What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-11 compared with 2022-02-10 · 73 added, 76 removed, 431 unchanged (26% of the section changed)

4 unchanged sentences

except share data)

January 1, 2022 July 3, 2021

April 2, 2022 July 3, 2021

Current assets:

23 unchanged sentences

Operating lease liabilities 12,059 11,428

Deferred income tax liability 51 —

Other long-term obligations 5,486 1,740

6 unchanged sentences

Retained earnings 76,861 74,452

Accumulated other comprehensive income ( 543 ) 2,072

Accumulated other comprehensive income (loss) ( 234 ) 2,072

Total shareholders’ equity 124,026 123,705

4 unchanged sentences

(Unaudited, in thousands, except share and per share amounts)

Three Months Ended Six Months Ended

January 1, 2022 December 26, 2020 January 1, 2022 December 26, 2020

Three Months Ended Nine Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Net sales $ 138,391 $ 134,600 $ 405,609 $ 386,069

7 unchanged sentences

Income before income taxes 1,238 1,556 2,896 5,543

Income tax provision (benefit) ( 31 ) 292 256 688

Income tax provision 231 689 487 1,377

Net income $ 1,007 $ 867 $ 2,409 $ 4,166

5 unchanged sentences

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

Three Months Ended Six Months Ended

January 1, 2022 December 26, 2020 January 1, 2022 December 26, 2020

Comprehensive income (loss):

Three Months Ended Nine Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Comprehensive income:

Net income $ 1,007 $ 867 $ 2,409 $ 4,166

1 unchanged sentence

Unrealized gain (loss) on hedging instruments, net of tax 309 ( 632 ) ( 2,306 ) 3,562

Comprehensive income (loss) $ ( 497 ) $ 4,506 $ ( 1,213 ) $ 7,493

Other comprehensive income (loss) for the three months ended January 1, 2022 and December 26, 2020, is reflected net of tax expense (benefit) of approximately $( 0.5 ) million and $ 0.8 million, respectively.

Other comprehensive income (loss) for the six months ended January 1, 2022 and December 26, 2020, is reflected net of tax expense (benefit) of approximately $( 0.8 ) million and $ 1.5 million, respectively.

Comprehensive income $ 1,316 $ 235 $ 103 $ 7,728

Other comprehensive income for the three months ended April 2, 2022 and April 3, 2021, is reflected net of tax expense (benefit) of approximately $ 0.1 million and $( 0.2 ) million, respectively.

Other comprehensive income for the nine months ended April 2, 2022 and April 3, 2021, is reflected net of tax expense (benefit) of approximately $( 0.7 ) million and $ 1.3 million, respectively.

See accompanying notes to consolidated financial statements.

2 unchanged sentences

(Unaudited, in thousands)

Six Months Ended

January 1, 2022 December 26, 2020

Nine Months Ended

April 2, 2022 April 3, 2021

Operating activities:

44 unchanged sentences

except share data)

Three Months Ended Six Months Ended

January 1, 2022 December 26, 2020 January 1, 2022 December 26, 2020

Three Months Ended Nine Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Total shareholders’ equity, beginning balances $ 122,635 $ 123,164 $ 123,705 $ 115,557

6 unchanged sentences

Share-based compensation 75 18 218 132

Exercise of stock options — 43 — 43

Ending balances 47,399 47,121 47,399 47,121

20 unchanged sentences

The Company’s reporting period is a 52/53 week fiscal year ending on the Saturday closest to June 30.

The three and six month periods ended January 1, 2022 and December 26, 2020, were 13 and 26 week periods, respectively.

The three month period ended April 2, 2022 was a 13 week period whereas the three month period ended April 3, 2021 was a 14 week period.

Fiscal year 2022 will end on July 2, 2022, which is a 52 week year.

57 unchanged sentences

The Company is currently assessing the impact on its consolidated financial statements, and it intends to adopt the guidance when it becomes effective in the first quarter of fiscal year 2024.

Total inventory as of January 1, 2022 is $ 157.8 million compared to $ 137.3 million as of July 3, 2021.

Substantially all of the Company’s inventory balances are raw materials.

Total inventory as of April 2, 2022 is $ 155.1 million compared to $ 137.3 million as of July 3, 2021.

Substantially all of the Company’s inventory balances consist of raw materials.

Long-Term Debt

1 unchanged sentence

The amendment increases the Company’s current credit facility of $ 93 million to $120 million, subject to the Company’s borrowing base, maturing on September 3, 2026.

As of January 1, 2022, the Company had an outstanding balance under the asset-based revolving credit facility of $ 97.0 million, $ 0.3 million in outstanding letters of credit and $ 17.3 million available for future borrowings.

As of April 2, 2022, the Company had an outstanding balance under the asset-based revolving credit facility of $ 99.7 million, $ 0.3 million in outstanding letters of credit and $ 15.8 million available for future borrowings.

As of July 3, 2021, the Company had an outstanding balance under the credit facility with Bank of America of $ 90.9 million, $ 0.3 million in outstanding letters of credit and $ 2.1 million available for future borrowings.

11 unchanged sentences

Under this loan agreement, equal monthly payments of approximately $ 94,000 commenced on September 14, 2020 and will continue through the maturity of the equipment financing facility on August 14, 2025.

As of January 1, 2022, the Company had an outstanding balance of $ 3.8 million.

As of April 2, 2022, the Company had an outstanding balance of $ 3.5 million.

As of July 3, 2021, the Company had an outstanding balance of $ 4.2 million under the Bank of America equipment term loan agreement.

1 unchanged sentence

Under this loan agreement, equal monthly payments of $ 100,000 commenced on May 24, 2021 and will continue through the maturity of the equipment financing facility on April 24, 2026.

As of January 1, 2022, the Company had an outstanding balance of $ 5.2 million.

As of April 2, 2022, the Company had an outstanding balance of $ 4.9 million.

As of July 3, 2021, the Company had an outstanding balance of $5.8 million.

The interest rates on outstanding debt as of January 1, 2022 range from 3.25 % - 5.52 % compared to 3.25 % - 5.52 % as of July 3, 2021.

Debt maturities as of January 1, 2022 for the next five years and thereafter are as follows (in thousands):

The interest rates on outstanding debt as of April 2, 2022 range from 3.25 % - 5.52 % compared to 3.25 % - 5.52 % as of July 3, 2021.

Debt maturities as of April 2, 2022 for the next five years and thereafter are as follows (in thousands):

Fiscal Years Ending Amount

3 unchanged sentences

Long-term debt, net of debt issuance costs $ 107,644

(1) Represents scheduled payments for the remaining six-month period ending July 2, 2022.

(1) Represents scheduled payments for the remaining three-month period ending July 2, 2022.

The Company must comply with certain financial covenants, including a fixed charge coverage ratio and a cash flow leverage ratio.

The credit agreement requires the Company to grant certain inspection rights to Bank of America, limit or restrict the Company’s cash management;

limit or restrict the ability of the Company to incur additional liens, make acquisitions or investments, incur additional indebtedness, engage in mergers, consolidations, liquidations, dissolutions, or dispositions, pay dividends or other restricted payments, prepay certain indebtedness, engage in transactions with affiliates, and use proceeds.

The Company was in compliance with all financial covenants as of January 1, 2022.

The Company was in compliance with all financial covenants as of April 2, 2022.

The Company expects to repatriate a portion of its foreign earnings based on increased net sales growth driving additional capital requirements domestically, cash requirements for potential acquisitions and to implement certain tax strategies.

8 unchanged sentences

Withholding taxes would not apply to future repatriations from Mexico or Vietnam.

The Company has available approximately $ 6.5 million of gross federal research and development tax credits as of January 1, 2022.

The Company has available approximately $ 7.0 million of gross federal research and development tax credits as of April 2, 2022.

ASC 740 requires the Company to recognize in its financial statements uncertainties in tax positions taken that may not be sustained upon examination by the taxing authorities.

Accordingly, as of January 1, 2022, the Company has recorded $ 2.7 million of unrecognized tax benefits associated with these federal tax credits, resulting in a net deferred tax benefit of approximately $ 3.8 million.

Accordingly, as of April 2, 2022, the Company has recorded $ 2.7 million of unrecognized tax benefits associated with these federal tax credits, resulting in a net deferred tax benefit of approximately $ 4.3 million.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic.

15 unchanged sentences

(in thousands, except share and per share information)

January 1, 2022 December 26, 2020

April 2, 2022 April 3, 2021

Net income $ 1,007 $ 867

5 unchanged sentences

Antidilutive SARs not included in diluted earnings per share 619 188

Six Months Ended

Nine Months Ended

(in thousands, except share and per share information)

January 1, 2022 December 26, 2020

April 2, 2022 April 3, 2021

Net income $ 2,409 $ 4,166

19 unchanged sentences

Fair Value $ 2.73 $ 2.32

Total share-based compensation expense recognized during the three months ended January 1, 2022 and December 26, 2020 was approximately $ 75,000 and $ 51,000 , respectively.

Total share-based compensation expense recognized during the six months ended January 1, 2022 and December 26, 2020 was approximately $ 143,000 and $ 114,000 , respectively.

As of January 1, 2022, total unrecognized compensation expense related to unvested share-based compensation arrangements was approximately $ 0.6 million.

Total share-based compensation expense recognized during the three months ended April 2, 2022 and April 3, 2021 was approximately $ 75,000 and $ 18,000 , respectively.

Total share-based compensation expense recognized during the nine months ended April 2, 2022 and April 3, 2021 was approximately $ 218,000 and $ 132,000 , respectively.

As of April 2, 2022, total unrecognized compensation expense related to unvested share-based compensation arrangements was approximately $ 0.5 million.

This expense is expected to be recognized over a weighted average period of 1.98 years.

No SARs were exercised during the three or six months ended January 1, 2022 or December 26, 2020.

No SARs were exercised during the three or nine months ended April 2, 2022 or April 3, 2021.

Commitments and Contingencies

6 unchanged sentences

If actual return rates and/or repair and replacement costs differ significantly from management’s estimates, adjustments to recognize additional cost of sales may be required in future periods.

The Company’s warranty reserve was approximately $ 25,000 as of January 1, 2022 and $ 25,000 as of July 3, 2021, respectively.

The Company’s warranty reserve was approximately $ 28,000 as of April 2, 2022 and $ 25,000 as of July 3, 2021, respectively.

Derivative Financial Instruments

As of January 1, 2022, the Company had outstanding foreign currency forward contracts with a total notional amount of $ 13.9 million.

As of April 2, 2022, the Company had outstanding foreign currency forward contracts with a total notional amount of $ 6.7 million.

The maturity dates for these contracts extend through June 2022.

For the three months ended January 1, 2022, the Company did not enter into any foreign currency forward contracts and settled $ 5.1 million of contracts.

For the three months ended April 2, 2022, the Company did not enter into any foreign currency forward contracts and settled $ 7.2 million of contracts.

During the same period of the previous year, the Company did not enter into any foreign currency forward contracts and settled $ 7.0 million of contracts.

For the six months ended January 1, 2022, the Company entered into $13.9 million of foreign currency forward contracts and settled $ 10.6 million of such contracts.

For the nine months ended April 2, 2022, the Company entered into $13.9 million of foreign currency forward contracts and settled $ 17.8 million of such contracts.

During the same period of the previous year, the Company did not enter into any foreign currency forward contracts and settled $ 19.9 million of such contracts.

As of January 1, 2022, the aggregate notional amount of the Company’s outstanding foreign currency contracts along with their unrealized gains (losses) are expected to mature as summarized below (in thousands):

As of April 2, 2022, the aggregate notional amount of the Company’s outstanding foreign currency contracts along with their unrealized gains (losses) are expected to mature as summarized below (in thousands):

Quarter Ending Notional Contracts in MXN Notional Contracts in USD Estimated Fair Value

April 2, 2022 $ 149,893 $ 7,224 $ 35

July 2, 2022 $ 141,493 $ 6,726 $ 344

5 unchanged sentences

On the date of termination this interest rate swap was in a liability position of $ 776,500 , which will be amortized to interest expense over the original term of the swap.

The following table summarizes the fair value of derivative instruments in the Consolidated Balance Sheet as of January 1, 2022 and July 3, 2021 (in thousands):

January 1, 2022 July 3, 2021

The following table summarizes the fair value of derivative instruments in the Consolidated Balance Sheet as of April 2, 2022 and July 3, 2021 (in thousands):

April 2, 2022 July 3, 2021

Derivatives Designated as Hedging Instruments Balance Sheet Location Fair Value Fair Value

Foreign currency forward contracts Other current assets $ 344 $ 3,614

Foreign currency forward contracts Other current liabilities $ ( 1 ) $ —

The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Income for the three months ended January 1, 2022 and December 26, 2020, respectively (in thousands):

The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Income for the three months ended April 2, 2022 and April 3, 2021, respectively (in thousands):

Derivatives Designated as Hedging Instruments Classification of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) AOCI Balance

October 2, 2021 Effective

January 1, 2022 Effective

AOCI Effective Portion

1 unchanged sentence

Income AOCI Balance

January 1, 2022

April 2, 2022

Forward contracts Cost of sales $ ( 45 ) $ 302 $ ( 69 ) $ 188

2 unchanged sentences

Derivatives Designated as Hedging Instruments Classification of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) AOCI Balance

September 26, 2020 Effective

December 26, 2020 Effective

AOCI Effective Portion

1 unchanged sentence

Income AOCI Balance

December 26, 2020

April 3, 2021

Forward contracts Cost of sales $ 3,493 $ ( 63 ) $ ( 644 ) $ 2,786

1 unchanged sentence

Total $ 2,694 $ ( 63 ) $ ( 569 ) $ 2,062

The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Income for the six months ended January 1, 2022 and December 26, 2020, respectively (in thousands):

The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Income for the nine months ended April 2, 2022 and April 3, 2021, respectively (in thousands):

Derivatives Designated as Hedging Instruments Classification of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) AOCI Balance

3 unchanged sentences

Income AOCI Balance

January 1, 2022

April 2, 2022

Forward contracts Cost of sales $ 2,721 $ 864 $ ( 3,397 ) $ 188

6 unchanged sentences

Income AOCI Balance

December 26, 2020

April 3, 2021

Forward contracts Cost of sales $ ( 759 ) $ 3,938 $ ( 393 ) $ 2,786

1 unchanged sentence

Total $ ( 1,500 ) $ 3,715 $ ( 153 ) $ 2,062

As of January 1, 2022, the net amount of unrealized gain expected to be reclassified into earnings within the next 12 months is approximately $ 33,000 .

As of January 1, 2022, the Company does not have any foreign exchange contracts with credit-risk-related contingent features.

As of April 2, 2022, the net amount of unrealized gain expected to be reclassified into earnings within the next 12 months is approximately $ 267,000 .

As of April 2, 2022, the Company does not have any foreign exchange contracts with credit-risk-related contingent features.

Fair Value Measurements

6 unchanged sentences

These contracts are marked to market using level 2 input criteria every quarter with the unrealized gain or loss, net of tax, reported as a component of shareholders’ equity in accumulated other comprehensive gain (loss), as they qualify for hedge accounting.

The following table summarizes the fair value of assets (liabilities) of the Company’s derivatives that are required to be measured on a recurring basis as of January 1, 2022 and July 3, 2021 (in thousands):

January 1, 2022

The following table summarizes the fair value of assets (liabilities) of the Company’s derivatives that are required to be measured on a recurring basis as of April 2, 2022 and July 3, 2021 (in thousands):

April 2, 2022

Level 1 Level 2 Level 3 Total

1 unchanged sentence

Foreign currency forward contracts $ — $ 344 $ — $ 344

Financial Liabilities:

Foreign currency forward contracts $ — $ ( 1 ) $ — $ ( 1 )

Level 1 Level 2 Level 3 Total

1 unchanged sentence

Foreign currency forward contracts $ — $ 3,614 $ — $ 3,614

The carrying values of cash and cash equivalents, accounts receivable and current liabilities reflected on the balance sheets at January 1, 2022 and July 3, 2021, reasonably approximate their fair value.

The carrying values of cash and cash equivalents, accounts receivable and current liabilities reflected on the balance sheets at April 2, 2022 and July 3, 2021, reasonably approximate their fair value.

The Company’s long-term debt, which is measured at amortized cost, primarily consists of an asset-based revolving credit facility, lease liability, and an equipment loan.

2 unchanged sentences

As a result of the determinable market rates for our asset-based revolving credit facility and equipment loan, they are classified within Level 2 of the fair value hierarchy.

Further, the carrying value of each of these instruments reasonably approximates their fair value as of January 1, 2022 and July 3, 2021.

Further, the carrying value of each of these instruments reasonably approximates their fair value as of April 2, 2022 and July 3, 2021.

Revenue Recognition

22 unchanged sentences

The Company elected to not disclose information about remaining performance obligations as they are part of contracts that that have expected durations of one year or less.

During the first six months of fiscal year 2022, no revenues were recognized from performance obligations satisfied or partially satisfied in previous periods.

During the first nine months of fiscal year 2022, no revenues were recognized from performance obligations satisfied or partially satisfied in previous periods.

Contract Balances

1 unchanged sentence

Contract assets are classified separately on the condensed consolidated balance sheet and transferred to receivables when the right to payment becomes unconditional.

The following table summarizes the activity in the Company’s contract assets during the six months ended January 1, 2022 (in thousands):

The following table summarizes the activity in the Company’s contract assets during the nine months ended April 2, 2022 (in thousands):

Contract Assets

2 unchanged sentences

Amounts collected or invoiced ( 393,925 )

Ending balance, January 1, 2022

Ending balance, April 2, 2022

Disaggregation of Revenue

The following table presents the Company’s revenue disaggregated for the three and six months ended January 1, 2022 and December 26, 2020 (in thousands):

Recognition Three Months Ended Six Months Ended

January 1, 2022 December 26, 2020 January 1, 2022 December 26, 2020

The following table presents the Company’s revenue disaggregated for the three and nine months ended April 2, 2022 and April 3, 2021 (in thousands):

Recognition Three Months Ended Nine Months Ended

April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021

Over-Time $ 134,980 $ 133,124 $ 392,587 $ 379,494

2 unchanged sentences

The Company has several commitments under operating and financing leases for warehouses, manufacturing facilities, office buildings, and equipment with initial terms that expire at various dates during the next 1 year to 10 years.

The components of lease cost for the three and six months ended January 1, 2022 were (in thousands):

Lease cost Classification Three Months Ended Six Months Ended

The components of lease cost for the three and nine months ended April 2, 2022 were (in thousands):

Lease cost Classification Three Months Ended Nine Months Ended

Operating lease cost Cost of sales $ 1,645 $ 4,676

6 unchanged sentences

Total lease cost $ 2,107 $ 6,774

Amounts reported in the Consolidated Balance Sheet as of January 1, 2022 were (in thousands, except weighted average lease term and discount rate):

January 1, 2022

Amounts reported in the Consolidated Balance Sheet as of April 2, 2022 were (in thousands, except weighted average lease term and discount rate):

April 2, 2022

Operating Leases:

16 unchanged sentences

Other information related to leases was as follows (in thousands):

Three Months Ended Six Months Ended

January 1, 2022

Three Months Ended Nine Months Ended

April 2, 2022

Cash paid for amounts included in the measurement of lease liabilities:

1 unchanged sentence

Financing cash flows used in financing leases $ 1,484 $ 2,561

Future lease payments under non-cancellable leases as of January 1, 2022 are as follows (in thousands):

Future lease payments under non-cancellable leases as of April 2, 2022 are as follows (in thousands):

Fiscal Years Ending Operating Leases Finance Leases

3 unchanged sentences

2025 3,462 630

2026 2,667 107

Thereafter 4,521 72

2 unchanged sentences

Total lease liabilities $ 17,796 $ 8,757

(1) Represents estimated lease payments for the remaining six-month period ending July 2, 2022.

(1) Represents estimated lease payments for the remaining three-month period ending July 2, 2022.

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-Q

Item 1. Financial Statements