have experienced supply shortages resulting from various causes, including reduced yields by our suppliers, which prevented us from manufacturing products for our customers in a timely manner.
Historically, we have experienced supply shortages resulting from various causes, including reduced yields by our suppliers, which prevented us from manufacturing products for our customers in a timely manner. The semiconductor supply chain is complex, and, in recent years, there has been a significant global shortage of semiconductors.
Natural disasters or other catastrophes could adversely affect our business, financial condition and operating results.
We are not fully insured against all potential losses. Natural disasters or other catastrophes could adversely affect our business, financial condition and operating results.
A shortage of semiconductors or other key components can cause a significant disruption to our production schedule and have a substantial adverse effect on our business, financial condition and operating results.
Further exacerbating the shortage is the long production lead-time for wafers, which can take up to 30 weeks in some cases. A shortage of semiconductors or other key components can cause a significant disruption to our production schedule and have a substantial adverse effect on our business, financial condition and operating results.
If we are unable to maintain our relationships with our existing significant customers, our business, financial condition and operating results could be harmed. 16 Table of Contents Consolidation in the markets we serve could harm our business, financial condition and operating results.
Some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us. If we are unable to maintain our relationships with our existing significant customers, our business, financial condition and operating results could be harmed. Consolidation in the markets we serve could harm our business, financial condition and operating results.
In addition, we make significant decisions with respect to production schedules, material procurement commitments, personnel needs and other resource requirements based on our estimate of our customers’ requirements. The short-term nature of our customers’ commitments and the possibility of rapid changes in demand for their products reduce our ability to accurately estimate the future requirements of our customers.
The short-term nature of our customers’ commitments and the possibility of rapid changes in demand for their products reduce our ability to accurately estimate the future requirements of our customers.
Although we have key person life insurance policies on some of our executive officers, the loss of any of our executive officers or key personnel or the inability to continue to attract qualified personnel could harm our business, financial condition and operating results. 21 Table of Contents Risks Related to Our International Operations 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.
Although we have key person life insurance policies on some of our executive officers, the loss of any of our executive officers or key personnel or the inability to continue to attract qualified personnel could harm our business, financial condition and operating results.
In the event we are unsuccessful in our attempts to expand our manufacturing capacity, our business, financial condition and operating results could be harmed.
We may continue to devote significant resources to the expansion of our manufacturing capacity, and any such expansion will be expensive, will require management’s time and may disrupt our operations. In the event we are unsuccessful in our attempts to expand our manufacturing capacity, our business, financial condition and operating results could be harmed.
In addition, our share price could experience periods of increased volatility as a result of shareholder activism. 30 Table of Contents 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.
Certain provisions in our constitutional documents may discourage our acquisition by a third party, which could limit our shareholders' opportunity to sell shares at a premium.
If the optical communications market does not expand as we expect, our business may not grow as fast as we expect, which could adversely impact our business, financial condition and operating results. Revenues from optical communications products represented 78.8% and 76.7% of our revenues for fiscal year 2022 and fiscal year 2021, respectively.
If demand for our manufacturing services decreases, our business, financial condition and operating results could be harmed. 15 Table of Contents If the optical communications market does not expand as we expect, our business may not grow as fast as we expect, which could adversely impact our business, financial condition and operating results.
After June 2020, 50% of our income generated from products manufactured at our Pinehurst campus will be exempted from tax through June 2025.
After June 2020, 50% of our income generated from products manufactured at our Pinehurst campus will be exempted from tax through June 2025. New preferential tax treatment is available to us for products manufactured at our Chonburi campus Building 9, where income generated will be tax exempt through 2031, capped at our actual investment amount.
For example, our facility in Fuzhou, the PRC, which manufactures custom optics components, was not permitted to resume operations for a period of two weeks in February 2020 due to the outbreak of COVID-19, which negatively affected our revenues for the three months ended March 27, 2020.
For example, the outbreak of COVID-19 resulted in a two-week suspension of operations at our facility in Fuzhou, the PRC in February 2020 and caused labor shortages for us and some of our suppliers and customers in the PRC during the three months ended March 27, 2020, which negatively affected our revenues during the same period.
In March 2022, Thailand was assessed as a medium political risk by Marsh, an insurance broker and risk advisor. Any changes to tax regimes, laws, exchange controls or political action in Thailand may harm our business, financial condition and operating results.
Any changes to tax regimes, laws, exchange controls or political action in Thailand may harm our business, financial condition and operating results. Thailand has a history of political unrest that includes the involvement of the military as an active participant in the ruling government.
At the same time, wafer foundries that support chipmakers have not invested enough in recent years to increase capacities to the levels needed to support current demand from all of their customers. Wafers have a long lead time for production, in some cases up to 30 weeks, which further exacerbates the shortage.
Demand for consumer electronics surged during the COVID-19 pandemic and remains strong, which in turn has increased the demand for semiconductors. At the same time, wafer foundries that support chipmakers have not invested enough in recent years to increase capacities to the levels needed to support the increased demand from all of their customers.
Thailand has a history of political unrest that includes the involvement of the military as an active participant in the ruling government. In recent years, political unrest in the country has sparked political demonstrations and, in some instances, violence.
In recent years, political unrest in the country has sparked political demonstrations and, in some instances, violence.
Although we did not experience any significant disruptions in our operations or decrease in customer demand during year ended June 24, 2022, any worsening of the pandemic may result in more stringent measures being implemented by local authorities, such as shutting down our manufacturing facilities, which would have a significant negative impact on our operations.
Although we continue to take precautionary measures, including leaves of absence for affected employees and their close contacts, stringent contact tracing, and enhanced safe distancing measures, any worsening of the COVID-19 pandemic or the emergence of other infectious diseases may result in more stringent measures being implemented by local authorities, such as shutting down our manufacturing facilities, which would have a significant negative impact on our operations.
Other existing contract manufacturing companies, original design manufacturers or outsourced semiconductor assembly and test companies could also enter our target markets. In addition, we may face new competitors as we attempt to penetrate new markets. Many of our customers and potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater resources than we have.
Our customized optics and glass operations face competition from companies such as Browave Corporation, Fujian Castech Crystals, Inc., Photop Technologies, Inc., and Research Electro-Optic, Inc. Other existing contract manufacturing companies, original design manufacturers or outsourced semiconductor assembly and test companies could also enter our target markets. In addition, we may face new competitors as we attempt to penetrate new markets.
As a result, a reduction in customer demand could decrease our gross profit and harm our business, financial condition and operating results.
As a result, a reduction in customer demand could decrease our gross profit and harm our business, financial condition and operating results. In addition, we make significant decisions with respect to production schedules, material procurement commitments, personnel needs and other resource requirements based on our estimate of our customers’ requirements.
In some cases, consolidation among our customers has led to a reduction in demand for our services as customers have acquired the capacity to manufacture products in-house. Consolidation among our customers and their customers will continue to adversely affect our business, financial condition and operating results in several ways.
(formerly known as II-VI Incorporated) completed its acquisition of Coherent, Inc. in July 2022; and Cisco Systems, Inc. completed its acquisition of Acacia Communications Inc. in March 2021. In some cases, consolidation among our customers has led to a reduction in demand for our services as customers have acquired the capacity to manufacture products in-house.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table presents the approximate square footage of our principal facilities as of June 24, 2022: Location Owned/Leased Approximate Square Footage Pinehurst Campus, Bangkok, Thailand Owned 1,731,000 square feet Hemaraj Campus, Chonburi, Thailand Owned 1,496,000 square feet Fuzhou, Fujian, PRC Leased (1) 303,000 square feet Santa Clara, California, United States Owned 72,000 square feet Wiltshire, United Kingdom Leased (2) 71,000 square feet Mountain Lakes, New Jersey, United States Leased (3) 28,000 square feet Yokneam Illit, Israel Leased (4) 27,000 square feet Grand Cayman, Cayman Islands Leased (5) 5,100 square feet (1) Leased until September 30, 2023.
Biggest changeThe following table presents the approximate square footage of our principal facilities as of June 30, 2023: Location Owned/Leased Approximate Square Footage (Square feet) Pinehurst Campus, Bangkok, Thailand Owned 1,731,000 Hemaraj Campus, Chonburi, Thailand Owned 1,496,000 Fuzhou, Fujian, PRC Leased (1) 303,000 Santa Clara, California, United States Owned 72,000 Mountain Lakes, New Jersey, United States Leased (2) 28,000 Yokneam Illit, Israel Leased (3) 27,000 Grand Cayman, Cayman Islands Leased (4) 1,280 (1) Leased until September 30, 2023.
ITEM 2. PROPERTIES. Our principal registered office is located at c/o Intertrust Corporate Services (Cayman) Limited, One Nexus Way, Camana Bay, Grand Cayman, KYI-9005, Cayman Islands. We have facilities located in Thailand, the PRC, the U.S., the U.K., Israel and the Cayman Islands that are used for manufacturing and/or general administration purposes.
ITEM 2. PROPERTIES. Our principal registered office is located at c/o Intertrust Corporate Services (Cayman) Limited, One Nexus Way, Camana Bay, Grand Cayman, KYI-9005, Cayman Islands. We have facilities located in Thailand, the PRC, the U.S., Israel and the Cayman Islands that are used for manufacturing and/or general administration purposes.
(2) Leased until August 2, 2023. (3) Leased until June 1, 2025. (4) Leased until October 5, 2024. (5) Leased until April 14, 2024. 32 Table of Contents ITEM 3. LEGAL PROCEEDINGS. From time to time, we may be involved in litigation relating to claims arising in the ordinary course of our business.
(2) Leased until June 30, 2025. (3) Leased until October 5, 2024. (4) Leased until April 14, 2024. ITEM 3. LEGAL PROCEEDINGS. From time to time, we may be involved in litigation relating to claims arising in the ordinary course of our business. There currently are no material claims or actions pending or threatened against us. ITEM 4.
There currently are no material claims or actions pending or threatened against us. ITEM 4. MINE SAFETY DISCLOSURES . Not applicable. 33 Table of Contents PART II
MINE SAFETY DISCLOSURES . Not applicable. 31 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePurchases of Equity Securities by the Issuer and Affiliated Purchasers The following table summarizes share repurchase activity for the three months ended June 24, 2022: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased As Part of Publicly Announced Program (1) Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (1) March 26, 2022 – April 22, 2022 — $ — — $ 52,543,319 April 23, 2022 – May 20, 2022 352,820 $ 88.67 352,820 $ 21,259,334 May 21, 2022 – June 24, 2022 — $ — — $ 21,259,334 Total 352,820 352,820 (1) On August 18, 2017, we announced that our board of directors had approved a share repurchase program to permit us to repurchase up to $30.0 million worth of our issued and outstanding ordinary shares in the open market in accordance with applicable rules and regulations, including pursuant to pre-set trading plans adopted in accordance with Rule 10b5-1 under the Exchange Act of 1934.
Biggest changePurchases of Equity Securities by the Issuer and Affiliated Purchasers The following table summarizes share repurchase activity for the three months ended June 30, 2023: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased As Part of Publicly Announced Program (1) Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (1) April 1, 2023 – April 28, 2023 284,796 $ 95.56 284,796 $ 63,571,059 April 29, 2023 – May 26, 2023 119,824 $ 92.94 119,824 $ 52,434,440 May 27, 2023 – June 30, 2023 — $ — — $ 52,434,440 Total 404,620 404,620 (1) On August 21, 2017, we announced that our board of directors had approved a share repurchase program to permit us to repurchase up to $30.0 million worth of our issued and outstanding ordinary shares in the open market in accordance with applicable rules and regulations, including pursuant to pre-set trading plans adopted in accordance with Rule 10b5-1 under the Exchange Act of 1934.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our ordinary shares are listed on the New York Stock Exchange under the symbol “FN”. Holders of Record As of August 5, 2022, there were 5 shareholders of record of our ordinary shares.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our ordinary shares are listed on the New York Stock Exchange under the symbol “FN”. Holders of Record As of August 11, 2023, there were 5 shareholders of record of our ordinary shares.
The following graph compares the cumulative total return to holders of Fabrinet’s ordinary shares with the cumulative total return of the NASDAQ Composite Index, and the NASDAQ Telecommunications Index. The graph assumes that $100 was invested in Fabrinet’s ordinary shares and in each of the indices discussed above on June 30, 2017, and that all dividends were reinvested.
The following graph compares the cumulative total return to holders of Fabrinet’s ordinary shares with the cumulative total return of the NASDAQ Composite Index, and the NASDAQ Telecommunications Index. The graph assumes that $100 was invested in Fabrinet’s ordinary shares and in each of the indices discussed above on June 29, 2018, and that all dividends were reinvested.
Historic stock performance is not necessarily indicative of future stock price performance. 35 Table of Contents ITEM 6. [Reserved]
Historic stock performance is not necessarily indicative of future stock price performance. 33 Table of Contents ITEM 6. [Reserved]
As of June 24, 2022, we had a remaining authorization to repurchase up to $21.3 million worth of our ordinary shares. 34 Table of Contents Equity Compensation Plan Information The equity compensation plan information required by this item, which includes a summary of the number of outstanding equity awards granted to employees and directors as well as the number of securities remaining available for future issuance under our equity compensation plans as of June 24, 2022, is incorporated by reference to our Proxy Statement for our 2022 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of our fiscal year ended June 24, 2022.
As of June 30, 2023, we had a remaining authorization to repurchase up to $52.4 million worth of our ordinary shares. 32 Table of Contents Equity Compensation Plan Information The equity compensation plan information required by this item, which includes a summary of the number of outstanding equity awards granted to employees and directors as well as the number of securities remaining available for future issuance under our equity compensation plans as of June 30, 2023, is incorporated by reference to our Proxy Statement for our 2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of our fiscal year ended June 30, 2023.
In February 2018, May 2019 and August 2020, we announced that our board of directors approved increases of $30.0 million, $50.0 million and $58.5 million, respectively, to the original share repurchase authorization, bringing the aggregate authorization to $168.5 million. The repurchased shares will be held as treasury stock. Our share repurchase program does not have an expiration date.
In February 2018, May 2019, August 2020 and August 2022, we announced that our board of directors approved increases of $30.0 million, $50.0 million, $58.5 million and $78.7 million, respectively, to the original share repurchase authorization, bringing the aggregate authorization to $247.2 million. The repurchased shares will be held as treasury stock.
During the year ended June 24, 2022, repurchases under our share repurchase program were made in accordance with Rule 10b-18, including pursuant to a pre-set trading plan adopted in accordance with Rule 10b5-1.
Our share repurchase program does not have an expiration date. During the year ended June 30, 2023, repurchases under our share repurchase program were made in accordance with Rule 10b-18, including pursuant to a pre-set trading plan adopted in accordance with Rule 10b5-1.
During the year ended June 24, 2022, 628,428 shares were repurchased under the program, at an average price per share (excluding other direct costs) of $95.32, for an aggregate purchase price of $59.9 million.
During the year ended June 30, 2023, 488,477 shares were repurchased under the program, at an average price per share (excluding other direct costs) of $97.38, for an aggregate purchase price of $47.6 million.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table shows our cash flows for the periods indicated: Years Ended (amount in thousands) June 24, 2022 June 25, 2021 June 26, 2020 Net cash provided by operating activities $ 124,246 $ 122,157 $ 150,660 Net cash used in investing activities $ (135,543) $ (8,934) $ (71,248) Net cash used in financing activities $ (92,934) $ (42,754) $ (35,305) Net increase in cash, cash equivalents and restricted cash $ (104,231) $ 70,469 $ 44,107 Cash, cash equivalents and restricted cash, beginning of period $ 303,123 $ 232,832 $ 188,241 Cash, cash equivalents and restricted cash, end of period $ 198,365 $ 303,123 $ 232,832 Operating Activities Net cash provided by operating activities of $124.2 million for fiscal year 2022 was primarily due to (1) net income of $200.4 million, (2) an increase in trade accounts payable of $93.5 million, (3) depreciation and amortization of $38.7 million, (4) share-based compensation of $28.0 million, and (5) increase in other current and non-current liabilities of $7.8 million, offset by (1) an increase in inventories of $135.0 million to support new business, (2) an increase in trade accounts receivable of $104.0 million due to higher sales and timing of collection, and (3) increase in other current and non-current assets of $6.4 million.
Biggest changeWe also believe that our current manufacturing capacity is sufficient to meet our anticipated production requirements for at least the next few quarters. 45 Table of Contents The following table shows our cash flows for the periods indicated: Years Ended (in thousands) June 30, 2023 June 24, 2022 June 25, 2021 Net cash provided by operating activities $ 213,310 $ 124,246 $ 122,157 Net cash used in investing activities $ (98,717) $ (135,543) $ (8,934) Net cash used in financing activities $ (80,984) $ (92,934) $ (42,754) Net increase (decrease) in cash, cash equivalents and restricted cash $ 33,609 $ (104,231) $ 70,469 Cash, cash equivalents and restricted cash, beginning of period $ 198,365 $ 303,123 $ 232,832 Cash, cash equivalents and restricted cash, end of period $ 231,368 $ 198,365 $ 303,123 Operating Activities Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities.
Thus, a full valuation allowance of $1.6 million for the deferred tax assets was set up as of the end of fiscal year 2020. A full valuation allowance of $2.1 million and $4.9 million were set up for the fiscal year ended June 25, 2021 and June 24, 2022, respectively.
Thus, a full valuation allowance of $1.6 million for the deferred tax assets was set up as of the end of fiscal year 2020. A full valuation allowance of $4.9 million and $2.1 million were set up for the fiscal year ended June 24, 2022 and June 25, 2021, respectively.
Income before income taxes . We recorded income before income taxes of $207.0 million for fiscal year 2022, compared with $150.5 million for fiscal year 2021. Income tax expense . Our provision for income tax reflects an effective tax rate of 3.2% and 1.4% for fiscal year 2022 and fiscal year 2021, respectively.
We recorded income before income taxes of $207.0 million for fiscal year 2022, compared with $150.5 million for fiscal year 2021. Income tax expense . Our provision for income tax reflects an effective tax rate of 3.2% and 1.4% for fiscal year 2022 and fiscal year 2021, respectively.
Currently, the corporate income tax rate for our Thai subsidiary is 20%. The corporate income tax rates for our subsidiaries in the PRC, the U.S., the U.K. and Israel are 25%, 21%, 19% and 23%, respectively. Critical Accounting Policies and Use of Estimates We prepare our consolidated financial statements in conformity with U.S.
Currently, the corporate income tax rate for our Thai subsidiary is 20%. The corporate income tax rates for our subsidiaries in the PRC, the U.S., the U.K. and Israel are 25%, 21%, 25% and 23%, respectively. Critical Accounting Policies and Use of Estimates We prepare our consolidated financial statements in conformity with U.S.
Operating income . Our operating income increased by $53.7 million to $204.5 million, or 9.0% of revenues, for fiscal year 2022, compared with $150.8 million, or 8.0% of revenues, for fiscal year 2021. Interest income . Our interest income decreased by $1.6 million to $2.2 million for fiscal year 2022, compared with $3.8 million for fiscal year 2021.
Operating income . Our operating income increased by $53.7 million, or 35.6%, to $204.5 million, or 9.0% of revenues, for fiscal year 2022, compared with $150.8 million, or 8.0% of revenues, for fiscal year 2021. Interest income . Our interest income decreased by $1.6 million to $2.2 million for fiscal year 2022, compared with $3.8 million for fiscal year 2021.
Additional Financial Disclosures Foreign Exchange As a result of our international operations, we are exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Thai baht.
Additional Financial Disclosures Foreign Exchange As a result of our international operations, we are exposed to foreign exchange risk arising from various currency exposures, and primarily with respect to the Thai baht.
We recorded net income of $200.4 million, or 8.8% of revenues, for fiscal year 2022, compared with net income of $148.3 million, or 7.9% of revenues, for fiscal year 2021. Other comprehensive income (loss) .
We recorded net income of $200.4 million, or 8.8% of total revenues, for fiscal year 2022, compared with net income of $148.3 million, or 7.9% of total revenues, for fiscal year 2021. Other comprehensive income (loss) .
Although we expect the prices we charge for our manufactured products to decrease over time (partly as a result of competitive market forces), we still believe we will be able to maintain favorable pricing for our services because of our ability to reduce cycle time, adjust our product mix by focusing on more complicated products, improve product quality and yields, and reduce material costs for the products we manufacture.
Although we expect the prices we charge for our manufactured products to decrease over time (partly as a result of competitive market forces), we believe we will be able to continue to maintain favorable pricing for our services because of our ability to reduce cycle time, adjust our product mix by focusing on more complicated products, improve product quality and yields, and reduce material costs for the products we manufacture.
The increase was primarily due to higher income subject to tax as well as more income subjected to tax in jurisdictions with a higher tax rate in fiscal year 2022, as compared to fiscal year 2021. Net income .
The increase was primarily due to higher income subject to tax as well as more income subjected to tax in jurisdictions with higher tax rate in fiscal year 2022, as compared to fiscal year 2021. Net income .
We believe these capabilities have enabled us to help our OEM customers reduce their manufacturing costs while maintaining or improving the design, quality, reliability, and delivery times for their products. Revenues, by percentage, from individual customers representing 10% or more of our revenues is set forth in Note 20 of our audited consolidated financial statements.
We believe these capabilities have enabled us to help our OEM customers reduce their manufacturing costs while maintaining or improving the design, quality, reliability, and delivery times for their products. Revenues, by percentage, from individual customers representing 10% or more of our revenues is set forth in Note 21 of our audited consolidated financial statements.
Forward-looking statements include, but are not limited to, statements about: • our goals and strategies; • our and our customers’ estimates regarding future revenues, operating results, expenses, capital requirements and liquidity; • our belief that we will be able to maintain favorable pricing on our services; • our expectation that the portion of our future revenues attributable to customers in regions outside of North America will decrease compared with the portion of those revenues for fiscal year 2022; • our expectation that we will incur incremental costs of revenue as a result of our planned expansion of our business into new geographic markets; • our expectation that our fiscal year 2023 selling, general and administrative (“SG&A”) expenses will increase compared to our fiscal year 2022 SG&A expenses; • our expectation that our employee costs will increase in Thailand and the People’s Republic of China (“PRC”); • our future capital expenditures and our needs for additional financing; • the expansion of our manufacturing capacity, including into new geographies; • the growth rates of our existing markets and potential new markets; • our ability, and the ability of our customers and suppliers, to respond successfully to technological or industry developments; • our expectations regarding the potential impact of the COVID-19 pandemic, macroeconomic conditions and international political instability on our business, financial condition and operating results; • our suppliers’ estimates regarding future costs; • our ability to increase our penetration of existing markets and to penetrate new markets; • our plans to diversify our sources of revenues; • our plans to execute acquisitions; • trends in the optical communications, industrial lasers, and sensors markets, including trends to outsource the production of components used in those markets; • our ability to attract and retain a qualified management team and other qualified personnel and advisors; and • competition in our existing and new markets.
Forward-looking statements include, but are not limited to, statements about: • our goals and strategies; • our and our customers’ estimates regarding future revenues, operating results, expenses, capital requirements and liquidity; • our belief that we will be able to maintain favorable pricing on our services; • our expectation that the portion of our future revenues attributable to customers in regions outside of North America will increase compared with the portion of those revenues for fiscal year 2023; • our expectation that we will incur incremental costs of revenue as a result of our planned expansion of our business into new geographic markets; • our expectation that our fiscal year 2024 selling, general and administrative (“SG&A”) expenses will increase compared to our fiscal year 2023 SG&A expenses; • our expectation that our employee costs will increase in Thailand and the People’s Republic of China (“PRC”); • our future capital expenditures and our needs for additional financing; • the expansion of our manufacturing capacity, including into new geographies; • the growth rates of our existing markets and potential new markets; • our ability, and the ability of our customers and suppliers, to respond successfully to technological or industry developments; • our expectations regarding the potential impact of macroeconomic conditions and international political instability on our business, financial condition and operating results; • our suppliers’ estimates regarding future costs; • our ability to increase our penetration of existing markets and to penetrate new markets; • our plans to diversify our sources of revenues; • our plans to execute acquisitions; • trends in the optical communications, industrial lasers, and sensors markets, including trends to outsource the production of components used in those markets; • our ability to attract and retain a qualified management team and other qualified personnel and advisors; and • competition in our existing and new markets.
Capital investments by foreign-invested enterprises outside of the PRC are also subject to limitations, which include approvals by the Ministry of Commerce, SAFE and the State Development and Reform Commission. 40 Table of Contents Circular 142 regulates the conversion by a foreign-invested company of foreign currency into RMB by restricting how the converted RMB may be used.
Capital investments by foreign-invested enterprises outside of the PRC are also subject to limitations, which include approvals by the Ministry of Commerce, SAFE and the State Development and Reform Commission. 38 Table of Contents Circular 142 regulates the conversion by a foreign-invested company of foreign currency into RMB by restricting how the converted RMB may be used.
The increase in cost of revenues was primarily due to a proportional increase in sales volume. Gross profit . Our gross profit increased by $57.2 million, or 25.8%, to $278.6 million, or 12.3% of revenues, for fiscal year 2022, compared with $221.4 million, or 11.8% of revenues, for fiscal year 2021.
The increase in cost of revenues was primarily due to a proportional increase in sales volume. Gross profit . Our gross profit increased by $57.2 million, or 25.8%, to $278.6 million, or 12.3% of revenues, for fiscal year 2022, compared with $221.4 million, or 11.8% of revenues, for fiscal year 2021. SG&A expenses .
Our SG&A expenses increased during fiscal year 2022, compared with fiscal year 2021, mainly due to (1) an increase in share-based compensation expenses of $2.8 44 Table of Contents million from an increase in awards of performance share units and restricted share units; (2) a net increase in allowance for doubtful accounts of $1.6 million primarily due to a specific provision set up for one customer in fiscal year 2022; and (3) an increase in executive bonuses of $0.6 million; offset by actuarial gain on obligation of $1.5 million in fiscal year 2022.
Our SG&A expenses increased during fiscal year 2022, compared with fiscal year 2021, mainly due to (1) an increase in share-based compensation expenses of $2.8 million from an increase in awards of performance share units and restricted share units; (2) a net increase in allowance for doubtful accounts of $1.6 million primarily due to a specific provision set up for one customer in fiscal year 2022; and (3) an increase in executive bonuses of $0.6 million; offset by actuarial gain on obligation of $1.5 million in fiscal year 2022.
Comparison of Fiscal Year 2022 with Fiscal Year 2021 Revenues . Our revenues increased by $382.8 million, or 20.4%, to $2,262.2 million for fiscal year 2022, compared with $1,879.4 million for fiscal year 2021. This increase was primarily due to an increase in customers’ demand for optical communications manufacturing services, particularly telecom manufacturing services, for fiscal year 2022.
Our revenues increased by $382.8 million, or 20.4%, to $2,262.2 million for fiscal year 2022, compared with $1,879.4 million for fiscal year 2021. This increase was primarily due to an increase in customers’ demand for optical communications manufacturing services, particularly telecom manufacturing services, for fiscal year 2022.
In August 2021, the compensation committee awarded bonuses to our executive employees for Company achievements of performance under our fiscal year 2021 executive incentive plan. Discretionary merit-based bonus awards are also available to our non-executive employees and payable on a quarterly basis.
In August 2022, the compensation committee awarded bonuses to our executive employees for Company achievements of performance under our fiscal year 2022 executive incentive plan. Discretionary merit-based bonus awards are also available to our non-executive employees and payable on a quarterly basis.
Thus, a full valuation allowance of $2.1 million for the deferred tax assets was released as of June 25, 2021 and no valuation allowances for deferred tax assets of our subsidiaries in the U.S. have been set up as of June 24, 2022.
Thus, a full valuation allowance of $2.1 million for the deferred tax assets was released as of June 25, 2021 and no valuation allowances for deferred tax assets of our subsidiaries in the U.S. have been set up as of June 24, 2022 and June 30, 2023.
The increase in foreign exchange gain was mainly due to (1) realized foreign exchange gain from payment/receipt of $1.1 million for fiscal year 2022, as compared to realized foreign exchange loss from payment/receipt of 1.0 million for fiscal year 2021, (2) higher unrealized foreign exchange gain from revaluation of outstanding Thai baht assets and liabilities of $1.6 million, and (3) lower unrealized foreign exchange loss from mark-to-market of forward contracts of $0.7 million, offset by (1) realized foreign exchange loss from subsidiaries in the PRC and the U.K., totaling $1.2 million for fiscal year 2022, as compared to realized foreign exchange gain from subsidiaries in the PRC and the U.K., totaling $1.3 million for fiscal year 2021, and (2) lower unrealized foreign exchange gain from revaluation of other currencies of $0.1 million.
The increase in foreign exchange gain was mainly due to (1) realized foreign exchange gain from payment/receipt of $1.1 million for fiscal year 2022, as compared to realized foreign exchange loss from payment/receipt of 1.0 million for fiscal year 2021, (2) higher unrealized foreign exchange gain from revaluation of outstanding Thai baht assets and liabilities of $1.6 million, and (3) lower unrealized foreign exchange loss from mark-to-market of forward contracts of $0.7 million, offset by (1) realized foreign exchange loss from subsidiaries in the PRC and the U.K., totaling $1.2 million for fiscal year 2022, as compared to realized foreign exchange gain from subsidiaries in the PRC and the U.K., totaling $1.3 million for fiscal year 2021, and (2) lower unrealized foreign exchange gain from revaluation of other currencies of $0.1 million. 44 Table of Contents Income before income taxes .
The RMB liabilities represent trade accounts payable, accrued expenses, income tax payable and other payables. As of June 24, 2022 and June 25, 2021, we did not have any derivative contracts denominated in RMB. The GBP assets represent cash and trade accounts receivable. The GBP liabilities represent trade accounts payable and other payables.
The RMB liabilities represent trade accounts payable, accrued expenses, income tax payable and other payables. As of June 30, 2023 and June 24, 2022, we did not have any derivative contracts denominated in RMB. The GBP assets represent cash and trade accounts receivable. The GBP liabilities represent trade accounts payable and other payables.
“We,” “us” and “our” refer to Fabrinet and its subsidiaries. 36 Table of Contents Overview For an overview of our business, see PART I – ITEM 1. BUSINESS. Fiscal Years We utilize a 52-53 week fiscal year ending on the Friday in June closest to June 30.
“We,” “us” and “our” refer to Fabrinet and its subsidiaries. 34 Table of Contents Overview For an overview of our business, see PART I – ITEM 1. BUSINESS. Fiscal Years We utilize a 52-53 week fiscal year ending on the last Friday in June.
We expect that disruptions in our supply chain and fluctuations in the availability of parts and materials will continue to have a significant impact on our ability to generate revenue, despite strong demand from our customers.
We expect that disruptions in our supply chain and fluctuations in the availability of parts and materials will continue to have an adverse impact on our ability to generate revenue, despite strong demand from our customers.
The following table presents percentages of total revenues by geographic regions: Years Ended June 24, 2022 June 25, 2021 June 26, 2020 North America 49.3 % 47.2 % 50.6 % Asia-Pacific 37.0 35.6 33.7 Europe 13.7 17.2 15.7 100.0 % 100.0 % 100.0 % Our Contracts We enter into supply agreements with our customers which generally have an initial term of up to three years, subject to automatic renewals for subsequent one-year terms unless expressly terminated.
The following table presents percentages of total revenues by geographic regions: Years Ended June 30, 2023 June 24, 2022 June 25, 2021 North America 48.0 % 49.3 % 47.2 % Asia-Pacific 43.2 37.0 35.6 Europe 8.8 13.7 17.2 100.0 % 100.0 % 100.0 % Our Contracts We enter into supply agreements with our customers which generally have an initial term of up to three years, subject to automatic renewals for subsequent one-year terms unless expressly terminated.
As of June 24, 2022 and June 25, 2021, we had long-term borrowing under our credit facility agreement of $27.4 million and $39.5 million, respectively (See Note 13 of the Notes to Consolidated Financial Statements for further details). We anticipate that our internally generated working capital, along with our cash and cash equivalents will be adequate to repay these obligations.
As of June 30, 2023 and June 24, 2022, we had long-term borrowing under our credit facility agreement of $12.2 million and $27.4 million, respectively (See Note 13 of the Notes to Consolidated Financial Statements for further details). We anticipate that our internally generated working capital, along with our cash and cash equivalents will be adequate to repay these obligations.
The amounts used to assess sensitivity are included for illustrative purposes only and do not represent management’s predictions of variability. 41 Table of Contents Our critical accounting policies and the adoption of new accounting policies are disclosed in Note 2 – Summary of significant accounting policies.
The amounts used to assess sensitivity are included for illustrative purposes only and do not represent management’s predictions of variability. 39 Table of Contents Our critical accounting policies and the adoption of new accounting policies are disclosed in Note 2 – Summary of significant accounting policies. There were no changes to our accounting policies.
As of June 24, 2022, there was $135.0 million in foreign currency forward contracts outstanding on the Thai baht payables. As of June 25, 2021, there was $130.0 million in foreign currency forward contracts outstanding on the Thai baht payables. The RMB assets represent cash and cash equivalents, trade accounts receivable and other current assets.
As of June 30, 2023, there was $143.0 million in foreign currency forward contracts outstanding on the Thai baht payables. As of June 24, 2022, there was $135.0 million in foreign currency forward contracts outstanding on the Thai baht payables. The RMB assets represent cash and cash equivalents, trade accounts receivable and other current assets.
As of June 24, 2022 and June 25, 2021, we did not have any derivative contracts denominated in GBP. For fiscal years 2022 and 2021, we recorded an unrealized loss of $0.8 million and $1.5 million, respectively, related to derivatives that are not designated as hedging instruments in the consolidated statements of operations and comprehensive income.
As of June 30, 2023 and June 24, 2022, we did not have any derivative contracts denominated in GBP. For fiscal years 2023 and 2022, we recorded an unrealized gain of $0.4 million and unrealized loss of $0.8 million, respectively, related to derivatives that are not designated as hedging instruments in the consolidated statements of operations and comprehensive income.
Years Ended June 24, 2022 June 25, 2021 June 26, 2020 Revenues 100.0 % 100.0 % 100.0 % Cost of revenues (87.7) (88.2) (88.7) Gross profit 12.3 11.8 11.3 Selling, general and administrative expenses (3.3) (3.8) (4.2) Expenses related to reduction in workforce 0.0 0.0 0.0 Operating income 9.0 8.0 7.1 Interest income 0.1 0.2 0.5 Interest expense 0.0 0.0 (0.2) Foreign exchange gain (loss), net 0.1 0.0 (0.2) Other income (expense), net (0.1) (0.2) 0.1 Income before income taxes 9.1 8.0 7.3 Income tax expense (0.3) (0.1) (0.4) Net income 8.8 7.9 6.9 Other comprehensive income (loss), net of tax (0.3) (0.3) 0.1 Net comprehensive income 8.5 % 7.6 % 7.0 % The following table sets forth our revenues by end market for the periods indicated.
Years Ended June 30, 2023 June 24, 2022 June 25, 2021 Revenues 100.0 % 100.0 % 100.0 % Cost of revenues (87.3) (87.7) (88.2) Gross profit 12.7 12.3 11.8 Selling, general and administrative expenses (2.9) (3.3) (3.8) Restructuring and other related costs (0.3) 0.0 0.0 Operating income 9.5 9.0 8.0 Interest income 0.4 0.1 0.2 Interest expense (0.1) 0.0 0.0 Foreign exchange gain (loss), net 0.0 0.1 0.0 Other income (expense), net 0.0 (0.1) (0.2) Income before income taxes 9.8 9.1 8.0 Income tax expense (0.4) (0.3) (0.1) Net income 9.4 8.8 7.9 Other comprehensive income (loss), net of tax 0.2 (0.3) (0.3) Net comprehensive income 9.6 % 8.5 % 7.6 % 42 Table of Contents The following table sets forth our revenues by end market for the periods indicated.
Based on the short- and medium-term indications and forecasts from our customers, we expect that the portion of our future revenues attributable to customers in regions outside of North America will decrease as compared with the portion of revenues attributable to such customers during fiscal year 2022.
Based on the short- and medium-term indications and forecasts from our customers, we expect that the portion of our 35 Table of Contents future revenues attributable to customers in regions outside of North America will increase as compared with the portion of revenues attributable to such customers during fiscal year 2023.
Revenues We believe our ability to expand our relationships with existing customers and attract new customers is due to a number of factors, including our broad range of complex engineering and manufacturing service offerings, flexible low-cost manufacturing platform, process optimization capabilities, advanced supply chain management, excellent customer service, and experienced management team.
Revenues We believe we are able to expand our relationships with existing customers and attract new customers due to, among other factors, our broad range of complex engineering and manufacturing service offerings, flexible low-cost manufacturing platform, process optimization capabilities, advanced supply chain management, excellent customer service, and experienced management team.
Term Loan and Interest Expenses As of June 24, 2022, there was $27.4 million outstanding under the term loan that will mature on June 30, 2024 (see Note 13), which consists of scheduled debt payments within one year of $12.2 million and after one year of $15.2 million.
Term Loan and Interest Expenses As of June 30, 2023, there was $12.2 million outstanding under the term loan that will mature on June 30, 2024 (see Note 13), which only consists of scheduled debt payments within one year of $12.2 million.
Our cost of revenues is significantly impacted by salary levels in Thailand, the PRC and the United Kingdom, the fluctuation of the Thai baht, RMB and GBP against our functional currency, the U.S. dollar, and our ability to retain our employees.
Our cost of revenues is significantly impacted by salary levels in Thailand, the PRC and the United Kingdom, the fluctuation of the Thai baht, RMB and GBP against our functional currency, the U.S. dollar, and our ability to retain our employees. We expect our employee costs to increase as wages continue to increase in Thailand and the PRC.
Bonuses under the fiscal year 2022 executive incentive plan are payable after the end of fiscal year 2022. In fiscal year 2021, the compensation committee approved a fiscal year 2021 executive incentive plan with quantitative objectives that were based solely on achieving certain revenue targets and non-U.S. GAAP operating margin targets for fiscal year 2021.
In fiscal year 2022, the compensation committee approved a fiscal year 2022 executive incentive plan with quantitative objectives that were based solely on achieving certain revenue targets and non-U.S. GAAP operating margin targets for fiscal year 2022.
Liquidity and Capital Resources Cash Flows and Working Capital We primarily finance our operations through cash flow from operating activities. As of June 24, 2022 and June 25, 2021, we had cash, cash equivalents, and short-term investments of $478.2 million and $547.9 million, respectively, and outstanding debt of $27.4 million and $39.5 million, respectively.
Liquidity and Capital Resources Cash Flows and Working Capital We primarily finance our operations through cash flow from operating activities. As of June 30, 2023 and June 24, 2022, we had cash, cash equivalents, and short-term investments of $550.5 million and $478.2 million, respectively, and outstanding debt of $12.2 million and $27.4 million, respectively.
The weighted average interest rate on our cash and cash equivalents for fiscal year 2022, fiscal year 2021 and fiscal year 2020 was 0.5%, 0.7% and 1.8%, respectively. 46 Table of Contents Our cash investments are made in accordance with an investment policy approved by the audit committee of our board of directors.
The weighted average interest rate on our cash and cash equivalents for fiscal year 2023, fiscal year 2022 and fiscal year 2021 was 2.4%, 0.5% and 0.7%, respectively. Our cash investments are made in accordance with an investment policy approved by the audit committee of our board of directors.
Years Ended (amount in thousands) June 24, 2022 June 25, 2021 June 26, 2020 Capital expenditures $ 80,462 $ 52,054 $ 51,317 During fiscal year 2022 and fiscal year 2021, we invested in a new manufacturing building at our Chonburi campus and continued to purchase equipment to support the expansion of our manufacturing facilities in Thailand, the PRC and Israel.
Years Ended (in thousands) June 30, 2023 June 24, 2022 June 25, 2021 Capital expenditures $ 66,712 $ 80,462 $ 52,054 During fiscal year 2023, fiscal year 2022, and fiscal year 2021, we invested in a manufacturing building at our Chonburi campus and continued to purchase equipment to support the expansion of our manufacturing facilities in Thailand, the PRC and Israel.
Charges included in SG&A expenses for bonus distributions to non-executive and executive employees were $4.4 million, $4.2 million and $4.1 million for fiscal years 2022, 2021 and 2020, respectively. Share-based compensation expense included in SG&A expenses was $22.1 million, $19.3 million and $16.1 million for fiscal years 2022, 2021 and 2020, respectively.
Charges included in SG&A expenses for bonus distributions to non-executive and executive employees were $6.1 million, $5.0 million and $4.6 million for fiscal years 2023, 2022 and 2021, respectively. Share-based compensation expense included in SG&A expenses was $20.9 million, $22.1 million and $19.3 million for fiscal years 2023, 2022 and 2021, respectively.
Our SG&A expenses increased by $2.2 million, or 3.2%, to $70.6 million, or 3.8% of revenues, for fiscal year 2021, compared with $68.4 million, or 4.2% of revenues, for fiscal year 2020.
Our SG&A expenses increased by $3.3 million, or 4.7%, to $73.9 million, or 3.3% of revenues, for fiscal year 2022, compared with $70.6 million, or 3.8% of revenues, for fiscal year 2021.
Years Ended (amount in thousands) June 24, 2022 June 25, 2021 June 26, 2020 Optical communications $ 1,782,799 $ 1,441,338 $ 1,248,174 Lasers, sensors, and other 479,425 438,012 393,662 Total $ 2,262,224 $ 1,879,350 $ 1,641,836 We operate and internally manage a single operating segment. As such, discrete information with respect to separate product lines and segments is not accumulated.
Years Ended (in thousands) June 30, 2023 June 24, 2022 June 25, 2021 Optical communications $ 2,008,347 $ 1,782,799 $ 1,441,338 Lasers, sensors, and other 636,890 479,425 438,012 Total $ 2,645,237 $ 2,262,224 $ 1,879,350 We operate and internally manage a single operating segment. As such, discrete information with respect to separate product lines and segments is not accumulated.
The percentage of our revenues generated from a bill-to-location outside of North America decreased from 52.8% in fiscal year 2021 to 50.7% in fiscal year 2022, which was partially due to a decrease in sales to our customers in Europe by 3.5%.
The percentage of our revenues generated from a bill-to location outside of North America increased from 50.7% in fiscal year 2022 to 52.0% in fiscal year 2023, which was partially due to a decrease in sales to our customers in Europe by 4.9%.
The increase was primarily due to sales volume, product mix and foreign exchange gain. SG&A expenses . Our SG&A expenses increased by $3.3 million, or 4.7%, to $73.9 million, or 3.3% of revenues, for fiscal year 2022, compared with $70.6 million, or 3.8% of revenues, for fiscal year 2021.
The increase was primarily due to sales volume and product mix. SG&A expenses . Our SG&A expenses increased by $3.8 million, or 5.1%, to $77.7 million, or 2.9% of revenues, for fiscal year 2023, compared with $73.9 million, or 3.3% of revenues, for fiscal year 2022.
Other comprehensive income (loss) . We recorded other comprehensive loss of $5.1 million, or 0.3% of revenues, for fiscal year 2021, compared with other comprehensive income of $1.2 million, or 0.1% of revenues, for fiscal year 2020.
We recorded other comprehensive income of $4.7 million, or 0.2% of revenues, for fiscal year 2023, compared with other comprehensive loss of $6.5 million, or 0.3% of revenues, for fiscal year 2022.
In fiscal year 2023, we expect our SG&A expenses will increase compared with our fiscal year 2022 SG&A expenses. The compensation committee of our board of directors approved a fiscal year 2022 executive incentive plan with quantitative objectives based solely on achieving certain revenue targets and non-U.S. GAAP operating margin targets for fiscal year 2022.
The compensation committee of our board of directors approved a fiscal year 2023 executive incentive plan with quantitative objectives based solely on achieving certain revenue targets and non-U.S. GAAP operating margin targets for fiscal year 2023. Bonuses under the fiscal year 2023 executive incentive plan are payable after the end of fiscal year 2023.
Material Cash Requirements for Contractual Obligations As of June 24, 2022, we had material cash requirements of $32.3 million including scheduled payments within one year of $15.3 million and after one year of $17.0 million. These material cash requirements consisted of the following contractual and other obligations.
Material Cash Requirements for Contractual Obligations As of June 30, 2023, we had material cash requirements of $13.5 million including scheduled payments within one year of $13.4 million and after one year of $0.1 million. These material cash requirements consisted of the following contractual and other obligations.
The decrease in other comprehensive income was mainly due to (1) unrealized loss from mark-to-market of forward contracts and interest rate swap agreement of $5.1 million for fiscal year 2021, as compared to unrealized gain from mark-to-market of forward contracts and interest rate swap agreement of $0.6 million for fiscal year 2020, and (2) unrealized loss from mark-to-market of available-for-sale debt securities of $1.2 million for fiscal year 2021, as compared to unrealized gain from mark-to-market of available-for-sale debt securities of $0.5 million for fiscal year 2020.
The other comprehensive income was mainly due to (1) unrealized gain from mark-to-market of available-for-sale debt securities of $9.1 million for fiscal year 2023, and (2) unrealized gain from mark-to-market of forward contracts and interest rate swap agreement of $2.1 million for fiscal year 2023. Comparison of Fiscal Year 2022 with Fiscal Year 2021 Revenues .
During fiscal year 2021, our subsidiaries in the U.S. generated taxable income sufficient for the utilization of loss carryforwards due to better operating performance and effective control of operating expenses and management determined that it was more likely than not that future taxable income would be sufficient to allow utilization of the deferred tax assets.
During fiscal year 2023, our subsidiary in the U.K. generated taxable income and was able to utilize loss carryforwards. Management determined that it was more likely than not that future taxable income would be sufficient to allow utilization of the deferred tax assets.
To better manage our cash on hand, we held short-term investments of $280.2 million as of June 24, 2022.
To better manage our cash on hand, we held short-term investments of $319.1 million as of June 30, 2023.
Income before income taxes . We recorded income before income taxes of $150.5 million for fiscal year 2021, compared with $119.2 million for fiscal year 2020. Income tax expense . Our provision for income tax reflects an effective tax rate of 1.4% and 4.8% for fiscal year 2021 and fiscal year 2020, respectively.
We recorded income before income taxes of $260.1 million for fiscal year 2023, compared with $207.0 million for fiscal year 2022. Income tax expense . Our provision for income tax reflects an effective tax rate of 4.7% and 3.2% for fiscal year 2023 and fiscal year 2022, respectively.
Gains or losses on our forward and put option contracts generally present gross amount in the assets, liabilities, and transactions economically hedged. 39 Table of Contents We had foreign currency denominated assets and liabilities in Thai baht, RMB and GBP as follows: As of June 24, 2022 As of June 25, 2021 (amount in thousands, except percentages) Foreign Currency $ % Foreign Currency $ % Assets Thai baht 753,924 $ 21,213 64.0 1,472,249 $ 46,312 67.5 RMB 34,382 5,132 15.5 98,056 15,145 22.1 GBP 5,544 6,801 20.5 5,111 7,119 10.4 Total $ 33,146 100.0 $ 68,576 100.0 Liabilities Thai baht 2,393,112 $ 67,336 84.8 2,250,514 $ 70,793 87.7 RMB 61,191 9,133 11.5 40,112 6,195 7.7 GBP 2,379 2,918 3.7 2,656 3,699 4.6 Total $ 79,387 100.0 $ 80,687 100.0 The Thai baht assets represent cash and cash equivalents, trade accounts receivable, deposits and other current assets.
Gains or losses on our forward and put option contracts generally present gross amount in the assets, liabilities, and transactions economically hedged. 37 Table of Contents We had foreign currency denominated assets and liabilities in Thai baht, RMB and GBP as follows: As of June 30, 2023 As of June 24, 2022 (in thousands, except percentages) Foreign Currency $ % Foreign Currency $ % Assets Thai baht 754,443 $ 21,198 61.1 753,924 $ 21,213 64.0 RMB 65,669 9,088 26.2 34,382 5,132 15.5 GBP 3,487 4,401 12.7 5,544 6,801 20.5 Total $ 34,687 100.0 $ 33,146 100.0 Liabilities Thai baht 2,956,730 $ 83,078 93.5 2,393,112 $ 67,336 84.8 RMB 40,477 5,602 6.3 61,191 9,133 11.5 GBP 114 144 0.2 2,379 2,918 3.7 Total $ 88,824 100.0 $ 79,387 100.0 The Thai baht assets represent cash and cash equivalents, trade accounts receivable, deposits and other current assets.
The increase in foreign exchange gain was mainly due to an unrealized foreign exchange gain from revaluation of outstanding Thai baht assets and liabilities of $2.0 million, foreign exchange gain from subsidiaries in the PRC and the U.K., totaling $1.7 million, and realized foreign exchange gain from payment/receipt of $0.5 million in fiscal year 2021, as compared to an unrealized foreign exchange loss from mark-to-market of forward contracts of $1.2 million and realized foreign exchange loss from payment/receipt of $1.6 million in fiscal year 2020.
The foreign exchange loss was mainly due to (1) unrealized foreign exchange loss from revaluation of outstanding Thai baht assets and liabilities of $3.5 million for fiscal year 2023, and (2) realized foreign exchange loss from payment/receipt of $3.1 million for fiscal year 2023, offset by (1) foreign exchange gain from subsidiaries in the PRC and the U.K., totaling $1.5 million for fiscal year 2023, (2) unrealized foreign exchange gain from mark-to-market of forward contracts of $1.2 million for fiscal year 2023, and (3) unrealized foreign exchange gain from revaluation of other currencies of $0.4 million for fiscal year 2023. 43 Table of Contents Income before income taxes .
Results of Operations The following table sets forth a summary of our consolidated statements of operations and comprehensive income. Note that period-to-period comparisons of operating results should not be relied upon as indicative of future performance.
Thus, a full valuation allowance of $1.6 million for the deferred tax assets was released as of June 30, 2023. 41 Table of Contents Results of Operations The following table sets forth a summary of our consolidated statements of operations and comprehensive income. Note that period-to-period comparisons of operating results should not be relied upon as indicative of future performance.
Our infrastructure costs are comprised of depreciation, utilities, facilities management and overhead costs. Most of our facility leases are long-term agreements. Our depreciation costs include buildings and fixed assets, primarily at our Pinehurst and Chonburi campuses in Thailand, and capital equipment located at each of our manufacturing locations.
Our depreciation costs include buildings and fixed assets, primarily at our Pinehurst and Chonburi campuses in Thailand, and capital equipment located at each of our manufacturing locations.
Years Ended (amount in thousands) June 24, 2022 June 25, 2021 June 26, 2020 Revenues $ 2,262,224 $ 1,879,350 $ 1,641,836 Cost of revenues (1,983,630) (1,657,987) (1,455,731) Gross profit 278,594 221,363 186,105 Selling, general and administrative expenses (73,941) (70,567) (68,374) Expenses related to reduction in workforce (135) (43) (329) Operating income 204,518 150,753 117,402 Interest income 2,205 3,783 7,592 Interest expense (432) (1,100) (3,044) Foreign exchange gain (loss), net 2,302 508 (3,797) Other income (expense), net (1,627) (3,460) 1,089 Income before income taxes 206,966 150,484 119,242 Income tax expense (6,586) (2,143) (5,763) Net income 200,380 148,341 113,479 Other comprehensive income (loss), net of tax (6,527) (5,119) 1,239 Net comprehensive income $ 193,853 $ 143,222 $ 114,718 43 Table of Contents The following table sets forth a summary of our consolidated statements of operations and comprehensive income as a percentage of total revenues for the periods indicated.
Years Ended (in thousands) June 30, 2023 June 24, 2022 June 25, 2021 Revenues $ 2,645,237 $ 2,262,224 $ 1,879,350 Cost of revenues (2,308,964) (1,983,630) (1,657,987) Gross profit 336,273 278,594 221,363 Selling, general and administrative expenses (77,673) (73,941) (70,567) Restructuring and other related costs (6,896) (135) (43) Operating income 251,704 204,518 150,753 Interest income 11,234 2,205 3,783 Interest expense (1,472) (432) (1,100) Foreign exchange gain (loss), net (1,211) 2,302 508 Other income (expense), net (159) (1,627) (3,460) Income before income taxes 260,096 206,966 150,484 Income tax expense (12,183) (6,586) (2,143) Net income 247,913 200,380 148,341 Other comprehensive income (loss), net of tax 4,678 (6,527) (5,119) Net comprehensive income $ 252,591 $ 193,853 $ 143,222 The following table sets forth a summary of our consolidated statements of operations and comprehensive income as a percentage of total revenues for the periods indicated.
We recorded foreign exchange gain, net of $0.5 million for fiscal year 2021, compared with foreign exchange loss, net of $3.8 million for fiscal year 2020.
Foreign exchange gain (loss), net . We recorded foreign exchange loss, net of $1.2 million for fiscal year 2023, compared with foreign exchange gain, net of $2.3 million for fiscal year 2022.
Our ability to sustain our working capital position is subject to a number of risks that we discuss in Item 1A of this Annual Report on Form 10-K. We also believe that our current manufacturing capacity is sufficient to meet our anticipated production requirements for at least the next few quarters.
Our ability to sustain our working capital position is subject to a number of risks that we discuss in Item 1A of this Annual Report on Form 10-K.
The decrease was primarily due to a lower weighted average interest rate in fiscal year 2021 compared with fiscal year 2020. Interest expense . Our interest expense decreased by $1.9 million to $1.1 million for fiscal year 2021, compared with $3.0 million for fiscal year 2020.
Our interest income increased by $9.0 million to $11.2 million for fiscal year 2023, compared with $2.2 million for fiscal year 2022. The increase was primarily due to a higher weighted average interest rate in fiscal year 2023 compared with fiscal year 2022. Interest expense .
There were no changes to our accounting policies other than the adoption of ASU 740, “Income taxes (Topic 740).” Revenue Recognition We derive total revenues primarily from the assembly of products under supply agreements with our customers and the fabrication of customized optics and glass.
Revenue Recognition We derive total revenues primarily from the assembly of products under supply agreements with our customers and the fabrication of customized optics and glass.
During fiscal years 2022, 2021 and 2020, discretionary merit-based bonus awards were made to our non-executive employees. Charges included in cost of revenues for bonus awards to non-executive employees were $4.9 million, $4.7 million and $4.6 million for fiscal years 2022, 2021 and 2020, respectively.
Charges included in cost of revenues for bonus awards to non-executive employees were $6.8 million, $6.0 million and $5.6 million for fiscal years 2023, 2022 and 2021, respectively. Share-based compensation expense included in cost of revenues was $6.7 million, $6.0 million and $6.2 million for fiscal years 2023, 2022 and 2021, respectively.
Revenues from optical communications products represented 76.7% of our revenues for fiscal year 2021, compared with 76.0% for fiscal year 2020. Cost of revenues. Our cost of revenues increased by $202.3 million, or 13.9%, to $1,658.0 million, or 88.2% of revenues, for fiscal year 2021, compared with $1,455.7 million, or 88.7% of revenues, for fiscal year 2020.
Revenues from optical communications products represented 75.9% of our revenues for fiscal year 2023, compared with 78.8% for fiscal year 2022. Cost of revenues . Our cost of revenues increased by $325.4 million, or 16.4%, to $2,309.0 million, or 87.3% of revenues, for fiscal year 2023, compared with $1,983.6 million, or 87.7% of revenues, for fiscal year 2022.
Share-based compensation expense included in cost of revenues was $6.0 million, $6.2 million and $6.1 million for fiscal years 2022, 2021 and 2020, respectively. We expect to incur incremental costs of revenue as a result of our planned expansion into new geographic markets, though we are not able to determine the amount of these incremental expenses.
We expect to incur incremental costs of revenue as a result of our planned expansion into new geographic markets, though we are not able to determine the amount of these incremental expenses.
We expect our employee costs to increase as wages continue to increase in Thailand and the 38 Table of Contents PRC. Wage increases may impact our ability to sustain our competitive advantage and may reduce our profit margin. We seek to mitigate these cost increases through improvements in employee productivity, employee retention and asset utilization.
Wage increases may impact our ability to sustain our competitive advantage and may reduce our profit margin. We seek to mitigate these cost increases through improvements in employee productivity, employee retention and asset utilization. Our infrastructure costs are comprised of depreciation, utilities, facilities management and overhead costs. Most of our facility leases are long-term agreements.
The decrease was primarily due to higher income not subject to tax in fiscal year 2021, as compared to fiscal year 2020. Net income . We recorded net income of $148.3 million, or 7.9% of total revenues, for fiscal year 2021, compared with net income of $113.5 million, or 6.9% of total revenues, for fiscal year 2020.
The increase was primarily due to higher income subject to tax in fiscal year 2023, as compared to fiscal year 2022. Net income . We recorded net income of $247.9 million, or 9.4% of revenues, for fiscal year 2023, compared with net income of $200.4 million, or 8.8% of revenues, for fiscal year 2022. Other comprehensive income (loss) .
During fiscal year 2022 and fiscal year 2021, a 42 Table of Contents change of 10% for excess and obsolete materials, based on product demand and production requirements from our customers, would have affected our net income by approximately $0.7 million and $0.1 million, respectively.
During fiscal year 2023 and fiscal year 2022, a change of 10% for excess and obsolete materials, based on product demand and production requirements from our customers, would have affected our net income by approximately $1.0 million and $0.7 million, respectively. 40 Table of Contents Deferred Income Taxes Our deferred income tax assets represent temporary differences between the carrying amount and the tax basis of existing assets and liabilities that will result in deductible and payable amounts in future years, including net operating loss carry forwards.
After June 2020, 50% of our income generated from products manufactured at our Pinehurst campus will be exempted from tax through June 2025.
After June 2020, 50% of our income generated from products manufactured at our Pinehurst campus will be exempted from tax through June 2025. New preferential tax treatment is available to us for products manufactured at our Chonburi campus Building 9, where income generated will be tax exempt through 2031, capped at our actual investment amount.
The increase in cost of revenues was primarily due to a proportional increase in sales volume. Gross profit . Our gross profit increased by $35.3 million, or 18.9%, to $221.4 million, or 11.8% of revenues, for fiscal year 2021, compared with $186.1 million, or 11.3% of revenues, for fiscal year 2020. 45 Table of Contents SG&A expenses .
The increase in cost of revenues was primarily due to a proportional increase in sales volume. Gross profit . Our gross profit increased by $57.7 million, or 20.7%, to $336.3 million, or 12.7% of revenues, for fiscal year 2023, compared with $278.6 million, or 12.3% of revenues, for fiscal year 2022.
The interest expenses that arise from the term loan have a scheduled debt payment within one year of $0.7 million and after one year of $0.3 million. Operating Lease As of June 24, 2022, we have certain operating lease arrangements under which the lease payments are calculated using the straight-line method.
Operating Lease As of June 30, 2023, we have certain operating lease arrangements under which the lease payments are calculated using the straight-line method. Our rental expenses under these leases which will be paid within one year is $1.2 million and after one year is $0.1 million.
Thus, a full valuation allowance of $2.1 million for the deferred tax assets was set up as of the end of fiscal year 2020.
Thus, a full valuation allowance of $2.1 million for the deferred tax assets was set up as of the end of fiscal year 2020. During fiscal year 2021, our subsidiaries in the U.S. generated taxable income sufficient for the utilization of loss carryforwards due to better operating performance and effective control of operating expenses.
Our rental expenses under these leases which will be paid within one year is $2.4 million and after one year is $1.5 million. Capital Expenditures The following table sets forth our capital expenditures, which include amounts for which payments have been accrued, for the periods indicated.
Capital Expenditures The following table sets forth our capital expenditures, which include amounts for which payments have been accrued, for the periods indicated.
Comparison of Fiscal Year 2021 with Fiscal Year 2020 Revenues . Our revenues increased by $237.5 million, or 14.5%, to $1,879.4 million for fiscal year 2021, compared with $1,641.8 million for fiscal year 2020. This increase was primarily due to an increase in customers’ demand for optical communications manufacturing services, particularly telecom manufacturing services, for fiscal year 2021.
Comparison of Fiscal Year 2023 with Fiscal Year 2022 Revenues . Our revenues increased by $383.0 million, or 16.9%, to $2,645.2 million for fiscal year 2023, compared with $2,262.2 million for fiscal year 2022. This increase was primarily due to an increase in our key customers’ demand for fiscal year 2023.
Operating income . Our operating income increased by $33.4 million to $150.8 million, or 8.0% of revenues, for fiscal year 2021, compared with $117.4 million, or 7.1% of revenues, for fiscal year 2020. Interest income . Our interest income decreased by $3.8 million to $3.8 million for fiscal year 2021, compared with $7.6 million for fiscal year 2020.
Restructuring and other related costs. We recorded restructuring and other related costs for fiscal year 2023 of $6.9 million. Operating income . Our operating income increased by $47.2 million, or 23.1%, to $251.7 million, or 9.5% of revenues, for fiscal year 2023, compared with $204.5 million, or 9.0% of revenues, for fiscal year 2022. Interest income .
Our fiscal years 2022, 2021, and 2020 ended on June 24, 2022, June 25, 2021 and June 26, 2020, respectively, and were each 52-week years. Our fiscal year 2023 will end on June 30, 2023 and be a 53-week year. The additional week in a 53-week year is added to the first quarter, making such quarter consist of 14 weeks.
Our fiscal years 2023, 2022, and 2021 ended on June 30, 2023, June 24, 2022 and June 25, 2021, and consisted of 53 weeks, 52 weeks and 52 weeks, respectively.
Recent Accounting Pronouncements See Note 2 of the Notes to Consolidated Financial Statements for recent accounting pronouncements that could have an effect on us.
We expect our capital expenditures for fiscal year 2024 to increase compared to fiscal year 2023 mainly due to the purchase of manufacturing equipment to support the expansion of manufacturing facilities and investment in our information technology infrastructure. 46 Table of Contents Recent Accounting Pronouncements See Note 2 of the Notes to Consolidated Financial Statements for recent accounting pronouncements that could have an effect on us.
Investing Activities Net cash used in investing activities of $135.5 million for fiscal year 2022 was primarily due to (1) purchase of property, plant and equipment of $89.6 million, mainly related to investment in a new manufacturing building at our Chonburi campus, including acquisition of land and equipment and (2) net purchase from sales and maturities of short-term investments of $45.2 million.
Cash used in investing activities was lower for fiscal year 2023 as compared to cash used in investing activities for fiscal year 2022 primarily due to lower capital expenditures and net proceeds from sales and maturities of short-term investments.
Net cash used in financing activities of $42.8 million for fiscal year 2021 was primarily due to (1) repurchase of ordinary shares of $18.8 million, (2) repayment of loans to banks of $12.2 million, and (3) cash paid for withholding tax related to net share settlement of restricted share units of $11.6 million.
Cash used in financing activities was lower for fiscal year 2023 as compared to the fiscal year 2022 primarily due to less cash paid for share repurchases and a decrease in withholding tax related to net share settlement of restricted share units, offset by an increase in the repayment of long-term borrowings due to an additional installment from the additional week in the first quarter of fiscal year 2023.
Removed
Recent Developments Related to COVID-19 For a discussion of the effects of COVID-19 on our business, see “Recent Developments Related to COVID-19” in PART I – ITEM 1. BUSINESS.
Added
In addition, we expect the near-term inventory correction that our optical communications customers are experiencing to persist, which will have an adverse impact on our ability to generate revenue. Revenues by Geography We generate revenues from three geographic regions: North America, Asia-Pacific and others, and Europe.
Removed
These supply chain disruptions have been exacerbated by recent global events, such as (1) COVID-related lockdowns in China, which have caused freight and logistics issues and unforeseen delays, and (2) the armed conflict between Russia and Ukraine.
Added
We expect to incur incremental costs of revenue as a result of our planned expansion into new geographic markets, though we are not able to determine the amount of these incremental expenses. 36 Table of Contents During fiscal years 2023, 2022 and 2021, discretionary merit-based bonus awards were made to our non-executive employees.
Removed
While we have no significant direct business in Ukraine or Russia, the conflict has negatively impacted demand from some of our automotive customers that have other suppliers in the region.
Added
In fiscal year 2024, we expect our SG&A expenses will increase compared with our fiscal year 2023 SG&A expenses, mainly due to increase in employee costs, sales and marketing cost and investing in information technology hardware.
Removed
Moreover, if the facilities of our subsidiary in Fuzhou, China are locked down, we would also be negatively impacted since we and some of our customers rely on the optics components that are manufactured in such facilities.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe recorded unrealized loss of $0.8 million and $1.5 million for 49 Table of Contents the year ended June 24, 2022 and June 25, 2021, respectively, related to derivatives that are not designated as hedging instruments.
Biggest changeWe recorded unrealized gain of $0.4 million and unrealized loss $0.8 million for the year ended June 30, 2023 and June 24, 2022, respectively, related to derivatives that are not designated as hedging instruments. As foreign currency exchange rates fluctuate relative to the U.S. dollar, we expect to incur foreign currency translation adjustments and may incur foreign currency exchange losses.
While we intend 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 our earnings.
While we intend 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 our earnings.
The securities in the investment portfolio are subject to market price risk due to changes in interest rates, perceived issuer creditworthiness, marketability, and other factors. These investments are primarily classified as available-for-sale and, consequently, are recorded on our consolidated balance sheets at fair value with unrealized gains or losses reported as a separate component of shareholders’ equity.
The securities in the investment portfolio are subject to market price risk due to changes in interest rates, perceived issuer creditworthiness, marketability, and other factors. These investments are generally classified as available-for-sale and, consequently, are recorded on our consolidated balance sheets at fair value with unrealized gains or losses reported as a separate component of shareholders’ equity.
This locks the variable interest expenses associated with our floating rate borrowings and results in fixed interest expenses that are unsusceptible to market rate increase. We designated the Swap Agreements as a cash flow hedge, and they qualify for hedge accounting because the hedges are highly effective.
This locks the variable interest expenses associated with our floating rate borrowings and results in fixed interest expenses that are unsusceptible to market rate increases. We designated the Swap Agreements as a cash flow hedge, and they qualify for hedge accounting because the hedges are highly effective.
Presently, we believe that we will not incur material losses due to our exposures to such credit risk. 50 Table of Contents
Presently, we believe that we will not incur material losses due to our exposures to such credit risk. 48 Table of Contents
Our short-term investments as of June 24, 2022 are held in various financial institutions with a maturity limit not to exceed three years, and all securities are rated A1, P-1, F1 or better.
Our short-term investments as of June 30, 2023 are held in various financial institutions with a maturity limit not to exceed three years, and all securities are rated A1, P-1, F1 or better.
As of June 24, 2022, our cash and cash equivalents were held in deposits and highly liquid investment products with maturities of three months or less with banks and other financial institutions having credit ratings of A minus or above.
As of June 30, 2023, our cash and cash equivalents were held in deposits and highly liquid investment products with maturities of three months or less with banks and other financial institutions having credit ratings of A minus or above.
We must translate foreign currency-denominated results of operations, assets and liabilities for our foreign subsidiaries to U.S. dollars in our consolidated financial statements.
We must translate foreign currency-denominated results of operations, assets and liabilities for our foreign subsidiaries to U.S. dollars in our consolidated 47 Table of Contents financial statements.
If the LIBOR had increased by 100 basis points during fiscal year 2022, fiscal year 2021 and fiscal year 2020, our interest expense would have increased by approximately $0.3 million, $0.4 million and $0.1 million, respectively, assuming consistent borrowing levels.
If the LIBOR had increased by 100 basis points during fiscal year 2023, fiscal year 2022 and fiscal year 2021, our interest expense would have increased by approximately $0.2 million, $0.3 million and $0.4 million, respectively, assuming consistent borrowing levels.
For example, a 10% weakening in the U.S. dollar against the Thai baht, the RMB and the GBP would have resulted in a decrease in our net dollar position of approximately $5.3 million and $1.4 million as of June 24, 2022 and June 25, 2021, respectively.
For example, a 10% weakening in the U.S. dollar against the Thai baht, the RMB and the GBP would have resulted in a decrease in our net dollar position of approximately $6.0 million and $5.3 million as of June 30, 2023 and June 24, 2022, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Interest Rate Risk We had cash, cash equivalents, and short-term investments totaling $478.2 million, $547.9 million and $488.1 million, as of June 24, 2022, June 25, 2021 and June 26, 2020, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Interest Rate Risk We had cash, cash equivalents, and short-term investments totaling $550.5 million, $478.2 million and $547.9 million, as of June 30, 2023, June 24, 2022 and June 25, 2021, respectively.
If overall interest rates had declined by 10 basis points during fiscal year 2022, fiscal year 2021 and fiscal 48 Table of Contents year 2020, our interest income would have decreased by approximately $0.4 million, $0.5 million and $0.4 million, respectively, assuming consistent investment levels.
If overall interest rates had declined by 10 basis points during fiscal year 2023, fiscal year 2022 and fiscal year 2021, our interest income would have decreased by approximately $0.5 million, $0.4 million and $0.5 million, respectively, assuming consistent investment levels. We also have interest rate risk exposure in movements in interest rates associated with our interest-bearing liabilities.
We also have interest rate risk exposure in movements in interest rates associated with our interest bearing liabilities. The interest bearing liabilities are denominated in U.S. dollars and the interest expense is based on the London Inter-Bank Offered Rate (“LIBOR”), plus an additional margin, depending on the lending institution.
The interest-bearing liabilities are denominated in U.S. dollars and until September 29, 2023, the interest expense is based on LIBOR, plus an additional margin, depending on the lending institution.
Removed
As foreign currency exchange rates fluctuate relative to the U.S. dollar, we expect to incur foreign currency translation adjustments and may incur foreign currency exchange losses.

Other FN 10-K year-over-year comparisons