Fabrinet Announces First Quarter 2014 Financial Results

Fabrinet (NYSE: FN), a leading provider of advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers of complex products, today announced its financial results for the first quarter ended September 27, 2013.

Fabrinet reported total revenue of $171.6 million for the first quarter of fiscal 2014, an increase of 8.2% compared to total revenue of $158.6 million for the comparable period in fiscal 2013. GAAP net income for the first quarter of fiscal 2014 was $19.2 million, or $0.55 per diluted share, compared to GAAP net income of $16.0 million, or $0.46 per diluted share, in the first quarter of fiscal 2013. Non-GAAP net income in the first quarter of fiscal 2014 was $14.2 million, or $0.40 per diluted share, an increase of 10.9% compared to non-GAAP net income of $12.8 million, or $0.36 per diluted share, in the same period a year ago.

Tom Mitchell, Chief Executive Officer of Fabrinet, said, "Fiscal 2014 is off to a strong start and I am particularly pleased that our fiscal first quarter results demonstrated another strong quarter of revenue, margin and EPS growth. With our strong customer relationships and expanding pipeline of new business, I am confident that we will be able to build off our successful first quarter and deliver strong year of profitable growth.”

Business Outlook

Based on information available as of November 4, 2013, Fabrinet is issuing guidance for the second quarter of fiscal 2014 as follows:

Fabrinet expects second quarter revenue to be in the range of $170 million to $174 million. GAAP net income per share is expected to be in the range of $1.54 to $1.56 with expected non-GAAP net income per share of $0.40 to $0.42, based on approximately 35 million fully diluted shares outstanding.

Conference Call Information
What:   Fabrinet First Quarter 2014 Financial Results Conference Call
When: Monday, November 4, 2013
Time: 5:00 p.m. ET
Live Call: (888) 357-3694, domestic
(253) 237-1137, international
Passcode: 75876616
Replay: (855) 859-2056, domestic
(404) 537-3406, international
Passcode: 75876616

Webcast:

http://investor.fabrinet.com (live and replay)

This press release and any other information related to the call will also be posted on Fabrinet’s website at http://investor.fabrinet.com. A recorded version of this webcast will be available approximately two hours after the call and will be archived on Fabrinet’s website for a period of one year.

About Fabrinet

Fabrinet is a leading provider of advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services to original equipment manufacturers of complex products, such as optical communication components, modules and subsystems, industrial lasers and sensors. Fabrinet offers a broad range of advanced optical and electro-mechanical capabilities across the entire manufacturing process, including process design and engineering, supply chain management, manufacturing, advanced packaging, integration, final assembly and test. Fabrinet focuses on production of high complexity products in any mix and any volume. Fabrinet maintains engineering and manufacturing resources and facilities in Thailand, the People’s Republic of China and the United States. For more information visit: www.fabrinet.com.

Forward-Looking Statements

“Safe Harbor” Statement Under U.S. Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include all of the statements under the “Business Outlook” section relating to our forecasted operating results for the second quarter of fiscal 2014. These forward-looking statements involve risks and uncertainties, and actual results could vary materially from these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: less customer demand for our products and services than forecasted; less growth in the optical communications, industrial lasers and sensors markets than we forecast; difficulties expanding into additional markets, such as the semiconductor processing, biotechnology, metrology and materials processing markets; increased competition in the optical manufacturing services markets; difficulties in delivering products and services that compete effectively from a price and performance perspective; our reliance on a small number of customers and suppliers; difficulties in managing our operating costs; difficulties in managing and operating our business across multiple countries (including the U.S., Thailand and the People’s Republic of China); and other important factors as described in reports and documents we file from time to time with the Securities and Exchange Commission (SEC), including the factors described under the section captioned “Risk Factors” in our annual report on Form 10-K, filed on August 16, 2013. We disclaim any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise.

Use of Non-GAAP Financials

The Company refers to the non-GAAP financial measures cited above in making operating decisions because they provide meaningful supplemental information regarding the Company’s ongoing operational performance. Non-GAAP net income excludes share-based compensation expenses and income related to flooding. We have excluded these items in order to enhance investors’ understanding of our ongoing operations. The use of these non-GAAP financial measures has material limitations because they should not be used to evaluate our company without reference to their corresponding GAAP financial measures. As such, we compensate for these material limitations by using these non-GAAP financial measures in conjunction with GAAP financial measures.

These non-GAAP financial measures are used to: (1) measure company performance against historical results, (2) facilitate comparisons to our competitors’ operating results, and (3) allow greater transparency with respect to information used by management in financial and operational decision making. In addition, these non-GAAP financial measures are used to measure company performance for the purposes of determining employee incentive plan compensation.
Fabrinet
Consolidated Balance Sheets
As of September 27, 2013 and June 28, 2013
(in thousands of U.S. dollars, except share data)   September 27,

2013
  June 28,

2013
Assets
Current assets
Cash and cash equivalents $ 163,860 $ 149,716
Trade accounts receivable, net 125,876 118,475
Inventory, net 94,528 88,962
Deferred tax assets 1,618 1,937
Prepaid expenses 1,398 1,931
Other current assets   2,105   3,505
Total current assets   389,385   364,526
Non-current assets
Property, plant and equipment, net 97,133 97,206
Intangibles, net 136 164
Deferred tax assets 2,912 2,905
Deposits and other non-current assets   102   107
Total non-current assets   100,283   100,382
Total assets $ 489,668 $ 464,908
Liabilities and Shareholders’ Equity
Current liabilities
Long-term loans from bank, current portion $ 9,668 $ 9,668
Trade accounts payable 90,328 77,139
Income tax payable 1,985 1,825
Deferred tax liability 2,607 2,481
Accrued payroll, bonus and related expenses 6,954 6,220
Accrued expenses 4,174 3,121
Other payables 4,437 5,163
Liabilities to third parties due to flood losses   1,558   9,812
Total current liabilities   121,711   115,429
Non-current liabilities
Long-term loans from bank, non-current portion 16,826 19,243
Severance liabilities 4,564 4,382
Other non-current liabilities   536   536
Total non-current liabilities   21,926   24,161
Total liabilities   143,637   139,590
Commitments and contingencies
Shareholders’ equity
Preferred shares (5,000,000 shares authorized, $0.01 par value;
no shares issued and outstanding as of September 27, 2013 and June 28, 2013) - -
Ordinary shares (500,000,000 shares authorized, $0.01 par value;
34,733,691 shares and 34,634,967 shares issued and
outstanding as of September 27, 2013 and June 28, 2013, respectively) 347 346
Additional paid-in capital 72,616 71,101
Retained earnings   273,068   253,871
Total shareholders’ equity   346,031   325,318
Total Liabilities and Shareholders’ Equity $ 489,668 $ 464,908

Fabrinet Consolidated Statements of Operations For the three months ended September 27, 2013 and September 28, 2012
  Three Months Ended
September 27,   September 28,
(in thousands of U.S. dollars, except share data) 2013 2012
 
Revenues $ 171,551 $ 158,625
Cost of revenues   (152,906)   (140,903)
Gross profit 18,645 17,722
Selling, general and administrative expenses (6,694) (5,859)
Income related to flooding   6,597   4,820
Operating income 18,548 16,683
Interest income 364 188
Interest expense (206) (286)
Foreign exchange gain, net 1,088 277
Other income   184   190
Income before income taxes 19,978 17,052
Income tax expense   (781)   (1,033)
Net income $ 19,197 $ 16,019
 
Earnings per share
Basic $ 0.55 $ 0.46
Diluted $ 0.55 $ 0.46
Weighted average number of ordinary shares outstanding (thousands of shares)
Basic 34,674 34,485
Diluted 35,138 34,670

Fabrinet Consolidated Statements of Cash Flows For the three months ended September 27, 2013 and September 28, 2012
 
  Three Months Ended
September 27,   September 28,
(in thousands of U. S. dollars) 2013 2012
 
Cash flows from operating activities
Net income for the period $ 19,197 $ 16,019
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation 2,509 2,522
Amortization of intangibles 28 75
Loss on disposal of property, plant and equipment - 1
Income related to flooding (6,597) (4,820)
Proceeds from insurers for business interruption losses related to flooding - 4,741
Proceeds from insurers for inventory losses related to flooding 6,597 -
Reversal of allowance for doubtful accounts (53) (49)
Unrealized gain on exchange rate and fair value of derivative (808) (714)
Share-based compensation 1,563 1,254
Deferred income tax 438 256
Other non-cash expenses 218 588
Reversal of inventory obsolescence - (166)
Changes in operating assets and liabilities
Trade accounts receivable (7,348) (9,556)
Inventory (5,566) (7,302)
Other current assets and non-current assets 60 1,299
Trade accounts payable 13,189 5,919
Income tax payable 124 231
Other current liabilities and non-current liabilities 550 (349)
Liabilities to third parties due to flood losses   (5,964)   (4,000)
Net cash provided by operating activities   18,137   5,949
Cash flows from investing activities
Purchase of property, plant and equipment (1,253) (4,126)
Proceeds from insurers in settlement of claims related to flood damage   -   79
Net cash used in investing activities   (1,253)   (4,047)
Cash flows from financing activities
Repayment of long-term loans from bank (2,417) (2,417)

Proceeds from issuance of ordinary shares under employee share option plans

43
124
Withholding tax related to net share settlement of restricted share units   (90)   -
Net cash used in financing activities   (2,464)   (2,293)
Net increase (decrease) in cash and cash equivalents $ 14,420 $ (391)

Fabrinet
Consolidated Statements of Cash Flows
For the three months ended September 27, 2013 and September 28, 2012
 
  Three Months Ended
September 27,   September 28,
(in thousands of U.S. dollars) 2013 2012
 
Movement in cash and cash equivalents
Cash and cash equivalents at beginning of period $ 149,716 $ 115,507
Increase (decrease) in cash and cash equivalents 14,420 (391)
Effect of exchange rate on cash and cash equivalents   (276)   278
Cash and cash equivalents at end of period $ 163,860 $ 115,394
Fabrinet
Reconciliation of GAAP measures to non-GAAP measures
(in thousands of U.S. dollars, except per share data)
(unaudited)
 
  Three Months Ended
September 27,   September 27,   September 28,   September 28,
2013 2013 2012 2012
Net income Diluted EPS Net income Diluted EPS
 
GAAP measures 19,197 0.55 16,019 0.46
Items reconciling GAAP net income & EPS to non-GAAP net income & EPS:
Related to cost of revenues:
Share-based compensation expenses 307 0.01 345 0.01
Total related to gross profit 307 0.01 345 0.01
 
Related to selling, general and administrative expenses:
Share-based compensation expenses 1,256 0.04 909 0.03
Total related to selling, general and administrative expenses 1,256 0.04 909 0.03
 
Related to other incomes and other expenses:
Income related to flooding (6,597) (0.19) (4,820) (0.14)
Total related to other incomes and other expenses (6,597) (0.19) (4,820) (0.14)
 
Related to income tax expense
Income tax expense - - 313 0.01
Total related to income tax expense - - 313 0.01
 
Total related to net income & EPS (5,034) (0.14) (3,253) (0.09)
 
Non-GAAP measures 14,163 0.40 12,766 0.36
 
Shares used in computing diluted net income per share
GAAP diluted shares 35,138 34,670
Non-GAAP diluted shares 35,138 34,983

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