8-K

EFFECTIVE FEBRUARY 4, 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) February 4, 2020

Key Tronic Corporation

(Exact name of registrant as specified in its charter)

Washington		0-11559	91-0849125
(State or other jurisdiction of incorporation)		(Commission File Number)	(IRS Employer 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 February 4, 2020, Key Tronic Corporation issued a press release announcing its financial results for the quarter ended December 28, 2019. 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 February 4, 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 (Registrant)
Date: February 4, 2020
	By:	/s/ Brett R. Larsen
		Brett R. Larsen, Executive Vice President of Administration, CFO and Treasurer

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EX-99.1

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 SECOND QUARTER OF FISCAL YEAR 2020

Expecting Revenue and Earnings Growth in the Third Quarter

Spokane Valley, WA— February 4, 2020 — Key Tronic Corporation (Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended December 28, 2019.

For the second quarter of fiscal year 2020, Key Tronic reported total revenue of $116.7 million, compared to $123.0 million in the same period of fiscal year 2019. For the first six months of fiscal year 2020, total revenue was $222.0 million, compared to $250.5 million in the same period of fiscal year 2019.

For the second quarter of fiscal year 2020, net income was $0.8 million or $0.08 per share, compared to net income of $1.6 million or $0.15 per share for the same period of fiscal year 2019. For the first six months of fiscal year 2020, net income was $2.4 million or $0.22 per share, compared to $3.2 million or $0.29 per share for the same period of fiscal year 2019.

As previously announced, the lower than anticipated earnings for the second quarter of fiscal 2020 was primarily a result of increased factory spending in the Company’s Juarez metal fabrication departments. This spending was necessitated by both new and existing customers exiting their manufacturing arrangements in China and ramping their production in Juarez. While the financial effect on Key Tronic was significant, the long-term relationship with these customers was strengthened by the performance of the Juarez facility under extreme pressure. Additionally, the Company incurred unfavorable foreign currency losses related to its unhedged portion of Mexican labor expenses due to a strengthening peso over the quarter.

The unanticipated increase in factory spending discussed above adversely impacted the Company’s margins. For the second quarter of fiscal year 2020, gross margin was 7.0% and operating margin was 1.3%, compared to 8.0% and 2.1%, respectively, in the same period of fiscal 2019.

“Moving into the third quarter of fiscal 2020, the need for increased factory spending has diminished and we see potential revenue and earnings growth in coming periods,” said Craig Gates, President and Chief Executive Officer. “Furthermore, uncertainty over tariffs and trade tension between the US and China continues to drive a number of existing and new customers to accelerate their plans to transition from China facilities to our expanding facilities in Mexico and Vietnam. While this transition caused delays in production during the first half of fiscal 2020, we see it as a very positive trend over the longer term, as customers see the increasing advantages of our North American and Vietnam based production.”

“During the second quarter of fiscal 2020, we continued to win significant new business from EMS competitors and from existing customers, including new programs involving consumer medical devices, Wi-Fi enabled signage and temperature control devices. To prepare for growth in coming quarters, we have invested in the capacity of our Mexico, US and new Vietnam facilities, including a significant increase in our sheet metal capacity to address demand. We remain optimistic about our opportunities for growth in the second half of fiscal 2020 and beyond.”

Business Outlook

For the third quarter of fiscal year 2020, Key Tronic expects to report revenue in the range of $117 million to $121 million, and earnings in the range of $0.12 to $0.17 per diluted share. These expected results assume an effective tax rate of 20% in the quarter. Key Tronic is working closely with its employees and key suppliers to ascertain delays attributable to the recent outbreak of coronavirus in China. Potential delays in production and extended transit times of critical parts could significantly impact results in each of our production facilities.

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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 800-353-6461 or +1-334-323-0501 (Access Code: 4722324). A replay will be available by calling 888-203-1112 or +1-719-457-0820 (Access Code: 4722324).

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 all passages containing verbs such as aims, anticipates, believes, estimates, expects, hopes, intends, plans, predicts, projects, targets, or will, similar verbs, or nouns corresponding to such verbs. Forward-looking statements also include other passages that are primarily relevant to expected future events 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 quarterly and yearly revenue and earnings during periods of fiscal year 2020, the impact of the outbreak of the coronavirus in China on our Company and our suppliers and customers, effects of recent tax reform, tariff measures, and trade tensions, business from new customers and new programs, improvement in supply chain deliveries, impairment charges of goodwill and intangibles, 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; the availability of parts from the supply chain; the accuracy of customers’ forecasts; success of customers’ programs; timing and effectiveness of ramping of new programs; development and 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 tax reform and related activities and the other 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

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	December 28, 2019		December 29, 2018		December 28, 2019		December 29, 2018
Net sales	$	116,722	$	123,037	$	222,007	$	250,509
Cost of sales	108,600		113,157		204,612		231,096
Gross profit	8,122		9,880		17,395		19,413
Research, development and engineering expenses	1,720		1,857		3,380		3,557
Selling, general and administrative expenses	4,904		5,399		9,978		10,687
Impairment of goodwill and intangibles	—		—		—		—
Total operating expenses	6,624		7,256		13,358		14,244
Operating income	1,498		2,624		4,037		5,169
Interest expense, net	524		708		1,234		1,385
Income before income taxes	974		1,916		2,803		3,784
Income tax provision	150		327		427		602
Net income	$	824	$	1,589	$	2,376	$	3,182
Net income per share — Basic	$	0.08	$	0.15	$	0.22	$	0.30
Weighted average shares outstanding — Basic	10,760		10,760		10,760		10,760
Net income per share — Diluted	$	0.08	$	0.15	$	0.22	$	0.29
Weighted average shares outstanding — Diluted	10,877		10,881		10,811		10,986

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KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	December 28, 2019		June 29, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	499	$	601
Trade receivables, net of allowance for doubtful accounts of $58 and $58	70,225		58,429
Contract assets	17,071		22,161
Inventories, net	110,144		100,431
Other	20,254		16,477
Total current assets	218,193		198,099
Property, plant and equipment, net	30,825		29,413
Operating lease right-of-use assets, net	14,876		—
Other assets:
Deferred income tax asset	8,207		7,840
Other intangible assets, net	—		657
Other	1,869		2,301
Total other assets	10,076		10,798
Total assets	$	273,970	$	238,310
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	80,448	$	73,571
Accrued compensation and vacation	6,954		6,759
Current portion of debt, net	7,508		5,841
Other	13,350		7,233
Total current liabilities	108,260		93,404
Long-term liabilities:
Term loans	7,087		7,091
Revolving loan	32,018		23,356
Operating lease liabilities	9,780		—
Other long-term obligations	18		—
Total long-term liabilities	48,903		30,447
Total liabilities	157,163		123,851
Shareholders’ equity:
Common stock, no par value—shares authorized 25,000; issued and outstanding 10,760 and 10,760 shares, respectively	46,821		46,680
Retained earnings	67,729		65,353
Accumulated other comprehensive gain	2,257		2,426
Total shareholders’ equity	116,807		114,459
Total liabilities and shareholders’ equity	$	273,970	$	238,310

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XML

Cover Page Cover Page	Feb. 04, 2020
Cover Page [Abstract]
Document Type	8-K
Document Period End Date	Feb. 04, 2020
Entity Registrant Name	Key Tronic Corp
Entity Incorporation, State or Country Code	WA
Entity File Number	0-11559
Entity Tax Identification Number	91-0849125
Entity Address, Address Line One	4424 North Sullivan Road
Entity Address, City or Town	Spokane Valley,
Entity Address, State or Province	WA
Entity Address, Postal Zip Code	99216
City Area Code	509
Local Phone Number	928-8000
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	false
Amendment Flag	false
Entity Central Index Key	0000719733