8-K
KEY TRONIC CORP (KTCC)
EFFECTIVE APRIL 28, 2020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) April 28, 2020
Key Tronic Corporation
(Exact name of registrant as specified in its charter)
| Washington | 0-11559 | 91-0849125 | |
|---|---|---|---|
| (State or other jurisdiction<br><br>of incorporation) | (Commission<br><br>File Number) | (IRS Employer<br><br>Identification No.) | |
| 4424 North Sullivan Road | Spokane Valley, | Washington | 99216 |
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code (509) 928-8000
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provision (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | | --- | --- || ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | | --- | --- || ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | | --- | --- || ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | | --- | --- |
| Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | Emerging growth company | ☐ |
|---|---|---|
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ¨ |
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ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On April 28, 2020, Key Tronic Corporation issued a press release announcing its financial results for the quarter ended March 28, 2020. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The information in this Form 8-K including the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section and shall not be deemed incorporated by reference into any filing of Key Tronic Corporation under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as set forth by specific reference in such a filing.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
| (d) | Exhibits |
|---|---|
| Exhibit Number | Description |
| --- | --- |
| 99.1 | Press Release Dated April 28, 2020 |
SAFE HARBOR STATEMENT. Statements contained in the Exhibit to this report that state Key Tronic Corporation's or its management's expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Key Tronic Corporation's actual results could differ materially from those projected in such forward-looking statements. Factors that could affect those results include those mentioned in the documents that Key Tronic Corporation has filed with the Securities and Exchange Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| KEY TRONIC CORPORATION<br><br>(Registrant) | ||
|---|---|---|
| Date: April 28, 2020 | ||
| By: | /s/ Brett R. Larsen | |
| Brett R. Larsen, Executive Vice President<br><br>of Administration, CFO and Treasurer |
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Exhibit
Exhibit 99.1
FOR IMMEDIATE RELEASE
| CONTACTS: | Brett Larsen | Michael Newman |
|---|---|---|
| Chief Financial Officer | Investor Relations | |
| Key Tronic Corporation | StreetConnect | |
| (509) 927-5500 | (206) 729-3625 |
KEY TRONIC CORPORATION ANNOUNCES RESULTS
FOR THE THIRD QUARTER OF FISCAL YEAR 2020
Expecting Revenue Growth in the Fourth Quarter; Mexico Facilities Resume Operations
Spokane Valley, WA— April 28, 2020 — Key Tronic Corporation (Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended March 28, 2020.
For the third quarter of fiscal year 2020, Key Tronic reported total revenue of $111.5 million, compared to $108.0 million in the same period of fiscal year 2019. For the first nine months of fiscal year 2020, total revenue was $333.5 million, compared to $358.5 million in the same period of fiscal year 2019.
As previously announced, the lower than anticipated revenue and earnings for the third quarter of fiscal 2020 is primarily a result of disruptions to supply chains in China caused by the COVID-19 crisis, which delayed the arrival of key components. In addition, earnings in the third quarter of 2020 were impacted by a write down of $0.6 million of receivables from a customer that was impacted by the pandemic, decreasing earnings per share by approximately $0.04 per share.
Despite the unanticipated revenue shortfall, the Company’s margins increased. For the third quarter of fiscal year 2020, gross margin was 8.3% and operating margin was 1.6%, up from gross margin of 6.3% and an operating loss of (11.6)%, in the same period of fiscal 2019.
For the third quarter of fiscal year 2020, net income was $0.9 million or $0.08 per share, compared to net loss of $12.0 million or $(1.11) per share for the same period of fiscal year 2019. For the first nine months of fiscal year 2020, net income was $3.3 million or $0.30 per share, compared to a net loss of $8.8 million or $(0.82) per share for the same period of fiscal year 2019. Excluding the goodwill and intangibles write down, the Company would have been breakeven for the third quarter of 2019 and reported net income of $3.1 million or $0.29 per share for the first nine months of fiscal year 2019.
“Due to the COVID-19 crisis, we have seen extreme shifts in demand from our customer base. Some customers have significantly increased their demand, including programs for home-consumer products, healthcare and home exercise equipment,” said Craig Gates, President and Chief Executive Officer. “Other customers, particularly those in the gaming industry, have seen large decreases in their demand. On balance, the effect of the pandemic on our customer’s demand was a net positive during the third quarter of fiscal 2020, and we won new programs involving personal safety equipment, consumer products, and home exercise equipment. One of which when fully ramped is anticipated to contribute $100 million in annual revenue and is beginning production in the next few weeks.”
“Last week, we announced the temporary closure of our Juarez facilities, but we successfully resumed operations today after petitioning the Mexican government to recognize the essential products we manufacture. Under U.S. regulations we are classified as an Essential Critical Infrastructure Employer and our Juarez facilities do manufacture essential products which are sold in Mexico. We are ramping operations back up in Mexico while continuing to focus on protecting the health of all of our employees by adhering to current health guidelines.”
“Currently, our China facilities appear to be returning to full operation and the supply chain disruptions have been abating. Our facilities in the US and Vietnam continue to operate normally, while we rigorously follow current health guidelines. We continue to invest in new capacity and remain optimistic about our long-term opportunities for growth. Nevertheless, uncertainty over the possibility of future temporary closures, predicting customer demand and costs, and predicting future supply chain disruptions during the rapidly changing COVID-19 environment makes it impossible to provide any specific guidance for the fourth quarter at this time.”
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Conference Call
Key Tronic will host a conference call to discuss its financial results at 2:00 PM Pacific (5:00 PM Eastern) today. A broadcast of the conference call will be available at www.keytronic.com under “Investor Relations” or by calling 888-394-8218 or +1-323-794-2588 (Access Code: 1825028). A replay will be available by calling 888-203-1112 or +1-719-457-0820 (Access Code: 1825028).
About Key Tronic
Key Tronic is a leading contract manufacturer offering value-added design and manufacturing services from its facilities in the United States, Mexico, China and Vietnam. The Company provides its customers full engineering services, materials management, worldwide manufacturing facilities, assembly services, in-house testing, and worldwide distribution. Its customers include some of the world’s leading original equipment manufacturers. For more information about Key Tronic visit: www.keytronic.com.
Some of the statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to those including such word as aims, anticipates, believes, estimates, expects, hopes, intends, plans, predicts, projects, targets, or will, similar verbs, or nouns corresponding to such verbs, which may be forward looking. Forward-looking statements also include other passages that are relevant to expected future events, performances, and actions or that can only be fully evaluated by events that will occur in the future. Forward-looking statements in this release include, without limitation, the Company’s statements regarding its expectations with respect to financial conditions and results, including revenue and earnings during periods of fiscal year 2020, risks of manufacturing supply chain and operational disruptions and relating to the health of employees due to COVID-19 health pandemic, demand for certain products and the effectiveness of some of our programs, effects of recent tax reform and tariff measures and trade tensions, business from new customers and programs, improvement of supply chain delivery and impacts from legal proceedings and operational streamlining. There are many factors, risks and uncertainties that could cause actual results to differ materially from those predicted or projected in forward-looking statements, including but not limited to: the future of the global economic environment and its impact on our customers and suppliers, particularly during the COVID-19 health crisis; the availability of components from the supply chain; the availability of a healthy workforce; the accuracy of suppliers’ and customers’ forecasts; development and success of customers’ programs and products; timing and effectiveness of ramping of new programs; success of new-product introductions; acquisitions or divestitures of operations or facilities; technology advances; changes in pricing policies by the Company, its competitors, customers or suppliers; impact of new governmental legislation and regulation, including tax reform, tariffs and related activities, such trade negotiations and other risks including those related to COVID-19 response; and other factors, risks, and uncertainties detailed from time to time in the Company’s SEC filings.
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KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | |||||||
| Net sales | $ | 111,455 | $ | 107,954 | $ | 333,462 | $ | 358,463 | ||
| Cost of sales | 102,207 | 101,147 | 306,819 | 332,243 | ||||||
| Gross profit | 9,248 | 6,807 | 26,643 | 26,220 | ||||||
| Research, development and engineering expenses | 1,749 | 1,398 | 5,129 | 4,955 | ||||||
| Selling, general and administrative expenses | 5,735 | 5,497 | 15,713 | 16,184 | ||||||
| Impairment of goodwill and intangibles | — | 12,448 | — | 12,448 | ||||||
| Total operating expenses | 7,484 | 19,343 | 20,842 | 33,587 | ||||||
| Operating income (loss) | 1,764 | (12,536 | ) | 5,801 | (7,367 | ) | ||||
| Interest expense, net | 754 | 720 | 1,988 | 2,105 | ||||||
| Income (loss) before income taxes | 1,010 | (13,256 | ) | 3,813 | (9,472 | ) | ||||
| Income tax provision (benefit) | 100 | (1,275 | ) | 527 | (673 | ) | ||||
| Net income (loss) | $ | 910 | $ | (11,981 | ) | $ | 3,286 | $ | (8,799 | ) |
| Net income (loss) per share — Basic | $ | 0.08 | $ | (1.11 | ) | $ | 0.31 | $ | (0.82 | ) |
| Weighted average shares outstanding — Basic | 10,760 | 10,760 | 10,760 | 10,760 | ||||||
| Net income (loss) per share — Diluted | $ | 0.08 | $ | (1.11 | ) | $ | 0.30 | $ | (0.82 | ) |
| Weighted average shares outstanding — Diluted | 10,885 | 10,760 | 10,813 | 10,760 |
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KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| March 28, 2020 | June 29, 2019 | ||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ | 1,302 | $ | 601 | |
| Trade receivables, net of allowance for doubtful accounts of $609 and $58 | 77,329 | 58,429 | |||
| Contract assets | 17,681 | 22,161 | |||
| Inventories, net | 114,052 | 100,431 | |||
| Other | 19,597 | 16,477 | |||
| Total current assets | 229,961 | 198,099 | |||
| Property, plant and equipment, net | 30,594 | 29,413 | |||
| Operating lease right-of-use assets, net | 15,347 | — | |||
| Other assets: | |||||
| Deferred income tax asset | 9,825 | 7,840 | |||
| Other intangible assets, net | — | 657 | |||
| Other | 2,676 | 2,301 | |||
| Total other assets | 12,501 | 10,798 | |||
| Total assets | $ | 288,403 | $ | 238,310 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | $ | 71,893 | $ | 73,571 | |
| Accrued compensation and vacation | 6,702 | 6,759 | |||
| Current portion of debt, net | 7,508 | 5,841 | |||
| Other | 15,470 | 7,233 | |||
| Total current liabilities | 101,573 | 93,404 | |||
| Long-term liabilities: | |||||
| Term loans | 5,210 | 7,091 | |||
| Revolving loan | 57,236 | 23,356 | |||
| Operating lease liabilities | 10,327 | — | |||
| Other long-term obligations | 1,117 | — | |||
| Total long-term liabilities | 73,890 | 30,447 | |||
| Total liabilities | 175,463 | 123,851 | |||
| Shareholders’ equity: | |||||
| Common stock, no par value—shares authorized 25,000; issued and outstanding 10,760 and 10,760 shares, respectively | 46,880 | 46,680 | |||
| Retained earnings | 68,639 | 65,353 | |||
| Accumulated other comprehensive gain (loss) | (2,579 | ) | 2,426 | ||
| Total shareholders’ equity | 112,940 | 114,459 | |||
| Total liabilities and shareholders’ equity | $ | 288,403 | $ | 238,310 |
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