What changed in this filing

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Item 1. Financial Statements

2024-05-14 compared with 2024-02-08 · 142 added, 134 removed, 398 unchanged (41% of the section changed)

3 unchanged sentences

(Unaudited, in thousands)

except share data)

December 30, 2023 July 1, 2023

March 30, 2024 July 1, 2023

Current assets:

34 unchanged sentences

Retained earnings 82,184 82,986

Accumulated other comprehensive Income (loss) 191 ( 97 )

Accumulated other comprehensive (loss) — ( 97 )

Total shareholders’ equity 130,075 130,617

2 unchanged sentences

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)

Three Months Ended Six Months Ended

December 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022

Three Months Ended Nine Months Ended

March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023

Net sales $ 140,527 $ 164,553 $ 433,707 $ 425,524

5 unchanged sentences

Total operating expenses 8,656 9,145 24,065 21,475

Operating income 3,948 3,608 7,216 6,969

Operating income (loss) ( 575 ) 5,131 6,641 12,099

Interest expense, net 2,800 2,688 8,772 7,081

Income before income taxes 987 1,101 1,244 2,575

Income (loss) before income taxes ( 3,375 ) 2,443 ( 2,131 ) 5,018

Income tax provision (benefit) ( 1,154 ) 467 ( 1,329 ) 924

Net income $ 1,084 $ 967 $ 1,419 $ 2,119

Net income per share — Basic $ 0.10 $ 0.09 $ 0.13 $ 0.20

Net income (loss) $ ( 2,221 ) $ 1,976 $ ( 802 ) $ 4,094

Net income (loss) per share — Basic $ ( 0.21 ) $ 0.18 $ ( 0.07 ) $ 0.38

Weighted average shares outstanding — Basic 10,762 10,762 10,762 10,762

Net income per share — Diluted $ 0.10 $ 0.09 $ 0.13 $ 0.20

Net income (loss) per share — Diluted $ ( 0.21 ) $ 0.18 $ ( 0.07 ) $ 0.38

Weighted average shares outstanding — Diluted 10,762 10,865 10,762 10,892

1 unchanged sentence

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)

Three Months Ended Six Months Ended

December 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022

Comprehensive income:

Net income $ 1,084 $ 967 $ 1,419 $ 2,119

Three Months Ended Nine Months Ended

March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023

Comprehensive income (loss):

Net income (loss) $ ( 2,221 ) $ 1,976 $ ( 802 ) $ 4,094

Other comprehensive income (loss):

1 unchanged sentence

Comprehensive income (loss) $ ( 2,412 ) $ 2,034 $ ( 705 ) $ 4,364

Other comprehensive income (loss) for the three months ended December 30, 2023 and December 31, 2022, is reflected net of tax expense (benefit) of approximately $ 0.1 million and $ 0.0 million , respectively.

Other comprehensive income (loss) for the six months ended December 30, 2023 and December 31, 2022, is reflected net of tax expense (benefit) of approximately $ 0.1 million and $ 0.0 million, respectively.

Other comprehensive income (loss) for the three months ended March 30, 2024 and April 1, 2023, is reflected net of tax expense (benefit) of approximately $( 0.1 ) million and $ 0.0 million , respectively.

Other comprehensive income (loss) for the nine months ended March 30, 2024 and April 1, 2023, is reflected net of tax expense (benefit) of approximately $ 0.0 million and $ 0.0 million, respectively.

See accompanying notes to consolidated financial statements.

2 unchanged sentences

(Unaudited, in thousands)

Six Months Ended

December 30, 2023 December 31, 2022

Nine Months Ended

March 30, 2024 April 1, 2023

Operating activities:

Net income $ 1,419 $ 2,119

Adjustments to reconcile net income to cash used in operating activities:

Net income (loss) $ ( 802 ) $ 4,094

Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:

Depreciation and amortization 8,247 6,857

30 unchanged sentences

Cash (used in) provided by financing activities ( 3,396 ) 16,796

Net decrease in cash and cash equivalents ( 650 ) ( 897 )

Net increase (decrease) in cash and cash equivalents 1,652 ( 1,670 )

Cash and cash equivalents, beginning of period 3,603 1,707

9 unchanged sentences

(Unaudited, in thousands)

except share data)

Three Months Ended Six Months Ended

December 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022

Three Months Ended Nine Months Ended

March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023

Total shareholders’ equity, beginning balances $ 132,435 $ 127,311 $ 130,617 $ 124,878

6 unchanged sentences

Share-based compensation 52 76 163 178

Exercise of stock options — — — —

Exercise of stock appreciation rights — — — —

Ending balances 47,891 47,652 47,891 47,652

1 unchanged sentence

Beginning balances $ 84,405 $ 79,948 $ 82,986 $ 77,830

Net income 1,084 967 1,419 2,119

Net income (loss) ( 2,221 ) 1,976 ( 802 ) 4,094

Ending balances 82,184 81,924 82,184 81,924

16 unchanged sentences

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

The three month and six month periods ended December 30, 2023 and December 31, 2022, were both 13 week and 26 week periods.

The three month and nine month periods ended March 30, 2024 and April 1, 2023, were both 13 week and 39 week periods, respectively.

Fiscal year 2024 will end on June 29, 2024, which is a 52 week year.

1 unchanged sentence

Management’s Assessment of Liquidity

Historically, we have financed operations and met our capital expenditure requirements primarily through cash flows provided by operations and borrowings under our credit facilities.

We generated operating and net income of $ 3.9 million and $ 1.1 million respectively, during the 3-month period ended December 30, 2023, and have positive working capital of $ 193.9 million as of December 30, 2023.

Due to the timing between the procurement of raw materials, production cycle and payment from our customers, we have relied on borrowings on our credit facilities and cash from operations to fund operations of the Company.

Based on current projections, we anticipate generating cash from operations as revenue is expected to remain flat during the third quarter of fiscal year 2024 and decreasing working capital requirements as existing backlog is manufactured and shipped.

As of December 30, 2023, approximately $ 14.4 million was available under the asset-based revolving credit facility with Bank of America, and an additional $ 2.0 million was available under the asset-based line of credit with Banorte Financial Group.

We are also in discussions with multiple financial institutions to extend the borrowing capacity on our credit facility.

If we are unable to meet projected operating results or extend our borrowing capacity, we may need to delay the purchase of raw materials or require our customers to fund inventory raw material costs ahead of production.

Historically, due to the timing between the procurement of raw materials, production cycle and payment from our customers, we have financed operations and met our capital expenditure requirements primarily through cash flows provided by operations and borrowings under our credit facilities.

We generated an operating loss and net loss of $( 0.6 ) million and $( 2.2 ) million, respectively, during the 3-month period ended March 30, 2024, and have positive working capital of $ 197.5 million as of March 30, 2024.

Based on current projections, we anticipate generating cash from operations as revenue is expected to remain flat during the fourth quarter of fiscal year 2024 and decreasing working capital requirements as existing backlog is manufactured and shipped.

As of March 30, 2024, approximately $ 7.1 million was available under the asset-based revolving credit facility with Bank of America, an additional MXN 22.0 million ($ 1.3 million USD) was available under the line of credit with Banorte Financial Group, and $5.3 million of cash was on hand.

We are also in discussions with multiple financial institutions to either extend the borrowing capacity or maturity date on our asset-based revolving credit facility or to refinance the credit facility in whole.

If we are unable to meet projected operating results or restructure or refinance our asset-based revolving credit facility, we may need to delay the purchase of raw materials or require our customers to fund inventory raw material costs ahead of production.

Other options to increase our liquidity include factoring receivables or leveraging foreign owned assets for additional borrowing capacity.

We believe that projected cash from operations, funds available under our asset-based revolving credit facility and additional financing options will be sufficient to meet our working and fixed capital requirements for at least the next 12 months.

Certain Significant Risks and Uncertainties Related to Outbreak of Coronavirus Disease 2019 (“COVID-19”)

Due to the COVID-19 pandemic, the Company has seen extreme shifts in demand from its customer base, and shifts in supply chain and logistics risks.

The possibility of future temporary closures, as well as adverse fluctuations in customer demand, freight and expedite costs, precautionary safety expenses and labor shortages, collectability of accounts, and future supply chain disruptions during the rapidly changing COVID-19 environment can materially impact operating results.

Additionally, continued adverse macroeconomic conditions and significant currency exchange fluctuations can also materially impact operating results.

Significant Accounting Policies

6 unchanged sentences

The computation assumes the proceeds from the exercise of equity awards were used to repurchase common shares at the average market price during the period.

The computation of diluted EPS does

not assume conversion, exercise, or contingent issuance of common stock equivalent shares that would have an anti-dilutive effect on EPS.

The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of common stock equivalent shares that would have an anti-dilutive effect on EPS.

Derivative Instruments and Hedging Activities

10 unchanged sentences

The Company does not enter into derivative instruments for trading or speculative purposes.

We compute our interim income tax provision through the use of an estimated annual effective tax rate (ETR) applied to year-to-date operating results and specific events that are discretely recognized as they occur.

The tax expense for the quarter ended March 30, 2024, and the nine months ended March 30, 2024, has been computed based on actual year-to-date results, a departure from the estimated annual effective tax rate (ETR) method applied to the quarter ended April 1, 2023, and prior quarters in fiscal year 2024.

We departed from the ETR method for determining interim income tax expense because the significant permanent book-to-tax differences in several jurisdictions, the impact of the tax holiday in Vietnam, and significant tax benefits related to federal research and development tax credits resulted in an inability to reliably estimate the annual effective tax rate applicable to projected full-year worldwide consolidated pretax income.

In prior quarters, including the comparable quarter ended April 1, 2023, we had computed our interim income tax provision through the use of an ETR applied to year-to-date operating results and specific events that are discretely recognized as they occur.

In determining the estimated annual ETR, we analyze various factors, including projections of our annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, our ability to use tax credits and available tax planning alternatives.

14 unchanged sentences

Recently Issued Accounting Standards

14, 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, Income Taxes (Topic 740):

On December 14, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

2 unchanged sentences

The Company does not anticipate early adoption of the new disclosure standards.

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires public entities to disclose information about their reportable segments' oversight and significant expenses on an interim and annual basis.

The ASU is effective for the annual reporting period beginning in

fiscal year 2025 and for interim periods beginning in fiscal year 2026.

Early adoption is permitted.

The Company is currently evaluating the guidance and its impact to the financial statements.

In September 2022, the FASB issued ASU No.

2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50).

1 unchanged sentence

The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations.

The ASU became effective for the Company July 2, 2023, except for the roll forward requirement, which becomes effective July 2, 2024.

This ASU, except for the

roll forward requirement, was adopted retrospectively as of July 2, 2023 and did not have a material impact on our consolidated financial statements.

In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08 amending Business Combination:

The ASU became effective for the Company July 2, 2023, except for the roll forward requirement, which becomes effective June 30, 2024.

This ASU, except for the roll forward requirement, was adopted retrospectively as of July 2, 2023 and did not have a material impact on our consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08 amending Business Combination:

(Topic 805), which was necessary due to 2014-09, Revenue from Contracts with Customers (Topic 606).

The FASB issued this Update to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to (1) recognition of an acquired contract liability and (2) payment terms and their effect on subsequent revenue recognized by the acquirer.

The Company adopted this amendment as of the effective date of July 2, 2023.

The FASB issued this ASU to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to (1) recognition of an acquired contract liability and (2) payment terms and their effect on subsequent revenue recognized by the acquirer.

The Company adopted these amendments as of the effective date of July 2, 2023.

These amendments are to be applied prospectively to business combinations occurring on or after the effective date of the amendments.

14 unchanged sentences

ASU 2018-19, ASU 2019-04 and ASU 2019-05, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected.

The guidance is effective for the Company beginning in the first quarter of fiscal year 2024 with early adoption permitted.

The guidance is effective for the Company beginning in the first quarter of fiscal year 2024.

The Company adopted this amendment as of the effective date of July 2, 2023.

This ASU did not have a material impact on our consolidated financial statements.

Inventories as of December 30, 2023 are $ 124.1 million compared to $ 137.9 million as of July 1, 2023.

Inventories as of March 30, 2024 are $ 115.1 million compared to $ 137.9 million as of July 1, 2023.

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

Long-Term Debt

On August 14, 2020, the Company entered into a loan agreement with Bank of America.

The Loan Agreement replaces the Company’s prior amended and restated credit agreement, as amended, with Wells Fargo Bank.

The Loan Agreement provides for a five-year asset-based senior secured revolving credit facility of up to $ 93 million, maturing on August 14, 2025.

On September 3, 2021, the Company entered into an amendment to the Company’s current loan agreement with Bank of America.

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

As of December 30, 2023, the Company had an outstanding balance under the asset-based revolving credit facility of $ 105.6 million, $ 0.3 million in outstanding letters of credit and $ 14.4 million available for future borrowings.

On August 26, 2022, the company entered into a third amendment to the loan agreement with Bank of America.

The amendment removed the cash flow leverage ratio covenant and increased the interest rate by 25 basis points.

As of July 1, 2023, the Company had an outstanding balance under the credit facility with Bank of America of $ 115.4 million, $ 0.3 million in outstanding letters of credit and $ 4.6 million available for future borrowings.

On August 14, 2020, the Company entered into a loan agreement with Bank of America (“Loan Agreement”).

The Loan Agreement replaced the Company’s prior amended and restated credit agreement, as amended, with Wells Fargo Bank.

The Loan Agreement provides for an asset-based senior secured revolving credit facility with an original availability of up to $ 93 million.

On September 3, 2021, the Company entered into an amendment to the Loan Agreement, which increased the availability under the credit facility to $ 120 million, subject to the Company’s borrowing base, and set the maturity date to September 3, 2026.

On August 26, 2022, the Company entered into a third amendment to the Loan Agreement, which removed the cash flow leverage ratio covenant and increased the interest rate by 25 basis points.

On May 7, 2024, the Company executed a fourth amendment to the Loan Agreement, effective as of March 29, 2024, which amendment modified debt covenant provisions to reduce the minimum requirement for the fixed charge coverage ratio from 1.25 :1.00 to 1.00 :1.00 as of March 30, 2024 and allow for the add back of severance expenses incurred during the quarter ended March 30, 2024.

The minimum requirement for the fixed charge coverage ratio will increase as follows:

1.05 :1.00 on July 27, 2024, 1.15 :1.00 on October 26, 2024, 1.20 :1.00 on January 25, 2025, and 1.25 :1.00 on and after March 29, 2025.

In addition, the amendment increased the interest rate by 100 basis points beginning on March 29, 2024 and moved forward the maturity date by one year to September 3, 2025.

As of March 30, 2024, the Company had an outstanding balance under the asset-based revolving credit facility of $ 112.9 million, $ 0.3 million in outstanding letters of credit and $ 7.1 million available for future borrowings.

As of July 1, 2023, the Company had an outstanding balance under the asset-based credit facility of $ 115.4 million, $ 0.3 million in outstanding letters of credit and $ 4.6 million available for future borrowings.

Generally, the interest rate applicable to loans under the Bank of America loan agreement will be, at the Company’s option:

(i)(A) the base rate which is the highest of (1) the prime rate for the applicable day (as such rate is determined from time to time by the Bank), (2) the federal funds rate for the applicable day plus 0.50 %, and (3) LIBOR for a 30-day interest period as of the

applicable day plus 1.00 % (provided that in no event shall the base rate be less than zero), plus the applicable interest margin for base rate loans;

and (B) LIBOR rate for an applicable interest period (provided that in no event shall the LIBOR rate be less than 0.50 %), plus the applicable interest margin for LIBOR rate loans.

(i) the base rate which is the highest of (a) the Prime Rate for such day, (b) the Federal Funds Rate for such day plus 0.50 %, and (c) Term SOFR for a one month interest period as of such day, plus 1.00 % (provided that in no event shall the base rate be less than zero), plus the applicable interest margin for base rate loans;

or (ii) SOFR rate for an applicable interest period, plus the applicable interest margin for SOFR rate loans.

Depending on average daily excess borrowing availability over applicable periods under the Credit Facility, applicable interest margins on:

(x) base rate loans will be 2.50 %- 3.00 %;

and (y) LIBOR rate loans will be 2.25 - 2.75 %, resetting on a quarterly basis beginning in early 2021.

and (y) SOFR rate loans will be 3.50 %- 4.00 %, resetting on a quarterly basis.

If there is an event of default under the Loan Agreement, all loans and other obligations will bear interest at a rate of an additional 2.00 % on the otherwise applicable interest rates.

In addition to interest charges, the Company is required to pay a fee of 0.25 % per annum on the unused portion of the Credit Facility, monthly in arrears.

Under the new loan agreement with Bank of America, the asset-based revolving credit facility bears interest at LIBOR plus 2.5 %, as elected by the Company.

As of March 30, 2024, the interest rate on the asset-based revolving credit facility with Bank of America was 8.44 %.

On December 11, 2023, the Company entered into a loan agreement in Mexican peso with Banorte Financial Group.

The agreement provides for three-year asset-based secured line of credit up to $ 5.9 million, subject to the Company’s borrowing base, maturing on December 11, 2026.

The credit facility bears interest at Itercambaria de Equilibrio Interest Rate plus 2.75 %.

As of December 30, 2023, the Company had an outstanding balance under the asset-based revolving credit facility of $ 3.9 million and $ 2.0 million available for future borrowings.

On September 19, 2023, the Company entered into another $ 1.1 million equipment financing agreement with Ameris Bank dba Balboa Capital ("Balboa Capital").

Combining with agreements entered in the third quarter of fiscal year 2023, the total $ 5.5 million relates to the Company’s existing manufacturing equipment that bears an interest rate range of 6 % - 8 % and matures in the first quarter of fiscal 2030.

Under these agreements, equal monthly payments of $ 94,000 commenced in the second quarter of fiscal year 2024 and will continue through the maturity of the equipment financing facility in the first quarter of fiscal 2030.

The Company had an outstanding balance $ 4.9 million as of December 30, 2023.

On August 14, 2020, the Company also entered into a $ 5.0 million equipment financing facility relating to the Company’s existing U.S.

manufacturing equipment that bears interest at 4.85 % and matures on August 14, 2025.

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 December 30, 2023, the Company had an outstanding balance of $ 1.8 million.

As of July 1, 2023, the Company had an outstanding balance of $ 2.3 million under the Bank of America equipment term loan agreement.

The agreement provides for a three-year secured line of credit up to MXN 100 million, subject to the Company’s borrowing base, maturing on December 11, 2026.

The credit facility bears interest at Itercambaria de Equilibrio Interest Rate plus 2.75 %, and as of March 30, 2024, was 14.25 %.

As of March 30, 2024, the Company had an outstanding balance under the revolving credit facility of MXN 78 million and MXN 22 million available for future borrowings.

On September 19, 2023, the Company entered into a $ 1.1 million equipment financing agreement with Ameris Bank dba Balboa Capital ("Balboa Capital").

Combining with other equipment financing agreements entered in the third quarter of fiscal year 2023, a total of $ 5.5 million relates to the Company’s existing manufacturing equipment that bears an interest rate range of 6 % - 8 % and matures in the first quarter of fiscal 2030.

Under these loan agreements, equal monthly payments of $ 94,000 commenced in the third quarter of fiscal year 2024 and will continue through the maturity of the equipment financing facility in the first quarter of fiscal 2030.

The Company had an outstanding balance $ 4.7 million as of March 30, 2024.

On November 24, 2020, the Company entered into a $ 6.0 million equipment financing facility related to the Company’s existing manufacturing equipment that bears interest at 5.52 % and matures on April 24, 2026.

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 December 30, 2023, the Company had an outstanding balance of $ 2.8 million.

As of March 30, 2024, the Company had an outstanding balance of $ 2.5 million.

As of July 1, 2023, the Company had an outstanding balance of $ 3.4 million.

The interest rates on outstanding debt as of December 30, 2023 range from 4.85 % - 14.25 % compared to 4.85 % - 8.22 % as of July 1, 2023.

Debt maturities as of December 30, 2023 for the next five years and thereafter are as follows (in thousands):

On August 14, 2020, the Company entered into a $ 5.0 million equipment financing facility with Bank of America relating to the Company’s existing U.S.

manufacturing equipment that bears interest at 4.85 % and matures on August 14, 2025.

As of March 30, 2024, the Company had an outstanding balance of $ 1.5 million.

As of July 1, 2023, the Company had an outstanding balance of $ 2.3 million.

Debt maturities as of March 30, 2024 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 $ 125,288

(1) Represents scheduled payments for the remaining six-month period ending June 29, 2024.

(1) Represents scheduled payments for the remaining three-month period ending June 29, 2024.

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

The Company was in compliance with all financial covenants as of December 30, 2023.

As of March 30, 2024, the Company was in compliance with all financial covenants except for the fixed charge coverage ratio under the Loan Agreement.

As noted above, the Company executed a fourth amendment to the Loan Agreement on May 7, 2024, effective as of March 29, 2024, to reduce the minimum requirement for the fixed charge coverage ratio from 1.25 :1.00 to 1.00 :1.00 as of March 30, 2024, effectively waiving the Company’s default of the fixed charge coverage ratio for the quarter ended March 30, 2024.

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 $ 10.0 million of gross federal research and development tax credits as of December 30, 2023.

The Company has available approximately $ 9.8 million of gross federal research and development tax credits as of March 30, 2024.

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 December 30, 2023, the Company has recorded $ 3.1 million of unrecognized tax benefits associated with these federal tax credits, resulting in a net deferred tax benefit of approximately $ 6.9 million.

Accordingly, as of March 30, 2024, the Company has recorded $ 3.1 million of unrecognized tax benefits associated with these federal tax credits, resulting in a net deferred tax benefit of approximately $ 6.7 million.

The Company evaluated tax law changes and regulatory guidance issued through the prior fiscal year.

11 unchanged sentences

(in thousands, except share and per share information)

December 30, 2023 December 31, 2022

Net income $ 1,084 $ 967

March 30, 2024 April 1, 2023

Net income (loss) $ ( 2,221 ) $ 1,976

Weighted average shares outstanding—basic 10,762 10,762

1 unchanged sentence

Weighted average shares outstanding—diluted 10,762 10,865

Net income per share—basic $ 0.10 $ 0.09

Net income per share—diluted $ 0.10 $ 0.09

Net income (loss) per share—basic $ ( 0.21 ) $ 0.18

Net income (loss) per share—diluted $ ( 0.21 ) $ 0.18

Antidilutive SARs not included in diluted earnings per share 525 376

Six Months Ended

Nine Months Ended

(in thousands, except per share information)

December 30, 2023 December 31, 2022

March 30, 2024 April 1, 2023

Net income $ ( 802 ) $ 4,094

19 unchanged sentences

Fair Value $ 2.09

Total share-based compensation expense recognized during the three months ended December 30, 2023 and December 31, 2022 was approximately $ 52,297 and $ 62,000 , respectively.

Total share-based compensation expense recognized during the six months ended December 30, 2023 and December 31, 2022 was approximately $ 111,239 and $ 102,000 , respectively.

As of December 30, 2023, total unrecognized compensation expense related to unvested share-based compensation arrangements was approximately $ 0.2 million.

Total share-based compensation expense recognized during the three months ended March 30, 2024 and April 1, 2023 was approximately $ 52,000 and $ 76,000 , respectively.

Total share-based compensation expense recognized during the nine months ended March 30, 2024 and April 1, 2023 was approximately $ 164,000 and $ 178,000 , respectively.

As of March 30, 2024, total unrecognized compensation expense related to unvested share-based compensation arrangements was approximately $ 0.2 million.

This expense is expected to be recognized over a weighted average period of 1.08 years.

No SARs were exercised during the three or six months ended December 30, 2023 or December 31, 2022.

No SARs were exercised during the three or nine months ended March 30, 2024 or April 1, 2023.

Commitments and Contingencies

2 unchanged sentences

The Company does not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on the financial position, results of operations or cash flow of the Company.

On May 6, 2024, we detected unauthorized third party access to portions of our information technology (“IT”) systems.

Upon detection of this outside threat, we activated our cyber incident procedure to investigate, contain, and remediate the incident, including beginning an investigation with external cybersecurity experts and notifying law enforcement.

The incident has caused disruptions, and limitation of access, to portions of the Company’s business applications supporting aspects of the Company’s operations and corporate functions, including financial and operating reporting systems.

As the investigation of the incident is ongoing, the full scope, nature and impact of the incident are not yet known, but based on the information reviewed to date, we believe the unauthorized activity has been contained and is working diligently to bring the impacted portions of out IT systems back online.

While we do not believe the incident is reasonably likely to have a material impact on our financial condition or results of operations, we continue to investigate the incident.

The Company provides warranties on certain product sales.

2 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 $ 107,000 as of December 30, 2023 and $ 29,000 as of July 1, 2023, respectively.

The Company’s warranty reserve was approximately $ 96,000 as of March 30, 2024 and $ 29,000 as of July 1, 2023.

Gain from Insurance Recoveries, Net of Losses

Gain from insurance recoveries, net of losses, relate to losses incurred from storm damage to the Company’s Arkansas facility on July 29, 2022, as the result of a lightning strike.

During the six months ended December 30, 2023, the Company recorded a gain from insurance recoveries, net of losses, of $ 0.4 million.

The Company did not record a gain during the three months ended December 30, 2023.

During the nine months ended March 30, 2024, the Company recorded a gain from insurance recoveries, net of losses, of $ 0.4 million.

The Company did not record a gain during the three months ended March 30, 2024.

Derivative Financial Instruments

As of December 30, 2023, the Company had outstanding foreign currency forward contracts with a total notional amount of $ 3.4 million.

The maturity dates for these contracts extend through March 2024.

For the three months ended December 30, 2023, the Company entered into $ 6.5 million of foreign currency forward contracts and settled $ 3.2 million of contracts.

During the same period of the previous year, the Company did not enter or settle any foreign currency forward contracts.

For the six months ended December 30, 2023, the Company entered into $ 6.5 million of foreign currency forward contracts and settled $ 3.2 million of contracts.

As of March 30, 2024, the Company did not have any outstanding foreign currency forward contracts.

For the three months ended March 30, 2024, the Company did not enter into foreign currency forward contracts and settled $ 3.4 million of contracts.

During the same period of the previous year, the Company did not enter or settle any foreign currency forward contracts.

As of December 30, 2023, the aggregate notional amount of the Company’s outstanding foreign currency contracts along with their unrealized gain (losses) are expected to mature as summarized below (in thousands):

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

March 30, 2024 $ 61,775 $ 3,369 $ 247

For the nine months ended March 30, 2024, the Company entered into $ 6.5 million of foreign currency forward contracts and settled $ 6.5 million of contracts.

During the same period of the previous year, the Company did not enter into or settle any foreign currency forward contracts.

On November 6, 2019, the Company entered into an interest rate swap contract with an effective date of November 6, 2019 and a termination date of September 30, 2022, related to the borrowings outstanding under the term loan with Wells Fargo Bank.

This interest rate swap contract was terminated on August 14, 2020 when the Company entered into a loan and security agreement with Bank of America.

This interest rate swap contract was terminated on August 14, 2020 when the Company entered into the Loan Agreement with Bank of America.

On the date of termination this interest rate swap was in a liability position of $ 148,400 , which has been amortized to interest expense over the original term of the swap.

On November 6, 2019, the Company entered into an interest rate swap contract with an effective date of November 6, 2019 and a termination date of November 1, 2023, related to the borrowings outstanding under the line of credit with Wells Fargo Bank.

This interest rate swap contract was terminated on August 14, 2020 when the Company entered into a loan and security agreement with Bank of America.

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 tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Income for the three months ended December 30, 2023 and December 31, 2022, respectively (in thousands):

This interest rate swap contract was terminated on August 14, 2020 when the Company entered into the Loan Agreement with Bank of America.

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

The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Operations for the three months ended March 30, 2024 and April 1, 2023, respectively (in thousands):

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

September 30, 2023 Effective

December 31, 2023 Effective

AOCI Effective Portion

1 unchanged sentence

Income AOCI Balance

December 30, 2023

March 30, 2024

Forward contracts Cost of sales $ 191 $ ( 191 ) $ — $ —

2 unchanged sentences

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

October 1, 2022 Effective

January 1, 2023 Effective

AOCI Effective Portion

1 unchanged sentence

Income AOCI Balance

December 31, 2022

April 1, 2023

Forward contracts Cost of sales $ — $ — $ — $ —

1 unchanged sentence

Total $ ( 213 ) $ — $ 58 $ ( 155 )

The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Income for the six months ended December 30, 2023 and December 31, 2022, respectively (in thousands):

The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Operations for the nine months ended March 30, 2024 and April 1, 2023, respectively (in thousands):

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

Ju1y 1, 2023 Effective

July 1, 2023 Effective

AOCI Effective Portion

1 unchanged sentence

Income AOCI Balance

December 30, 2023

March 30, 2024

Forward contracts Cost of sales $ — $ 72 $ ( 72 ) $ —

6 unchanged sentences

Income AOCI Balance

December 31, 2022

April 1, 2023

Forward contracts Cost of sales $ ( 79 ) $ — $ 79 $ —

1 unchanged sentence

Total $ ( 425 ) $ — $ 270 $ ( 155 )

As of December 30, 2023, the net amount of unrealized gain expected to be reclassified into earnings within the next 3 months is approximately $ 0.2 million.

The Company does not have any foreign exchange contracts with credit-risk-related contingent features.

As of March 30, 2024, the Company does not have any foreign exchange contracts with credit-risk-related contingent features.

The Company is subject to the risk of fluctuating interest rates from our line of credit and foreign currency risk resulting from our China operations.

27 unchanged sentences

The Company has elected to expense costs to obtain contracts as incurred as these costs are immaterial to the financial statements.

During the first six months of fiscal year 2024, no revenues were recognized from performance obligations satisfied or partially satisfied in previous periods.

During the first nine months of fiscal year 2024, 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 December 30, 2023 (in thousands):

The following table summarizes the activity in the Company’s contract assets during the nine months ended March 30, 2024 (in thousands):

Contract Assets

2 unchanged sentences

Amounts collected or invoiced ( 373,958 )

Ending balance, December 30, 2023

Ending balance, March 30, 2024

Disaggregation of Revenue

The following table presents the Company’s revenue disaggregated for the three and six months ended December 30, 2023 and December 31, 2022 (in thousands):

Recognition Three Months Ended Six Months Ended

December 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022

The following table presents the Company’s revenue disaggregated for the three and nine months ended March 30, 2024 and April 1, 2023 (in thousands):

Recognition Three Months Ended Nine Months Ended

March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023

Over-Time $ 118,467 $ 160,628 $ 372,652 $ 414,835

6 unchanged sentences

The weighted average discount rate is disclosed in the tables below.

The components of lease cost for the three months and six months ended December 30, 2023 and were (in thousands):

Three Months Ended Six Months Ended

December 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022

The components of lease cost for the three months and nine months ended March 30, 2024 and were (in thousands):

Three Months Ended Nine Months Ended

March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023

Lease cost Classification

7 unchanged sentences

Total lease cost $ 2,563 $ 2,251 $ 7,848 $ 6,995

Amounts reported in the Consolidated Balance Sheet as of December 30, 2023 were (in thousands, except weighted average lease term and discount rate):

December 30, 2023 July 1, 2023

Amounts reported in the Consolidated Balance Sheet as of March 30, 2024 were (in thousands, except weighted average lease term and discount rate):

March 30, 2024 July 1, 2023

Operating Leases:

16 unchanged sentences

The current portion of the total finance lease liabilities of $ 2.8 million is classified under Current portion of debt, net , resulting in $ 0.3 million classified in Other Long-term Liabilities section of the condensed consolidated balance sheet.

Future lease payments under non-cancellable leases as of December 30, 2023 are as follows (in thousands):

Future lease payments under non-cancellable leases as of March 30, 2024 are as follows (in thousands):

Fiscal Years Ending Operating Leases Finance Leases

2 unchanged sentences

2026 $ 4,147 $ 501

2027 $ 3,238 $ —

2028 $ 2,281 $ —

Thereafter $ 1,873 $ —

2 unchanged sentences

Total lease liabilities $ 16,790 $ 3,170

(1) Represents estimated lease payments for the remaining six-month period ending June 29, 2024.

(1) Represents estimated lease payments for the remaining three-month period ending June 29, 2024.

Subsequent Events

On May 6, 2024, we detected unauthorized third party access to portions of our information technology (“IT”) systems.

As the investigation of the incident is ongoing, the full scope, nature and impact of the incident are not yet known, but based on the information reviewed to date, we believe the unauthorized activity has been contained and are working diligently to bring the impacted portions of our IT systems back online.

While we do not believe the incident is reasonably likely to have a material impact on the Company, including our financial condition or results of operations, we continue to investigate the incident.

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