Business context and reporting period
Fabrinet’s Form 10-K covers fiscal 2013, the 52-week year ended June 28, 2013—not fiscal 2012. The filing also reports the quarter ended June 28, 2013, which is fiscal 2013 Q4. Fabrinet provides precision optical, electro-mechanical and electronic manufacturing services, primarily for optical communications, lasers and sensors; most manufacturing is in Thailand.
Financial results and liquidity
Amounts below are U.S. dollars. Annual results are fiscal 2013 versus fiscal 2012; Q4 figures are unaudited.
| Metric | Fiscal 2013 | Fiscal 2012 |
|---|---|---|
| Revenue | $641.5 million | $564.7 million |
| Gross profit / margin | $69.4 million / 10.8% | $61.9 million / 11.0% |
| Operating income (loss) | $70.8 million | ($60.8 million) |
| Net income (loss) | $69.0 million | ($56.5 million) |
| Diluted EPS | $1.98 | ($1.64) |
| Cash from operations | $48.8 million | $2.3 million |
| Capital expenditures | $9.3 million | $37.4 million |
Fiscal 2013 Q4 revenue was $159.9 million, gross profit $17.1 million (about 10.7% margin), and net income $15.1 million. In prior-year Q4, revenue was $142.8 million, gross profit $15.2 million, and net income $7.5 million.
At year-end, cash and cash equivalents were $149.7 million, working capital $130.3 million, total debt $28.9 million, total assets $464.9 million, and shareholders’ equity $325.3 million. Operating cash flow less capital expenditures was approximately $39.5 million. The company reported $5.5 million of unused short-term borrowing capacity.
Changes versus the prior comparable period
- Annual revenue rose 13.6%, primarily as production recovered from the Thailand flooding-related shutdown in fiscal 2012. Optical communications revenue increased to $449.8 million from $382.7 million; lasers, sensors and other revenue rose to $191.8 million from $182.1 million.
- Gross profit increased in dollars, but margin slipped to 10.8% from 11.0%. Management cited Thai baht appreciation and higher Thai minimum wages as cost pressures.
- Reported operating and net income swung from losses to profits, but comparisons are heavily affected by flood accounting: fiscal 2013 included $27.2 million of net flood-related income, while fiscal 2012 included $97.3 million of flood-related expense.
- Cash from operations increased substantially, while debt declined by $9.7 million and cash increased by $34.2 million.
- Optical communications represented 70.1% of revenue, up from 67.8%; lasers, sensors and other markets declined as a share from 32.2% to 29.9%. Two customers represented 47% of revenue in each year.
Outlook, commentary, risks and unusual items
- Management expected fiscal 2014 SG&A to increase in dollars and slightly as a percentage of revenue, and expected employee costs to rise in Thailand and China. It anticipated additional equipment purchases; no numeric revenue or earnings guidance is provided in the filing.
- Management said current cash and expected operating cash flow should cover working capital and capital expenditure needs for at least 12 months, and that existing manufacturing capacity should meet anticipated requirements over that period. Debt maturities total $9.7 million within one year; loan covenants apply, and the company reported compliance at year-end.
- Flood-related recoveries and settlements remain material. Fiscal 2013 recorded $29.5 million of insurer proceeds, offset by $2.3 million of additional third-party flood liabilities. Some insurance claims remained unresolved at filing; recoveries are subject to policy limits and insurer valuation decisions. After year-end, Fabrinet received a further $6.6 million interim insurance payment and made final payments of $3.8 million to a customer and $2.2 million to a customer’s insurer.
- Thailand concentration exposes operations to natural disasters, political disruption, wage increases and currency movements. Other key risks include customer concentration and short-term, cancellable orders; sole-source supply constraints; pricing and market cyclicality; product quality and warranty claims; and foreign-exchange exposure. The Chokchai facility remains permanently closed.
- The company recorded $2.1 million of fiscal 2013 workforce-reduction costs for about 180 employees. Management and the auditor concluded internal control over financial reporting was effective at year-end; the financial statements received an unqualified audit opinion.
Important facts for investors to verify
- Separate recurring operating performance from the $27.2 million net flood-related gain; assess margins excluding this unusual item.
- Track final insurer settlements and payments, including whether actual recoveries match management’s expectation of recovering a majority of flood losses.
- Monitor dependence on JDS Uniphase and Oclaro, which accounted for 22% and 25% of fiscal 2013 revenue, respectively, and related receivable exposure.
- Check whether Thai baht appreciation, wage inflation, and materials costs continue to pressure gross margin.
- Review debt covenant compliance, upcoming repayments, and the adequacy of liquidity as flood-related cash obligations and insurance claims resolve.
- Note the filing’s fiscal-year basis: the reported annual figures are for the year ended June 28, 2013; Q4 is the three months ended that date.