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Item 9A. Controls and Procedures

2021-09-16 compared with 2020-09-11 · 35 added, 17 removed, 199 unchanged (21% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

It is the responsibility of our management to establish, maintain, and monitor disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

It is the responsibility of our management to establish, maintain, and monitor disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) are recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

Additionally, these disclosure controls include controls and procedures that are designed to accumulate and communicate the information required to be disclosed to our Company’s Chief Executive Officer and Chief Financial Officer, allowing for timely decisions regarding required disclosures.

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(f).

Based on our assessment, we believe that as of June 27, 2020, the Company’s disclosure controls and procedures are effective based on that criteria.

Based on our assessment, we believe that as of July 3, 2021, the Company’s disclosure controls and procedures are effective based on that criteria.

Management’s Report on Internal Control over Financial Reporting

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Accordingly, our internal control system may not detect or prevent material misstatements in our financial statements and projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and participation of management, including the Chief Executive Officer and Chief Financial Officer, we have performed an assessment of the effectiveness of our internal controls over financial reporting as of June 27, 2020.

This assessment was based on the criteria established in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our assessment, we believe that as of June 27, 2020, the Company’s internal control over financial reporting is effective based on that criteria.

The effectiveness of the Company's internal control over financial reporting as of June 27, 2020 has been audited by BDO USA LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Based on our assessment, we believe that as of July 3, 2021, the Company’s internal control over financial reporting is effective based on that criteria.

The effectiveness of the Company's internal control over financial reporting as of July 3, 2021 has been audited by BDO USA LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal controls over financial reporting during our fourth fiscal quarter ended June 27, 2020 that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)).

As previously disclosed, in January 2021, the Company determined that improper accounting resulted in an understatement of cost of goods sold and an overstatement of inventory during the fourth quarter of fiscal year 2020 and the first six months of fiscal year 2021.

Subsequent to the matter identified in January 2021, additional inventory accounting errors unrelated to the investigation were also identified by management.

As a result, we previously disclosed a material weakness in internal control over financial reporting as of December 26, 2020 and April 3, 2021, in our Quarterly Reports on Form 10-Q for such periods.

The material weakness related to the design and operating effectiveness of certain controls over the accounting for inventory as well as the Company’s monitoring activities as it pertained to accounting for inventory at its domestic facilities.

During the third and fourth quarters of fiscal year 2021, management implemented, and continues to implement, the following actions to remediate the material weakness and help prevent reoccurrence:

• Implemented a control design enhancement by incorporating an additional level of review related to significant balance sheet accounts for each of our production facilities in Arkansas, Minnesota and Mississippi (the “East Locations”);

• implemented additional controls requiring management to (i) analyze certain inventory balances and the related revenue recognized in each period in each of our East Locations, and (ii) review manual journal entries recorded at our East Locations to ensure proper accounting treatment;

• implemented changes in reporting structures for finance and accounting personnel in the Company’s domestic production facilities and East Division;

• provided enhanced training to financial and operational personnel related to accounting principals generally accepted in the United States, with an emphasis in inventory and the ASC 606 revenue recognition standard;

• implementing a system upgrade to simplify the process for determining the cost of inventory items and providing related training to employees regarding the new system functionality;

• continue to provide additional training to control owners performing certain controls over the accounting for inventory;

• continue to enhance the design of our monitoring control activities, specifically financial and operational oversight, at each facility.

During the fourth quarter of fiscal year 2021, we completed our testing of operating effectiveness of the remedial actions implemented and found that our controls are designed and operating effectively.

As a result, we concluded that the material weakness has been remediated as of July 3, 2021.

Except for the remediation actions with respect to the material weakness described above, there have been no significant changes in our internal controls over financial reporting during our fourth fiscal quarter ended July 3, 2021 that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)).

Report of Independent Registered Public Accounting Firm

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Opinion on Internal Control over Financial Reporting

We have audited Key Tronic Corporation’s (the “Company’s”) internal control over financial reporting as of June 27, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 27, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of June 27, 2020 and June 29, 2019, the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended June 27, 2020, and the related notes and schedule and our report dated September 11, 2020 expressed an unqualified opinion thereon.

We have audited Key Tronic Corporation’s (the “Company’s”) internal control over financial reporting as of July 3, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 3, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of July 3, 2021 and June 27, 2020, the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended July 3, 2021, and the related notes and schedule and our report dated September 16, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Compliance with Section 16(a) of the Exchange Act:

Incorporated by reference to Key Tronic Corporation’s 2020 Proxy Statement to Shareholders.

Information under the caption “Delinquent Section 16(a) Reports” in the Company’s 2021 Proxy Statement is incorporated herein by this reference.

Code of Conduct

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth the aggregate information for the Company’s equity compensation plans in effect as of June 27, 2020.

The following table sets forth the aggregate information for the Company’s equity compensation plans in effect as of July 3, 2021.

EQUITY COMPENSATION PLAN INFORMATION

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information appearing under the caption “Related Person Transactions”, “Compensation Committee Interlocks and Insider Participation”, and “Directors’ Independence” in the Company’s 2020 Proxy Statement is incorporated herein by this reference.

PRINCIPAL ACCOUNTING FEES AND SERVICES

Information appearing under the caption “Related Person Transactions” and “Directors’ Independence” in the Company’s 2021 Proxy Statement is incorporated herein by this reference.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information appearing under the caption “Principal Accountant Fees and Services” in the Company’s 2021 Proxy Statement is incorporated herein by this reference.

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Other schedules are omitted because of the absence of conditions under which they are required, or because required information is given in the financial statements or notes thereto.

3.1 Articles of Incorporation, incorporated by reference to the Exhibit 3.1 to the Company’s form 10-K filed with the SEC for the year ended July 1, 1995 (File No.

3.2 Bylaws, as amended, incorporated by reference to the Exhibit 3 (iii) to the Company’s Form 10-K for the year ended July 1, 1995 (File No.

3.1 Articles of Incorporation

3.2 Bylaws, as amended

4.1 Description of the Compan y ’ s securities

10.1* Amended and Restated 1990 Stock Option Plan for Non-Employee Directors, as amended, incorporated by reference to the Company’s 1997 Proxy Statement dated October 10, 1997 (Proposal 2)

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10.44* Summary of Incentive Compensation Plan Performance Goals and Target Payments for Fiscal Year 2021 and Fiscal Years 2021 – 2023 Long Term Incentive Plan Performance Measures and Awards incorporated by reference to the Company’s Form 8-K filed July 27, 2020

10.45* Summary of Incentive Compensation Plan Performance Goals and Target Payments for Fiscal Year 2022 and Fiscal Years 2022 – 2024 Long Term Incentive Plan Performance Measures and Awards incorporated by reference to the Company’s Form 8-K filed August 13, 2021

10.46 Loan and Security Agreement, dated August 14, 2020, among the Company, Bank of America, N.A, and certain other parties, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed August 17, 2020

10.47 Second Amendment to Loan and Security Agreement, dated September 3, 2021, among the Company, Bank of America, N.A, and certain other parties, incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed September 10, 2021

21 Subsidiaries of Registrant, submitted herewith

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* Management contract or compensatory plan or arrangement

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities and Exchange Act of 1934, as amended and otherwise are not subject to liability under those sections.

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

FISCAL YEARS ENDED JUNE 27, 2020, JUNE 29, 2019, AND JUNE 30, 2018

FISCAL YEARS ENDED JULY 3, 2021, JUNE 27, 2020, AND JUNE 29, 2019

Fiscal Year Ended

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Balance at end of year $ 275 $ 609 $ 58

FORM 10-K SUMMARY

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

23 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures