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What changed in KEY TRONIC CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of KEY TRONIC CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+136 added−162 removedSource: 10-K (2022-09-14) vs 10-K (2021-09-16)

Top changes in KEY TRONIC CORP's 2023 10-K

136 paragraphs added · 162 removed · 120 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeKnaggs, age 40, has been Executive Vice President of Quality and Information Systems since May 2021. Previously, he was Vice President of Quality and Regulatory Affairs from November 2017 to May 2021. He was Vice President of Quality since October 2016. Before joining Key Tronic, Mr. Knaggs worked at Telect, Inc. from 2008 to 2016 as their Director of Engineering.
Biggest changeHe was Vice President of Quality since October 2016. Before joining Key Tronic, Mr. Knaggs worked at Telect, Inc. from 2008 to 2016 as their Director of Engineering. Prior to that, he worked at Isothermal Systems Research as Lead Systems Engineer from 2003 to 2008.
The information presented on our website currently and in the future is not considered to be part of this document or any document incorporated by reference in this document. In addition, the SEC maintains an Internet site (at www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 8
The information presented on our website currently and in the future is not considered to be part of this document or any document incorporated by reference in this document. In addition, the SEC maintains an Internet site (at www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Prior to this, Mr. Orebaugh served as Director of Engineering since May 2013. From April 2010 to May 2013, he served as Manager of Engineering. From January 2000 to April 2010 he served as Lead Mechanical Engineer. Prior to that, he served as Mechanical Engineer from October 1998 to January 2000 and Associate Mechanical Engineer since October 1997. Mr.
Orebaugh served as Director of Engineering since May 2013. From April 2010 to May 2013, he served as Manager of Engineering. From January 2000 to April 2010 he served as Lead Mechanical Engineer. Prior to that, he served as Mechanical Engineer from October 1998 to January 2000 and Associate Mechanical Engineer since October 1997. Mr.
For the fiscal years 2021, 2020 and 2019, the five largest customers in each year accounted for 40%, 40% and 41% of combined total net sales, respectively. We continue to diversify our customer base by adding additional programs and customers.
For the fiscal years 2022, 2021 and 2020, the five largest customers in each year accounted for 40%, 40% and 41% of combined total net sales, respectively. We continue to diversify our customer base by adding additional programs and customers.
Some examples of automated processes include component insertion, SMT, selective soldering, flexible robotic assembly, automated storage tape winding, computerized vision system quality inspection, laser turrets, automated switch and key top installation, robotic welding, automated powder coat application, and automated functional testing.
Some examples of automated processes include component insertion, SMT, selective soldering, flexible robotic assembly, computerized vision system quality inspection, laser turrets, automated switch and key top installation, robotic welding, automated powder coat application, and automated functional testing.
As of July 3, 2021 we had 5,450 full-time employees compared to 5,741 on June 27, 2020, and 4,067 on June 29, 2019. Since we can have significant fluctuations in product demand, we seek to maintain flexibility in our workforce by utilizing skilled temporary labor in some of our manufacturing facilities in addition to full-time employees.
As of July 2, 2022, we had 4,897 full-time employees compared to 5,450 on July 3, 2021, and 5,741 on June 27, 2020. Since we can have significant fluctuations in product demand, we seek to maintain flexibility in our workforce by utilizing skilled temporary labor in some of our manufacturing facilities in addition to full-time employees.
The following table represents the only customer that represented 10% or more of total net sales during the last three fiscal years: Percentage of Net Sales by Fiscal Year 2021 2020 2019 Customer A 24% 18% 17% There can be no assurance that the Company’s principal customers will continue to purchase products from the Company at current levels.
The following table summarizes the customers that represented 10% or more of total net sales during the last three fiscal years: Percentage of Net Sales by Fiscal Year 2022 2021 2020 Customer A 13% * * Customer B 12% 24% 18% There can be no assurance that the Company’s principal customers will continue to purchase products from the Company at current levels.
Foreign Markets Information concerning net sales and long-lived assets (property, plant, and equipment) by geographic areas is set forth in Note 12, “Enterprise-Wide Disclosures” of the consolidated financial statements of this Annual Report on Form 10-K and that information is incorporated herein.
Foreign Markets Information concerning net sales and long-lived assets (property, plant, and equipment) by geographic areas is set forth in Footnote “Enterprise-Wide Disclosures” of the “Notes to Consolidated Financial Statements” of this Annual Report on Form 10-K and that information is incorporated herein by reference.
Backlog On July 31, 2021 our order backlog was valued at approximately $303.2 million, compared to approximately $215.3 million on July 25, 2020. The amount of backlog is not necessarily indicative of future sales but can be indicative of trends in expected future sales revenue.
Backlog On July 30, 2022, our order backlog was valued at approximatel y $407.8 million, compared to approximately $303.2 million on July 31, 2021. The amount of backlog is not necessarily indicative of future sales but can be indicative of trends in expected future sales revenue.
Previously, he was Vice President of Finance and Controller from February 2010 to July 2015. He was Chief Financial Officer of FLSmidth Spokane, Inc. from December 2008 to February 2010. From October 2005 through November 2008, Mr. Larsen served as Controller of Key Tronic Corporation. From May 2004 to October 2005, Mr.
He was Chief Financial Officer of FLSmidth Spokane, Inc. from December 2008 to February 2010. From October 2005 through November 2008, Mr. Larsen served as Controller of Key Tronic Corporation. From May 2004 to October 2005, Mr. Larsen served as Manager of Financial Reporting of Key Tronic Corporation. From 2002 to May 2004, Mr.
Previously, he was Executive Vice President and General Manager from August 2002 to April 2009. He served as Executive Vice President of Marketing, Engineering and Sales from July 1997 to August 2002 and served as Vice President and General Manager of New Business Development from October 1995 to July 1997.
He served as Executive Vice President of Marketing, Engineering and Sales from July 1997 to August 2002 and served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October of 1994.
We provide the following services: product design, surface mount technologies (SMT) and pin through hole capability for printed circuit board assembly, tool making, precision plastic molding, sheet metal fabrication and painting, liquid injection molding, complex assembly, automated tape winding, prototype design and full product assembly.
Customers and Marketing We provide a mix of manufacturing services for outsourced Original Equipment Manufacturing (OEM) products. We provide the following services: product design, surface mount technologies (SMT) and pin through hole capability for printed circuit board assembly, tool making, precision plastic molding, sheet metal fabrication and painting, liquid injection molding, complex assembly, prototype design and full product assembly.
He joined the Company as Vice President of Engineering in October of 1994. From 1982 to 1991 he held various engineering and management positions within the Microswitch Division of Honeywell, Inc., in Freeport, Illinois, and from 1991 to October 1994 he served as Director of Operations, Electronics for Microswitch. Mr.
From 1982 to 1991 he held various engineering and management positions within the Microswitch Division of Honeywell, Inc., in Freeport, Illinois, and from 1991 to October 1994 he served as Director of Operations, Electronics for Microswitch. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Master’s in Business Administration from the University of Illinois, Urbana.
Hochberg served as Vice President of Business Development from October 2009 through June 2012. He was Director of Business Development and Program Management from July 2008 to October 2009. Mr. Hochberg served as Director of Business Development from October 2004 to July 2008 and as Director of EMS Sales and Marketing from July 2000 to October 2004.
HOCHBERG – Executive Vice President of Business Development Mr. Hochberg, age 60, has been Executive Vice President of Business Development since July 2012. Prior to this, Mr. Hochberg served as Vice President of Business Development from October 2009 through June 2012. He was Director of Business Development and Program Management from July 2008 to October 2009. Mr.
Prior to that, he worked at Isothermal Systems Research as Lead Systems Engineer from 2003 to 2008. He has a Bachelor of Science degree in Mechanical Engineering with a minor in mathematics from the University of Washington. CHAD T. OREBAUGH – Vice President of Engineering Mr. Orebaugh, age 50, has been Vice President of Engineering since April 2017.
He has a Bachelor of Science degree in Mechanical Engineering with a minor in mathematics from the University of Washington. CHAD T. OREBAUGH – Executive Vice President of Engineering Mr. Orebaugh, age 51, has been Executive Vice President of Engineering since September 2021. Previously he served as Vice President of Engineering since April 2017. Prior to this, Mr.
Prior to joining Key Tronic, Mr. Hochberg worked for Quinton Instrument Company as their Director of Marketing and Product Management from 1992 to 2000. From 1988 to 1992, he was employed by SpaceLabs Medical as their Business Development Marketing Manager. Mr.
Hochberg served as Director of Business Development from October 2004 to July 2008 and as Director of EMS Sales and Marketing from July 2000 to October 2004. Prior to joining Key Tronic, Mr. Hochberg worked for Quinton Instrument Company as their Director of Marketing and Product Management from 1992 to 2000.
However, material costs and liabilities may arise from these requirements or from new or modified requirements, which could have a material adverse effect on our business and results of operations. 6 Executive Officers of the Registrant The table below sets forth the name, current age and current position of our executive officers and other significant employees: Name Age Positions Held Executive Officers Craig D.
However, material costs and liabilities may arise from these requirements or from new or modified requirements, which could have a material adverse effect on our business and results of operations. 6 Information about Our Executive Officers.
Hochberg has an MBA from the University of British Columbia, a BA in Psychology, with a minor in Business from Washington University in St. Louis. 7 DUANE D. MACKLEIT – Executive Vice President of Operations Mr. Mackleit, age 53, has been Executive Vice President of Operations since December 2019. Prior to this, Mr.
From 1988 to 1992, he was employed by SpaceLabs Medical as their Business Development Marketing Manager. Mr. Hochberg has an MBA from the University of British Columbia, a BA in Psychology, with a minor in Business from Washington University in St. Louis. 7 DUANE D. MACKLEIT – Executive Vice President of Operations Mr.
Mackleit served as Vice President of Program Management since July 2012. He served as Director of Program Management from July 2008 through June 2012. From May 2006 to July 2008 he served as Principal Program Manager. Prior to that, he served as Program Manager from March 2002 to May 2006 and Associate Program Manager from August 2000 to March 2002.
Mackleit, age 54, has been Executive Vice President of Operations since December 2019. Prior to this, Mr. Mackleit served as Vice President of Program Management since July 2012. He served as Director of Program Management from July 2008 through June 2012. From May 2006 to July 2008 he served as Principal Program Manager.
Larsen served as Manager of Financial Reporting of Key Tronic Corporation. From 2002 to May 2004, Mr. Larsen was an audit manager for the public accounting firm BDO USA, LLP. He also held various auditing and supervisory positions with Grant Thornton LLP from 1997 to 2002. Mr.
Larsen was an audit manager for the public accounting firm BDO USA, LLP. He also held various auditing and supervisory positions with Grant Thornton LLP from 1997 to 2002. Mr. Larsen has a Bachelor of Science degree in Accounting and a Masters degree in Accounting from Brigham Young University and is a Certified Public Accountant. PHILIP S.
MARK COURTNEY – Vice President of Supply Chain Mark Courtney, age 55, has been Vice President of Supply Chain of the company since August 2019.
Orebaugh holds a BA in Mechanical Engineering from Gonzaga University. MARK COURTNEY – Vice President of Supply Chain Mark Courtney, age 56, has been Vice President of Supply Chain of the company since August 2019.
Mr. Mackleit has also held several other positions with Key Tronic Corporation. Mr. Mackleit has an AA in Business from Spokane Falls Community College and a BA in Business/Marketing from Eastern Washington University. He also holds a MBA from Gonzaga University. DAVID H. KNAGGS – Executive Vice President of Quality, Regulatory Affairs and Information Systems Mr.
Prior to that, he served as Program Manager from March 2002 to May 2006 and Associate Program Manager from August 2000 to March 2002. Mr. Mackleit has also held several other positions with Key Tronic Corporation. Mr. Mackleit has an AA in Business from Spokane Falls Community College and a BA in Business/Marketing from Eastern Washington University.
Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. BRETT R. LARSEN – Executive Vice President of Administration, Chief Financial Officer, and Treasurer Mr. Larsen, age 48, has served as Executive Vice President of Administration, Chief Financial Officer, and Treasurer since July 2015.
BRETT R. LARSEN – Executive Vice President of Administration, Chief Financial Officer, and Treasurer Mr. Larsen, age 49, has served as Executive Vice President of Administration, Chief Financial Officer, and Treasurer since July 2015. Previously, he was Vice President of Finance and Controller from February 2010 to July 2015.
Gates 62 President and Chief Executive Officer Brett R. Larsen 48 Executive Vice President of Administration, Chief Financial Officer, and Treasurer Philip S. Hochberg 59 Executive Vice President of Business Development Duane D. Mackleit 53 Executive Vice President of Operations David H. Knaggs 40 Executive Vice President of Quality and Information Systems Chad T.
Hochberg 60 Executive Vice President of Business Development Duane D. Mackleit 54 Executive Vice President of Operations David H. Knaggs 41 Executive Vice President of Quality and Information Systems Chad T. Orebaugh 51 Executive Vice President of Engineering Mark Courtney 56 Vice President of Supply Chain Executive Officers CRAIG D. GATES – President and Chief Executive Officer Mr.
Orebaugh 50 Vice President of Engineering Thomas Despres 59 Vice President of Southwest Operations Mark Courtney 55 Vice President of Supply Chain Executive Officers CRAIG D. GATES – President and Chief Executive Officer Mr. Gates, age 62, has been President and Chief Executive officer of the Company since April 2009.
Gates, age 63, has been President and Chief Executive officer of the Company since April 2009. Previously, he was Executive Vice President and General Manager from August 2002 to April 2009.
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Customers and Marketing We provide a mix of manufacturing services for outsourced Original Equipment Manufacturing (OEM) products.
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The table below sets forth the name, current age and current position of our executive officers and other significant employees: Name Age Positions Held Executive Officers Craig D. Gates 63 President and Chief Executive Officer Brett R. Larsen 49 Executive Vice President of Administration, Chief Financial Officer, and Treasurer Philip S.
Removed
Larsen has a Bachelor of Science degree in Accounting and a Masters degree in Accounting from Brigham Young University and is a Certified Public Accountant. PHILIP S. HOCHBERG – Executive Vice President of Business Development Mr. Hochberg, age 59, has been Executive Vice President of Business Development since July 2012. Prior to this, Mr.
Added
He also holds a MBA from Gonzaga University. DAVID H. KNAGGS – Executive Vice President of Quality, Regulatory Affairs and Information Systems Mr. Knaggs, age 41, has been Executive Vice President of Quality and Information Systems since May 2021. Previously, he was Vice President of Quality and Regulatory Affairs from November 2017 to May 2021.
Removed
Orebaugh holds a BA in Mechanical Engineering from Gonzaga University. THOMAS DESPRES – Vice President of Southwest Operations Thomas Despres, age 59, has been Vice President of Southwest Operations since November 2017. Prior to joining Key Tronic, Mr. Despres worked for Gates Corporation as Plant General Manager from July 2017 to November 2017.
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From 2016 to 2017, he was self-employed and from 2012 to 2016 he was employed by Flextronics as Vice President Global Account Management. He has an MBA from Campbell University, and a BBA, Production Management from Ohio University in Athens.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeItem 1A. RISK FACTORS There are risks and uncertainties that could affect our business. These risks and uncertainties include but are not limited to, the risk factors described below, in Item 7A: “Quantitative and Qualitative Disclosures about Market Risk” and elsewhere in this Form 10-K.
Biggest changeThese risks and uncertainties include but are not limited to, the risk factors described below, in Item 7A: “Quantitative and Qualitative Disclosures about Market Risk” and elsewhere in this Annual Report on Form 10-K. 8 RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS The following risks and uncertainties could affect our actual results and could cause results to differ materially from past results or those contemplated by our forward-looking statements.
We expect to incur costs in the future to mitigate against cybersecurity incidents as threats are expected to continue to become more persistent and sophisticated.
We expect to incur costs in the future to mitigate against cybersecurity incidents as threats are expected to continue and to become more persistent and sophisticated.
In addition, the costs associated with noncompliance with additional securities laws and regulations could also impact our business. Changes in financial accounting standards may affect our reported financial condition or results of operations as well increase costs related to implementation of new standards and modifications to internal controls.
In addition, the costs associated with noncompliance with additional securities laws and regulations could also impact our business. Changes in financial accounting standards may affect our reported financial condition or results of operations as well as increase costs related to implementation of new standards and modifications to internal controls.
The possibility of future temporary closures and labor constraints, as well as the inability to predict customer demand, costs, and future supply chain disruptions during the rapidly changing COVID-19 environment can materially impact operating results. We are exposed to general economic conditions, which could have a material adverse impact on our business, operating results and financial condition.
The possibility of future temporary closures and labor constraints, as well as the inability to predict customer demand, costs, and future supply chain disruptions during the rapidly changing COVID-19 environment can materially impact operating results. 9 We are exposed to general economic conditions, which could have a material adverse impact on our business, operating results and financial condition.
The products which we manufacture for our customers have relatively short product lifecycles. Therefore, our business, operating results and financial condition are dependent in a significant way on our ability to obtain orders from new customers and new product programs from existing customers. 9 Operating results can also fluctuate if changes are made to significant estimates and assumptions.
The products which we manufacture for our customers have relatively short product lifecycles. Therefore, our business, operating results and financial condition are dependent in a significant way on our ability to obtain orders from new customers and new product programs from existing customers. Operating results can also fluctuate if changes are made to significant estimates and assumptions.
Defects in the products we manufacture or design, whether caused by a design, manufacturing or component failure or error, or deficiencies in our manufacturing processes, may result in delayed shipments to customers or reduced or canceled customer orders. If these defects or deficiencies are significant, our business reputation may also be damaged.
Defects in the products we manufacture or design, whether caused by a design, manufacturing or component failure or error, or deficiencies in our manufacturing processes, may result in delayed shipments to customers or reduced or canceled customer orders. If these defects or deficiencies are significant, our reputation may also be damaged.
We expect that our operations will continue to be subject to cyber threats, and any future cybersecurity incident could significantly disrupt our operations. 12 Cybersecurity incidents could also result in the misappropriation of proprietary or confidential information of the Company or that of its customers, employees, vendors or customers.
We expect that our operations will continue to be subject to cyber threats, and any future cybersecurity incident could significantly disrupt our operations. 12 Cybersecurity incidents could also result in the misappropriation of proprietary or confidential information of the Company or that of its customers, employees, vendors or suppliers.
While we have undertaken remediation efforts to address the identified deficiencies and have concluded that the material weakness was remediated as of July 3, 2021, we cannot provide assurance that we will be able to conclude that our controls will be effective in the future.
While we undertook remediation efforts to address the identified deficiencies and have concluded that the material weakness was remediated as of July 3, 2021, we cannot provide assurance that we will be able to conclude that our controls will be effective in the future.
As a result, we may incur additional costs or obligations in complying with any new environmental and reporting requirements, as well as increased indirect costs resulting from our vendors or customers that get passed on to us.
As a result, we may incur additional costs or obligations in complying with any new environmental and reporting requirements, as well as increased indirect costs resulting from our vendors or suppliers that get passed on to us.
As described in Item 9a, “Controls and Procedures,” of this Annual Report on Form 10-K, we concluded that our disclosure controls and procedures were not effective as of December 26, 2020 and April 3, 2021, due to the existence of a material weakness in our internal control over financial reporting.
As described in Item 9a, “Controls and Procedures,” of this Annual Report on Form 10-K, in fiscal year 2022, we concluded that our disclosure controls and procedures were not effective as of December 26, 2020 and April 3, 2021, due to the existence of a material weakness in our internal control over financial reporting.
All of these expenses, the delay in timely filing our periodic reports and the diversion of the attention of management and other personnel that has occurred and is expected to continue, could adversely affect our business, financial condition, results of operations and cash flows. 14 Due to inherent limitations, there can be no assurance that our system of disclosure and internal controls and procedures will be successful in preventing all errors, theft and fraud, or in informing management of all material information in a timely manner.
All of these expenses, and the diversion of the attention of management and other personnel that has occurred and is expected to continue, could adversely affect our business, financial condition, results of operations and cash flows. 14 Due to inherent limitations, there can be no assurance that our system of disclosure and internal controls and procedures will be successful in preventing all errors, theft and fraud, or in informing management of all material information in a timely manner.
If our systems for protecting against cybersecurity incidents prove not to be sufficient, we could be adversely affected by, among other things, loss of or damage to intellectual property, proprietary or confidential information, or employee, vendor or customer data; interruption of our business operations; and increased costs to prevent, respond to or mitigate cybersecurity incidents.
If our systems for protecting against cybersecurity incidents prove to be insufficient, we could be adversely affected by, among other things, loss of or damage to intellectual property, proprietary or confidential information, or employee, vendor or customer data; interruption of our business operations; and increased costs to prevent, respond to or mitigate cybersecurity incidents.
Our consolidated financial statements are prepared in conformity with accounting standards generally accepted in the United States, or U.S. GAAP. These principles are subject to amendments made primarily by the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC).
Our consolidated financial statements are prepared in conformity with accounting standards generally accepted in the United States, or U.S. GAAP. These principles are subject to amendments made primarily by the Financial Accounting Standards Board (FASB) and the SEC.
There is no assurance that we will be able to retain or renew our credit agreements in the future. In the event the business grows rapidly or there is uncertainty in the macroeconomic climate, additional financing resources could be necessary in the current or future fiscal years.
There is no assurance that we will be able to retain or renew our credit agreements in the future. In the event the business grows rapidly or there is uncertainty in the macroeconomic climate, additional financing resources could be necessary.
These fluctuations may be due to factors specific to us such as our stock's thinly traded nature, variations in quarterly operating results, changes in earnings estimates, or the Audit Committee's internal investigation, or to factors relating to the contract manufacturing industry or to the securities markets in general, which, in recent years, have experienced significant price fluctuations.
These fluctuations may be due to factors specific to us such as our stock's thinly traded nature, variations in quarterly operating results, changes in earnings estimates, or to factors relating to the contract manufacturing industry or to the securities markets in general, which, in recent years, have experienced significant price fluctuations.
Volatility in the currencies of our entities and the United States dollar could seriously harm our business, operating results and financial condition. The primary impact of currency exchange fluctuations is on the cash, receivables, payables and expenses of our operating entities.
Volatility in the currencies of our entities and the United States dollar, as well as inflationary costs, could seriously harm our business, operating results and financial condition. The primary impact of currency exchange fluctuations is on the cash, receivables, payables and expenses of our operating entities.
If additional deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results.
If additional deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results and incur the additional costs and expenses associated therewith.
If we cannot meet our financial covenants, our borrowings could become immediately payable which could have a material adverse impact on our financial statements. For a summary of our banking arrangements, see Note 4 Long-Term Debt of the “Notes to Consolidated Financial Statements.” An adverse change in the interest rates for our borrowings could adversely affect our financial condition.
If we cannot meet our financial covenants, our borrowings could become immediately payable which could have a material adverse impact on our financial statements. For a summary of our banking arrangements, see Footnote “Long-Term Debt” of the “Notes to Consolidated Financial Statements.” An adverse change in the interest rates for our borrowings could adversely affect our financial condition.
We are exposed to interest rate risk under our revolving line of credit and term loan. We currently hedge a portion of our term loan with an interest rate swap. We have not historically hedged the interest rate on our credit facility; therefore, unless we do so, significant changes in interest rates could adversely affect our results of operations.
We are exposed to interest rate risk under our revolving line of credit and term loan. We have not historically hedged the interest rate on our credit facility; therefore, unless we do so, significant changes in interest rates could adversely affect our results of operations.
These and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, and could adversely affect our consolidated business and operating results.
These and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, and could adversely affect our consolidated business and operating results. Item 1B. UNRESOLVED STAFF COMMENTS None
While significant uncertainty currently exists about the future levels of energy prices, a significant increase is possible. Increased energy prices could cause an increase to our raw material costs and transportation costs. In addition, increased transportation costs related to certain suppliers and customers could be passed along to us.
While significant uncertainty currently exists about the future of energy prices, a significant increase, such as the increased fuel prices experienced in fiscal year 2022, is possible. Increased energy prices could cause an increase to our raw material and transportation costs. In addition, increased transportation costs related to certain suppliers and customers could be passed along to us.
These operations may be subject to a number of risks, including: • difficulties in staffing, turnover and managing onshore and offshore operations; • political and economic instability (including acts of terrorism, pandemics, civil unrest, forms of violence and outbreaks of war), which could impact our ability to ship, manufacture, and/or receive product; • unexpected changes in regulatory requirements and laws; • longer customer payment cycles and difficulty collecting accounts receivable; • export duties, import controls and trade barriers (including quotas); • governmental restrictions on the transfer of funds; • burdens of complying with a wide variety of foreign laws and labor practices; subject to trade wars and tariffs; • our locations may be impacted by hurricanes, tornadoes, earthquakes, water shortages, tsunamis, floods, typhoons, fires, extreme weather conditions and other natural or man-made disasters; and • our locations may also be impacted by future temporary closures and labor constraints as a result of COVID-19.
These operations may be subject to a number of risks, including: • difficulties in staffing, turnover and managing onshore and offshore operations; • political and economic instability (including acts of terrorism, pandemics, civil unrest, forms of violence and outbreaks of war), which could impact our ability to ship, manufacture, and/or receive product; • unexpected changes in regulatory requirements and laws, including those related to climate change; • longer customer payment cycles and difficulty collecting accounts receivable; • export duties, import controls and trade barriers (including quotas); • governmental restrictions on the transfer of funds; • burdens of complying with a wide variety of foreign laws and labor practices; subject to trade wars and tariffs; • our locations are subject to physical and operational risks from natural disasters, severe weather events, and climate change; and • our locations may also be impacted by future temporary closures and labor constraints as a result of COVID-19.
As described in Item 9a, “Controls and Procedures,” of this Annual Report on Form 10-K, we have taken and continue to take a number of steps in order to remediate identified deficiencies in our internal control over financial reporting and attempt to reduce the risk of future recurrence.
We have taken and continue to take a number of steps in order to remediate identified deficiencies in our internal control over financial reporting and attempt to reduce the risk of future recurrence.
The conditions affect the Company’s ability to predict and plan for future supply chain disruptions, fluctuations in customer demand and costs, and the ability to operate as there is uncertainty over future temporary closures.
The conditions affect the Company’s ability to predict and plan for future supply chain disruptions, fluctuations in customer demand and costs, and the ability to operate as there is uncertainty over future temporary closures. Inflation has also risen globally to historically high levels. If the inflation rate continues to increase, the costs of labor and other expenses could also increase.
RISKS RELATED TO OUR BUSINESS AND STRATEGY Our operations may be subject to certain risks. We manufacture product in facilities located in Mexico, China, Vietnam and the United States.
When used herein, the words “expects,” “believes,” “anticipates” and other similar expressions are intended to identify forward-looking statements. RISKS RELATED TO OUR BUSINESS AND STRATEGY Our operations may be subject to certain risks. We manufacture product in facilities located in Mexico, China, Vietnam and the United States.
We also cannot assure you that additional significant deficiencies or material weaknesses in our internal control over financial reporting will not arise or be identified in the future. We intend to continue our control remediation activities. In doing so, we will continue to incur expenses and expend management time on compliance-related issues.
We also cannot guarantee that additional significant deficiencies or material weaknesses in our internal control over financial reporting will not arise or be identified in the future.
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RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS The following risks and uncertainties could affect our actual results and could cause results to differ materially from past results or those contemplated by our forward-looking statements. When used herein, the words “expects,” “believes,” “anticipates” and other similar expressions are intended to identify forward-looking statements.
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Item 1A. RISK FACTORS There are risks and uncertainties that could affect our business.
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Refer to the discussion in note 4, “Long-Term Debt” to the consolidated financial statements for further details of our debt obligations.
Added
We may not be able to increase our product prices enough to offset these increased costs. In addition, any increase in our product prices may reduce our future customer orders and profitability. Inflation may further exacerbate other risk factors discussed in this Annual Report on Form 10-K, including disruptions to international operations.
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In addition, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021, though the ICE Benchmark Administration, the administrator of LIBOR, announced that it would consider ceasing the publication of the one-week and two-month U.S. dollar LIBOR settings at the end of 2021 and phase out the remaining U.S. dollar LIBOR settings by June 30, 2023.
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For a summary of our debt obligations, see Footnote “Long-Term Debt” of the “Notes to Consolidated Financial Statements.” In addition, the U.K.’s Financial Conduct Authority, which regulates LIBOR, has confirmed that LIBOR-indexed rates will cease after June 30, 2023, with the remaining IBOR-indexed rates ceasing on December 31, 2021.
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The transition from LIBOR to a new replacement benchmark is uncertain at this time and the consequences of such developments cannot be entirely predicted but could result in an increase in the cost of our borrowings, which could adversely affect our financial condition. 13 Our stock price is volatile.
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The Federal Reserve Board and the Federal Reserve Bank of New York identified Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR for debt and derivative financial instruments. 13 Our stock price is volatile.

Item 2. Properties

Properties — owned and leased real estate

2 edited+2 added−3 removed1 unchanged
Biggest changeIn addition, the Juarez, Mexico; Shanghai, China and Spokane, Washington facilities are registered/certified to IATF 16949 automotive standard, ISO 13485:2016 medical devices, ISO 14001:2015 environmental standard, ANSI/ESD S20.20 Electrostatic Discharge Control Program, and ISO 45001 Occupational Health and Safety Management System. Da Nang, Vietnam is additionally registered to IATF 16949 automotive standard.
Biggest changeIn addition, in Juarez, Mexico one of our buildings includes adjacent vacant land that could be developed into additional manufacturing and warehouse space. 16 All our facilities are ISO certified to ISO 9001:2015 standard and to Customs Trade Partnership against Terrorism (CTPAT). • The Spokane, Washington facility is registered to IATF 16949 automotive standard, ISO 13485:2016 medical devices, ISO 14001:2015 environmental standard, and ISO 45001 Occupational Health and Safety Management System. • The Juarez, Mexico facility is registered to IATF 16949 automotive standard, ISO 13485:2016 medical devices, ISO 14001:2015 environmental standard, ISO 45001 Occupational Health and Safety Management System, and has a certified ANSI/ESD S20.20 Electrostatic Discharge Program. • The Da Nang, Vietnam facility is additionally registered to IATF 16949 automotive standard. • The Shanghai, China facility is additionally registered to IATF 16949 automotive standard, ISO 14001:2015 environmental standard, and has a certified ANSI/ESD S20.20 Electrostatic Discharge Program. • The Oakdale, Minnesota facility is additionally registered to ISO 13485:2016 medical devices standard, AS9100D aviation, space and defense standard, has a certified ANSI/ESD S20.20 Electrostatic Discharge Control Program, and is NADCAP certified. • The Fayetteville, Arkansas facility is additionally registered to AS9100D aviation, space and defense standard and have a certified ANSI/ESD S20.20 Electrostatic Discharge Control Program. • The Corinth, Mississippi facility is additionally registered to ISO 14001:2015 and ISO/IEC 80079-34 explosive atmospheres. • The Oakdale, Minnesota; Corinth, Mississippi; Fayetteville, Arkansas and Spokane, Washington facilities are all registered with the U.S.
Type of Interest (Leased/Owned) Description of Use Corinth, Mississippi 350,000 Leased Manufacturing and warehouse El Paso, Texas 80,000 Leased Shipping and warehouse Fayetteville, Arkansas 105,000 Leased Manufacturing and warehouse Louisville, Kentucky 2,300 Leased Administration Oakdale, Minnesota 103,000 Leased Manufacturing and warehouse Spokane Valley, Washington 95,000 Leased Sales, research, administration and manufacturing Spokane Valley, Washington 36,000 Leased Manufacturing Total USA 771,300 Juarez, Mexico 193,000 Leased Warehouse Juarez, Mexico 174,000 Owned Manufacturing and warehouse Juarez, Mexico 115,000 Owned Manufacturing and warehouse Juarez, Mexico 103,000 Owned Manufacturing and warehouse Juarez, Mexico 72,000 Leased Manufacturing and warehouse Juarez, Mexico 66,000 Owned Manufacturing and warehouse Juarez, Mexico 60,000 Owned Manufacturing and warehouse Juarez, Mexico 116,000 Leased Manufacturing and warehouse Total Mexico 899,000 Shanghai, China 114,000 Leased Manufacturing and warehouse Shanghai, China 8,000 Leased Manufacturing Total China 122,000 Da Nang, Vietnam 133,000 Leased Manufacturing and warehouse Total Vietnam 133,000 Grand Total 1,925,300 (1) The geographic diversity of these locations allows us to offer services near certain of our customers and major electronics markets with the additional benefit of reduced labor costs.
Type of Interest (Leased/Owned) Description of Use Corinth, Mississippi 350,000 Leased Manufacturing and warehouse El Paso, Texas 80,000 Leased Shipping and warehouse Fayetteville, Arkansas 105,000 Leased Manufacturing and warehouse Oakdale, Minnesota 103,000 Leased Manufacturing and warehouse Spokane Valley, Washington 95,000 Leased Sales, research, administration and manufacturing Spokane Valley, Washington 36,000 Leased Manufacturing Total USA 769,000 Juarez, Mexico 193,000 Leased Warehouse Juarez, Mexico 174,000 Owned Manufacturing and warehouse Juarez, Mexico 115,000 Owned Manufacturing and warehouse Juarez, Mexico 103,000 Owned Manufacturing and warehouse Juarez, Mexico 72,000 Leased Manufacturing and warehouse Juarez, Mexico 66,000 Owned Manufacturing and warehouse Juarez, Mexico 60,000 Owned Manufacturing and warehouse Juarez, Mexico 116,000 Leased Manufacturing and warehouse Juarez, Mexico 159,000 Leased Manufacturing and warehouse Total Mexico 1,058,000 Shanghai, China 103,000 Leased Manufacturing and warehouse Total China 103,000 Da Nang, Vietnam 133,000 Leased Manufacturing and warehouse Total Vietnam 133,000 Grand Total 2,063,000 The geographic diversity of these locations allows us to offer services near certain of our customers and major electronics markets with the additional benefit of reduced labor costs.
Removed
We consider the productive capacity of our current facilities sufficient to carry on our current business. In addition, in Juarez, Mexico one of our buildings includes adjacent vacant land that could be developed into additional manufacturing and warehouse space. All of our facilities are ISO certified to ISO 9001:2015 standard and to Customs Trade Partnership against Terrorism (CTPAT).
Added
We consider the productive capacity of our current facilities sufficient to carry on our current business.
Removed
Oakdale, Minnesota and Corinth, Mississippi are additionally registered to ISO 14001:2015 environmental standard and to ISO 13485:2016 medical devices standard. Oakdale, Minnesota and Fayetteville, Arkansas are additionally registered AS9100D aviation, space and defense standard and have a certified ANSI/ESD S20.20 Electrostatic Discharge Control Program. Oakdale, Minnesota is additionally NADCAP certified.
Added
State Department for International Traffic in Arms Regulations (ITAR).
Removed
The Spokane, Washington; Corinth, Minnesota and Juarez, Mexico facilities are additionally registered to ISO/IEC 80079-34 explosive atmospheres. The Oakdale, Minnesota; Corinth, Mississippi; Fayetteville, Arkansas and Spokane, Washington facilities are all registered with the U.S. State Department for International Traffic in Arms Regulations (ITAR). 17

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeRefer to Commitments and Contingencies footnote for further details on claims in the fiscal year. Item 4. MINE SAFETY DISCLOSURES Not Applicable PART II
Biggest changeFor further details on claims, see Footnote “Commitments and Contingencies” of the “Notes to Consolidated Financial Statements.” Item 4. MINE SAFETY DISCLOSURES Not Applicable PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+1 added−0 removed0 unchanged
Biggest changeEquity Compensation Plan Information Information concerning securities authorized for issuance under our equity compensation plans is set forth in Part III, Item 12 of this Annual Report, under the caption “Securities Authorized for Issuance under Equity Compensation Plans”, and that information is incorporated herein by reference. 18 Performance Graph Set forth below is a line graph comparing the cumulative total shareholder return on our common stock with the cumulative total return of the NASDAQ Stock Market (U.S. & Foreign) Index and the NASDAQ Electronic Components Index in fiscal 2021. 7/2/2016 7/1/2017 6/30/2018 6/29/2019 6/27/2020 7/3/2021 Key Tronic Corporation 100.00 95.94 102.57 67.39 71.18 88.63 NASDAQ Composite 100.00 128.30 158.57 170.91 216.96 315.10 NASDAQ Electronic Components 100.00 143.41 189.68 189.47 257.25 416.87 19
Biggest changePerformance Graph Set forth below is a line graph comparing the cumulative total shareholder return on our common stock with the cumulative total return of the NASDAQ Stock Market (U.S. & Foreign) Index and the NASDAQ Electronic Components Index in fiscal 2022. 6/30/2017 6/30/2018 6/29/2019 6/27/2020 7/3/2021 7/2/2022 Key Tronic Corporation 100.00 106.91 70.24 74.19 92.38 60.23 NASDAQ Composite 100.00 123.60 133.22 169.11 245.60 188.07 NASDAQ Electronic Components 100.00 130.95 128.24 174.60 286.71 221.70 18 Item 6: [RESERVED]
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the NASDAQ Global Market, formerly the NASDAQ National Market System under the symbol “KTCC.” Quarterly high and low sales prices for our common stock for fiscal years 2021 and 2020 were as follows: 2021 2020 High Low High Low First Quarter $ 10.22 $ 5.04 $ 6.62 $ 4.83 Second Quarter 10.48 7.05 6.48 5.27 Third Quarter 9.48 6.75 6.99 2.51 Fourth Quarter 8.35 6.35 5.45 2.59 High and low stock prices are based on the daily sales prices reported by the NASDAQ Stock Market.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the NASDAQ Global Market, formerly the NASDAQ National Market System under the symbol “KTCC.” Quarterly high and low sales prices for our common stock for fiscal years 2022 and 2021 were as follows: 2022 2021 High Low High Low First Quarter $ 7.48 $ 6.45 $ 10.22 $ 5.04 Second Quarter 6.73 5.95 10.48 7.05 Third Quarter 6.55 5.26 9.48 6.75 Fourth Quarter 5.74 4.27 8.35 6.35 High and low stock prices are based on the daily sales prices reported by the NASDAQ Stock Market.
These quotations represent prices between dealers without adjustment for markups, markdowns, and commissions, and may not represent actual transactions. Holders and Dividends As of July 3, 2021, we had 634 shareholders of common stock on record.
These quotations represent prices between dealers without adjustment for markups, markdowns, and commissions, and may not represent actual transactions. Holders and Dividends As of July 2, 2022, we had 582 shareholders of common stock on record.
As a result of our credit agreements, we are restricted from declaring or paying dividends in cash or stock without the Bank’s prior written consent. We have not paid a cash dividend and do not anticipate payment of dividends in the foreseeable future.
As a result of our credit agreements, we are restricted from declaring or paying dividends in cash or stock without Bank of America’s prior written consent.
Added
We have not paid a cash dividend and do not anticipate payment of dividends in the foreseeable future. 17 Equity Compensation Plan Information Information concerning securities authorized for issuance under our equity compensation plans is set forth in Part III, Item 12 of this Annual Report on Form 10-K, under the caption “Equity Compensation Plan Information,” and that information is incorporated herein by reference.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

58 edited+7 added−31 removed32 unchanged
Biggest changeThe $31.0 million of net cash used in operating activities during fiscal year 2020 was primarily related to $4.8 million of net income adjusted for $5.6 million of depreciation and amortization, $28.3 million increase in accounts receivable, a $14.7 million increase in inventory, a $7.7 million increase in other assets, a $1.6 million increase in contract assets, partially offset by a $6.6 million increase in accounts payable and a $3.7 million increase in accrued compensation and vacation. 24 The $0.9 million of net cash provided by operating activities during fiscal year 2019 was primarily related to $8.0 million of net loss, $12.4 million impairment of goodwill and intangibles, $7.3 million of depreciation and amortization, $6.7 million of cash received from arbitration settlement, a $3.3 million decrease in accounts receivable, partially offset by a $10.3 million increase in contract assets, a $4.5 million increase in other assets, a $2.6 million increase in accounts payable and a $1.4 million decrease in inventory.
Biggest changeThe $31.0 million of net cash used in operating activities during fiscal year 2020 was primarily related to $4.8 million of net income adjusted for $5.6 million of depreciation and amortization, $28.3 million increase in accounts receivable, a $14.7 million increase in inventory, a $7.7 million increase in other assets, a $1.6 million increase in contract assets, partially offset by a $6.6 million increase in accounts payable and a $3.7 million increase in accrued compensation and vacation.
Our primary financing activities during fiscal year 2021, were repayments on our term loans of $11.7 million as well as borrowings and repayments under our revolving line of credit facility. Our primary financing activities during fiscal year 2020 was repayments on our term loans of $7.1 million as well as borrowings and repayments under our revolving line of credit facility.
Our primary financing activities during fiscal year 2021 was repayments on our term loans of $11.7 million as well as borrowings and repayments under our revolving line of credit facility. Our primary financing activities during fiscal year 2020 was repayments on our term loans of $7.1 million as well as borrowings and repayments under our revolving line of credit facility.
However, if any of our customers were to develop unexpected and immediate financial problems that would prevent payment of open invoices, we could incur additional and possibly material expenses that would negatively impact earnings. 27 Accrued Warranty An accrual is made for expected warranty costs, with the related expense recognized in cost of goods sold.
However, if any of our customers were to develop unexpected and immediate financial problems that would prevent payment of open invoices, we could incur additional and possibly material expenses that would negatively impact earnings. 24 Accrued Warranty An accrual is made for expected warranty costs, with the related expense recognized in cost of goods sold.
Our current customer relationships involve a variety of products, including consumer electronics, electronic storage devices, plastics, household products, gaming devices, specialty printers, telecommunications, industrial equipment, military supplies, computer accessories, medical, educational, irrigation, automotive, transportation management, robotics, RFID, power supply, off-road vehicle equipment, fitness equipment, HVAC controls, consumer products, home building products, material handling systems, lighting equipment, consumer security products, smart security, architectural LED lighting, power meters and smart grid, wireless power solutions, sanitizer dispensing, automotive controllers, oil and gas drilling, wireless security and personal healthcare protective equipment.
Our current customer relationships involve a variety of products, including consumer electronics, electronic storage devices, plastics, household products, gaming devices, specialty printers, telecommunications, industrial equipment, military supplies, computer accessories, medical, educational, irrigation, automotive, transportation management, robotics, RFID, power supply, off-road vehicle equipment, fitness equipment, HVAC controls, consumer products, home building products, material handling systems, lighting equipment, consumer security products, smart security, architectural LED lighting, power meters and smart grid, wireless power solutions, sanitizer dispensing, automotive controllers, oil and gas drilling, power equipment and wireless security.
The locations of active foreign subsidiaries are as follows: • Key Tronic Juarez, SA de CV owns five facilities and leases three facilities in Juarez, Mexico. These facilities include an SMT facility, an assembly and molding facility, a sheet metal fabrication facility, and assembly and warehouse facilities.
The locations of active foreign subsidiaries are as follows: • Key Tronic Juarez, SA de CV owns five facilities and leases four facilities in Juarez, Mexico. These facilities include an SMT facility, an assembly and molding facility, a sheet metal fabrication facility, and assembly and warehouse facilities.
The $15.1 million of net cash used in operating activities during fiscal year 2021 is primarily related to $4.3 million of net income adjusted for $6.9 million of depreciation and amortization, $24.3 million increase in accounts receivable, a $23.1 million increase in inventory, a $1.0 million increase in contract assets, a $2.3 million decrease in other assets, partially offset by a $12.6 million increase in accounts payable, an $5.6 million increase in other liabilities, and a $1.0 million increase in accrued compensation and vacation.
The $15.1 million of net cash used in operating activities during fiscal year 2021 was primarily related to $4.3 million of net income adjusted for $6.9 million of depreciation and amortization, $24.3 million increase in accounts receivable, a $23.1 million increase in inventory, a $1.0 million increase in contract assets, a $2.3 million decrease in other assets, partially offset by a $12.6 million increase in accounts payable, a $5.6 million increase in other liabilities, and a $1.0 million increase in accrued compensation and vacation.
Stock-Based Compensation Stock-based compensation is accounted for according to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation . ASC 718 requires us to expense the fair value of employee stock options, stock appreciation rights and other forms of stock-based compensation.
Stock-Based Compensation Stock-based compensation is accounted for according to FASB Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation . ASC 718 requires us to expense the fair value of employee stock options, stock appreciation rights and other forms of stock-based compensation.
Of that amount, the Company estimates that $7.5 million is to be repatriated in the future, requiring foreign withholding taxes of $0.8 million that is currently accrued in our deferred tax liabilities. The remaining $16.1 million is considered to be permanently reinvested in Mexico, China and Vietnam.
Of that amount, the Company estimates that $7.1 million is to be repatriated in the future, requiring foreign withholding taxes of $0.7 million that is currently accrued in our deferred tax liabilities. The remaining $21.8 million is considered to be permanently reinvested in Mexico, China and Vietnam.
For further information on taxes please review footnote 6 of the “Notes to Consolidated Financial Statements.” International Subsidiaries We offer customers a complete global manufacturing solution. Our facilities provide our customers the opportunity to have their products manufactured in the facility that best serves specific cost, product manufacturing and distribution needs.
For further information on taxes please review Footnote “Income Taxes” of the “Notes to Consolidated Financial Statements.” 21 International Subsidiaries We offer customers a complete global manufacturing solution. Our facilities provide our customers the opportunity to have their products manufactured in the facility that best serves specific cost, product manufacturing and distribution needs.
While demand has remained strong from both new and existing customers, revenue for the fourth quarter and for the full year of fiscal year 2021 continued to be significantly constrained by issues related to the worldwide pandemic, the supply chain, and transportation and logistics.
While demand has remained strong from both new and existing customers, revenue for the fourth quarter and for the full year of fiscal year 2022 continued to be constrained by issues related to the supply chain, transportation and logistics and the worldwide pandemic.
This subsidiary is primarily used to support our U.S. operations. • Key Tronic Computer Peripherals (Shanghai) Co., Ltd. leases two facilities with SMT, assembly, global purchasing and warehouse capabilities in Shanghai, China, which began operations in 1999. Its primary function is to provide contract manufacturing services for export. • Key Tronic Vietnam leases one facility in Da Nang, Vietnam.
This subsidiary is primarily used to support our U.S. operations. • Key Tronic Computer Peripherals (Shanghai) Co., Ltd. leases one facility with SMT, assembly, global purchasing and warehouse capabilities in Shanghai, China, which began operations in 1999. Its primary function is to provide contract manufacturing services. • Key Tronic Vietnam leases one facility in Da Nang, Vietnam.
Revenue from engineering services is recognized over time as the services are performed. Inactive, Obsolete, and Surplus Inventory Reserve Inventories are stated at the lower of cost or net realizable value. Inventory valuation is determined using the first-in, first-out (FIFO) method. We reserve for inventories that we deem inactive, obsolete or surplus.
Revenue from engineering services is recognized over time as the services are performed. Inactive, Obsolete, and Surplus Inventory Valuation Inventories are stated at the lower of cost or net realizable value. Inventory valuation is determined using the first-in, first-out (FIFO) method. We write down inventories that we deem inactive, obsolete or surplus to net realizable value.
Total cash used in operating activities as defined on our cash flow statement was $15.1 million during fiscal year 2021. We maintained sufficient liquidity for our expected future operations. We believe cash flow from operations, our borrowing capacity, and equipment financing should provide adequate capital for planned growth over the long term.
Total cash used in operating activities as defined on our cash flow statement was $4.9 million during fiscal year 2022. We maintained sufficient liquidity for our expected future operations. We believe cash flow from operations, our borrowing capacity, and equipment financing should provide adequate capital for planned growth over the long term.
We purchase inventory based on customer forecasts and orders, and when those forecasts and orders change, the amount of inventory may also fluctuate. Accounts payable fluctuates with changes in inventory levels, volume of inventory purchases, negotiated supplier terms, and taking advantage of early pay discounts.
Accounts receivable fluctuates based on the timing of shipments, terms offered and collections. We purchase inventory based on customer forecasts and orders, and when those forecasts and orders change, the amount of inventory may also fluctuate. Accounts payable fluctuates with changes in inventory levels, volume of inventory purchases, negotiated supplier terms, and taking advantage of early pay discounts.
We believe that projected cash from operations, funds available under the asset-based revolving credit facility and fixed asset financing will be sufficient to meet our working and fixed capital requirements for the foreseeable future. As of July 3, 2021, we had approximately $2.0 million of cash held by foreign subsidiaries.
We believe that projected cash from operations, funds available under the asset-based revolving credit facility and fixed asset financing will be sufficient to meet our working and fixed capital requirements for the foreseeable future. As of July 2, 2022, we had approximately $1.7 million of cash held by foreign subsidiaries.
This facility includes SMT, assembly, and warehouse capabilities. Its primary function is to provide contract manufacturing services for export. Foreign sales (based on shipping instructions) from our worldwide operations, including domestic exports, were $146.5 million and $110.7 million in fiscal years 2021 and 2020, respectively.
This facility includes SMT, assembly, and warehouse capabilities. Its primary function is to provide contract manufacturing services for export. Foreign sales (based on shipping instructions) from our worldwide operations, including domestic exports, were $93.8 million and $146.5 million in fiscal years 2022 and 2021, respectively.
The income tax expense (benefit) recognized during both fiscal years 2021 and 2020 was primarily a function of U.S. and foreign taxes recognized at statutory rates, the net benefit associated with federal research and development tax credits, the non-cash tax impact of expired stock appreciation rights in fiscal year 2021, and the recognition of previously unrecognized tax benefits for federal research and development tax credits in fiscal year 2020.
The income tax expense recognized during both fiscal years 2022 and 2021 was primarily a function of U.S. and foreign taxes recognized at statutory rates, the net benefit associated with federal research and development tax credits, the benefit of carrying back the fiscal year 2021 net operating tax losses to years with higher federal tax rates in fiscal year 2022, the non-cash tax impact of expired stock appreciation rights in fiscal year 2021, and the recognition of previously unrecognized tax benefits for federal research and development tax credits in fiscal year 2020.
RESULTS OF OPERATIONS Comparison of the Fiscal Year Ended July 3, 2021 with the Fiscal Year Ended June 27, 2020 The following table sets forth for the periods indicated certain items of the consolidated statements of income expressed as a percentage of net sales.
RESULTS OF OPERATIONS Comparison of the Fiscal Year Ended July 2, 2022 with the Fiscal Year Ended July 3, 2021 The following table sets forth for the periods indicated certain items of the consolidated statements of income expressed as a percentage of net sales.
Note 1 to our consolidated financial statements describes the significant accounting policies used in the preparation of our consolidated financial statements. Management believes the most complex and sensitive judgments, because of their significance to our consolidated financial statements, result primarily from the need to make estimates about effects of matters that are inherently uncertain.
Footnote “Significant Accounting Policies” of the “Notes to Consolidated Financial Statements” describes the significant accounting policies used in the preparation of our consolidated financial statements. Management believes the most complex and sensitive judgments, because of their significance to our consolidated financial statements, result primarily from the need to make estimates about effects of matters that are inherently uncertain.
Investing Cash Flow Cash flows used in investing activities were $10.6 million for fiscal year 2021. Cash flows used in investing activities were $3.6 million and $1.9 million in fiscal year 2020 and 2019, respectively.
Investing Cash Flow Cash flows used in investing activities were $8.1 million for fiscal year 2022. Cash flows used in investing activities were $10.6 million and $3.6 million in fiscal year 2021 and 2020, respectively.
The following table shows the revenue by industry sectors as a percentage of revenue for fiscal years 2021 and 2020: Fiscal Year Ended July 3, 2021 June 27, 2020 Consumer 51% 44% Industrial 38% 42% Communication 5 4 Gaming 3 5 Transportation 1 2 Printers 1 2 Computer and Peripheral 1 1 Total 100% 100% We provide services to customers in a number of industries and produce a variety of products for our customers in each industry.
The following table shows the revenue by industry sectors as a percentage of revenue for fiscal years 2022 and 2021: Fiscal Year Ended July 2, 2022 July 3, 2021 Consumer 48 51 Industrial 41 38 Communication 7 5 Gaming 1 3 Transportation 1 1 Printers 1 1 Computer and Peripheral 1 1 Total 100% 100% We provide services to customers in a number of industries and produce a variety of products for our customers in each industry.
Under the Tax Cuts and Jobs Act, future cash repatriations from these foreign subsidiaries are no longer subject to U.S. income taxes, but may be subject to foreign withholding taxes. See additional discussion in Footnote 6, Income Taxes.
Under the Tax Cuts and Jobs Act, future cash repatriations from these foreign subsidiaries are no longer subject to U.S. income taxes, but may be subject to foreign withholding taxes.
We also reserve for inventory related to specific customers covered by lead-time assurance agreements when those customers are experiencing financial difficulties or reimbursement is not reasonably assured. Allowance for Doubtful Accounts We value our accounts receivable net of an allowance for doubtful accounts. As of July 3, 2021, the allowance for doubtful accounts was approximately $275,000.
We also write down inventory values related to specific customers covered by lead-time assurance agreements when those customers are experiencing financial difficulties or reimbursement is not reasonably assured. Allowance for Doubtful Accounts We value our accounts receivable net of an allowance for doubtful accounts. As of July 2, 2022, the allowance for doubtful accounts was approximately $12,000.
As of June 27, 2020, the allowance for doubtful accounts was approximately $609,000. This allowance is based on estimates of the portion of accounts receivable that may not be collected in the future. The estimates used are based primarily on specific identification of potentially uncollectible accounts.
As of July 3, 2021, the allowance for doubtful accounts was approximately $275,000. This allowance is based on estimates of the portion of accounts receivable that may not be collected in the future. The estimates used are based primarily on specific identification of potentially uncollectible accounts.
RESULTS OF OPERATIONS Comparison of the Fiscal Year Ended June 27, 2020 with the Fiscal Year Ended June 29, 2019 To review the results of operations comparison of the fiscal year ended June 27, 2020 with the fiscal year ended June 29, 2019, please refer to our Form 10-K filed September 11, 2020 with the Securities and Exchange Commission or follow the link below. https://www.sec.gov/ix?doc=/Archives/edgar/data/719733/000071973320000061/ktcc-20200627.htm Capital Resources and Liquidity Operating Cash Flow Net cash used in operating activities for fiscal year 2021 was $15.1 million compared to net cash used in operating activities of $31.0 million and net cash provided by operating activities of $0.9 million in fiscal years 2020 and 2019, respectively.
RESULTS OF OPERATIONS Comparison of the Fiscal Year Ended July 3, 2021 with the Fiscal Year Ended June 27, 2020 To review the results of operations comparison of the fiscal year ended July 3, 2021 with the fiscal year ended June 27, 2020, please refer to our Annual Report on Form 10-K filed September 16, 2021 with the Securities and Exchange Commission or follow the link below. https://www.sec.gov/ix?doc=/Archives/edgar/data/719733/000071973321000106/ktcc-20210703.htm Capital Resources and Liquidity Operating Cash Flow Net cash used in operating activities for fiscal year 2022 was $4.9 million compared to $15.1 million and $31.0 million in fiscal years 2021 and 2020, respectively.
We had availability to borrow an additional $2.1 million under the asset-based revolving credit facility and we were in compliance with our loan covenants. Our cash requirements are affected by the level of current operations and new programs.
As of July 2, 2022, the Company had an outstanding balance on the line of credit of $95.1 million. We had availability to borrow an additional $10.8 million under the asset-based revolving credit facility and we were in compliance with our loan covenants. Our cash requirements are affected by the level of current operations and new programs.
The financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this Annual Report.
The financial information and discussion below should be read in conjunction with the consolidated financial statements and Footnotes contained in this Annual Report on Form 10-K.
We believe that our estimates are based upon outcomes that are reasonably likely to occur. These estimates and assumptions are based on historical results as well as future expectations. Actual results could vary from our estimates and assumptions.
The calculation used to determine the necessary accrual uses a combination of actual results and projected results. We believe that our estimates are based upon outcomes that are reasonably likely to occur. These estimates and assumptions are based on historical results as well as future expectations. Actual results could vary from our estimates and assumptions.
If these amounts were required to be repatriated, we estimate it would create an additional $0.8 million in foreign withholding taxes payable. 25 Contractual Obligations and Commitments In the normal course of business, we enter into contracts which obligate us to make payments in the future.
If these amounts were required to be repatriated, we estimate it would create an additional $0.7 million in foreign withholding taxes payable. Contractual Obligations In the normal course of business, we enter into contracts which obligate us to make payments in the future. We have certain contractual obligations that extend beyond fiscal year 2023 under lease obligations and debt arrangements.
The level of gross margin is impacted by product mix, timing of the startup of new programs, facility utilization, and pricing within the electronics industry and material costs, which can fluctuate significantly from quarter to quarter and year to year.
Gross profit as a percent of net sales was 8.1 percent in both fiscal year 2022 and 2021. The level of gross margin is impacted by product mix, timing of the startup of new programs, facility utilization, and pricing within the electronics industry and material costs, which can fluctuate significantly from quarter to quarter and year to year.
(4) As of July 3, 2021, we had open purchase order commitments for materials and other supplies of approximately $116.1 million. Included in the open purchase orders are various blanket orders for annual requirements. Actual needs under these blanket purchase orders fluctuate with our manufacturing levels and as such cannot be broken out between fiscal years.
As of July 2, 2022, we had open purchase order commitments for materials and other supplies. Actual needs under these blanket purchase orders fluctuate with our manufacturing levels and as such cannot be broken out between fiscal years.
For the first quarter of fiscal year 2022, the Company expects to report revenue in the range of $125 million to $135 million. Despite growing customer demand and backlog, we expect that delays in the supply of key components for the Company’s business will continue to significantly limit production and adversely impact operating efficiencies.
For the first quarter of fiscal year 2023, the Company expects to report revenue in the range of $125 million to $135 million. Despite growing customer demand and backlog, we expect that the ongoing disruptions from the global supply chain and COVID-19 issues will continue to significantly limit production and adversely impact operating efficiencies, particularly for our China-based facilities.
Our mission is to provide our customers with superior manufacturing and engineering services at the lowest total cost for the highest quality products, and create long-term mutually beneficial business relationships by employing our “Trust, Commitment, Results” philosophy. Executive Summary During the fourth quarter of fiscal year 2021, we won new programs involving consumer products, exercise equipment, and residential building products.
Our mission is to provide our customers with superior manufacturing and engineering services at the lowest total cost for the highest quality products, and create long-term mutually beneficial business relationships by employing our “Trust, Commitment, Results” philosophy.
This reserve is calculated based upon the demand for the products that we produce. Demand is determined by expected sales, customer purchase orders, or customer forecasts. If expected sales do not materialize, then we would have inventory in excess of our reserves and would have to charge the excess against future earnings.
The write down is calculated based upon the demand for the products that we produce to value this related inventory at net realizable value. Demand is determined by expected sales, customer purchase orders, or customer forecasts. If expected sales do not materialize, excess inventory would be the result and a write down of that inventory against earnings would occur.
Total RD&E expenses as a percent of net sales was 1.9 percent in fiscal year 2021 and 1.6 in fiscal year 2020. Selling, General and Administrative Selling, general and administrative expenses (SG&A) consist principally of salaries and benefits, advertising and marketing programs, sales commissions, travel expenses, provision for doubtful accounts, facilities costs, and professional services.
Selling, General and Administrative Selling, general and administrative expenses (SG&A) consist principally of salaries and benefits, advertising and marketing programs, sales commissions, travel expenses, provision for doubtful accounts, facilities costs, and professional services. Total SG&A expenses were $24.6 million and $22.7 million in fiscal years 2022 and 2021, respectively.
The increase in interest expense is primarily related to an increase in the average balance outstanding on our line of credit and increased interest rates. Income Tax Benefit We had an income tax expense of approximately $1.6 million during fiscal year 2021 and an income tax benefit of approximately $(0.4) million during fiscal year 2020.
Interest Expense We had net interest expense of $5.1 million and $3.6 million in fiscal years 2022 and 2021, respectively. The increase in interest expense is primarily related to an increase in the average balance outstanding on our line of credit, increased interest rates and financing leases.
Performance measures are based on a combination of sales growth targets and return on invested capital targets. No cash awards will be made to participants if actual Company performance does not exceed the minimum target performance measures. The calculation used to determine the necessary accrual uses a combination of actual results and projected results.
The Board of Directors approve target performance measures for the three year period for each of the Company’s officers and non-employee Directors. Performance measures are based on a combination of sales growth targets and return on invested capital targets. No cash awards will be made to participants if actual Company performance does not exceed the minimum target performance measures.
The total amount of foreign withholding taxes required to be paid for the amount of foreign subsidiary cash on hand as of July 3, 2021, would approximate $47,000. The Company also has approximately $23.6 million of foreign earnings that have not been repatriated to the U.S.
See additional discussion in Footnote “Income Taxes” of the “Notes to Consolidated Financial Statements.” The total amount of foreign withholding taxes required to be paid for the amount of foreign subsidiary cash on hand as of July 2, 2022, would approximate $8,000. The Company also has approximately $28.9 million of foreign earnings that have not been repatriated to the U.S.
The amounts charged to expense are determined based on an estimate of warranty exposure. The net warranty expense was approximately $145,000 and $121,000 in fiscal years 2021 and 2020, respectively. Gross Profit Gross profit as a percentage of net sales was 8.1 percent and 7.8 percent in fiscal years 2021, and 2020, respectively.
The net warranty expense was approximately $446,000 and $145,000 in fiscal years 2022 and 2021, respectively. Gross Profit Gross profit as a percentage of net sales was 8.1 percent in both fiscal years 2022, and 2021.
The amounts charged to expense for these inventories were approximately $753,000 and $136,000 in fiscal years 2021 and 2020, respectively. We provide warranties on certain products we sell and estimate warranty costs based on historical experience and anticipated product returns. Warranty expense is related to workmanship claims on keyboards and other products.
We provide warranties on certain products we sell and estimate warranty costs based on historical experience and anticipated product returns. Warranty expense is related to workmanship claims on keyboards and other products. The amounts charged to expense are determined based on an estimate of warranty exposure.
Operating income as a percentage of net sales for fiscal year 2021 was 1.8 percent compared to 1.5 percent for fiscal year 2020. The increase in operating income as a percentage of net sales was primarily driven by the increase in gross profit.
Operating income as a percentage of net sales for fiscal year 2022 was 1.7 percent compared to 1.8 percent for fiscal year 2021. The decrease in operating income as a percentage of net sales was primarily driven by the increase in legal expenses related specifically to the SEC’s review of last year’s whistleblower complaint.
Fiscal Year Ended July 3, 2021 % of net sales June 27, 2020 % of net sales $ change % point change Net sales $ 518,698 100.0% $ 449,480 100.0% $ 69,218 — Cost of sales 476,659 91.9 414,231 92.2 62,428 (0.3) Gross profit 42,039 8.1 35,249 7.8 6,790 0.3 Operating expenses: Research, development and engineering 9,790 1.9 7,391 1.6 2,399 0.3 Selling, general and administrative 22,723 4.4 21,030 4.7 1,693 (0.3) Total operating expenses 32,513 6.3 28,421 6.3 4,092 — Operating income 9,526 1.8 6,828 1.5 2,698 0.3 Interest expense, net 3,613 0.7 2,509 0.6 1,104 0.1 Income before income taxes 5,913 1.1 4,319 1.0 1,594 0.1 Income tax provision (benefit) 1,572 0.3 (439) (0.1) 2,011 0.4 Net income $ 4,341 0.8% $ 4,758 1.1% $ (417) (0.3) Effective income tax rate 26.6 % (10.2) % Net Sales The increase in net sales of $69.2 million from prior year period was primarily driven by an increase in new program wins and demand for current programs.
Fiscal Year Ended July 2, 2022 % of net sales July 3, 2021 % of net sales $ change % point change Net sales $ 531,815 100.0% $ 518,698 100.0% $ 13,117 — Cost of sales 488,601 91.9 476,659 91.9 11,942 — Gross profit 43,214 8.1 42,039 8.1 1,175 — Operating expenses: Research, development and engineering 9,821 1.8 9,790 1.9 31 (0.1) Selling, general and administrative 24,598 4.6 22,723 4.4 1,875 0.2 Total operating expenses 34,419 6.4 32,513 6.3 1,906 0.1 Operating income 8,795 1.7 9,526 1.8 (731) (0.1) Interest expense, net 5,104 1.0 3,613 0.7 1,491 0.3 Income before income taxes 3,691 0.7 5,913 1.1 (2,222) (0.4) Income tax provision 314 0.1 1,572 0.3 (1,258) (0.2) Net income $ 3,377 0.6% $ 4,341 0.8% $ (964) (0.2) Effective income tax rate 8.5 % 26.6 % Net Sales The increase in net sales of $13.1 million from prior year period was primarily driven by an increase in new program wins and demand for current programs.
If actual forfeitures are higher than our estimates it would result in lower compensation expense and to the extent the actual forfeitures are lower than our estimate we would record higher compensation expense.
If actual forfeitures are higher than our estimates it would result in lower compensation expense and to the extent the actual forfeitures are lower than our estimate we would record higher compensation expense. Long-Term Incentive Compensation Accrual Long-term incentive compensation is recognized as expense ratably over the requisite service period of the award which is generally three years.
Our primary use of cash in investing activities during fiscal years 2021, 2020 and 2019, was purchasing equipment to support increased production levels for new programs. During fiscal years 2020 and 2019, our primary source of cash provided by investing activities came from receipts of the deferred purchase price on factored receivables.
Our primary use of cash in investing activities during fiscal years 2022, 2021 and 2020, was purchasing equipment to support increased production levels for new programs. During fiscal year 2022, cash flows used in investing activities also included prepayments on finance lease obligations.
Key Tronic does not target any particular industry, but rather seeks to find programs that strategically fit our vertical manufacturing capabilities. As we continue to diversify our customer base and win new customers, we expect to continue to see a change in the industry concentrations of our revenue.
Key Tronic does not target any particular industry, but rather seeks to find programs that strategically fit our vertical manufacturing capabilities.
Total SG&A expenses were $22.7 million and $21.0 million in fiscal years 2021 and 2020, respectively. Total SG&A expenses as a percent of net sales were 4.4 percent and 4.7 percent in fiscal years 2021 and 2020, respectively.
Total RD&E expenses were $9.8 million in both fiscal years 2022 and 2021. Total RD&E expenses as a percent of net sales was 1.8 percent in fiscal year 2022 and 1.9 percent in fiscal year 2021.
This 0.3 percentage point decrease in SG&A as a percentage of net sales is primarily related to an increase in sales year over year and a decrease in travel related expenses due to the COVID-19 pandemic. 23 Interest Expense We had net interest expense of $3.6 million and $2.5 million in fiscal years 2021 and 2020, respectively.
Total SG&A expenses as a percent of net sales were 4.6 percent and 4.4 percent in fiscal years 2022 and 2021, respectively. This 0.2 percentage point increase in SG&A as a percentage of net sales is primarily related to an increase in legal expenses related specifically to the SEC’s review of last year’s whistleblower complaint.
New and Future Accounting Pronouncements See Note 1 to our consolidated financial statements. 29
New and Future Accounting Pronouncements See Footnote “Significant Accounting Policies” of the “Notes to Consolidated Financial Statements.” 25
We provide a reserve for obsolete and non-saleable inventories based on specific identification of inventory against current demand and recent usage. We also consider our customers' ability to pay for inventory whether or not there is a lead-time assurance agreement for a specific program.
We also consider our customers' ability to pay for inventory whether or not there is a lead-time assurance agreement for a specific program. The amounts charged to expense for these inventories were approximately $950,000 and $753,000 in fiscal years 2022 and 2021, respectively.
Sales to foreign locations represented 28.2 percent and 24.6 percent of our total net sales in fiscal years 2021 and 2020, respectively. 22 Cost of Sales Total cost of sales as a percentage of net sales was 91.9 percent and 92.2 percent in fiscal years 2021 and 2020, respectively.
As we continue to diversify our customer base and win new customers, we expect to continue to see a change in the industry concentrations of our revenue. 20 Sales to foreign locations represented 17.6 percent and 28.2 percent of our total net sales in fiscal years 2022 and 2021, respectively.
We reported net sales of $518.7 million for fiscal year 2021, the highest annual revenue in the Company’s fifty-two year history, and up 15% from $449.5 million for fiscal year 2020.
Executive Summary During the fourth quarter of fiscal year 2022, we won new programs involving audio products, GPS devices, utility meters, personal safety devices, and innovative internet solutions. We reported net sales of $531.8 million for fiscal year 2022, the highest annual revenue in the Company’s history, and up 3% from $518.7 million for fiscal year 2021.
Early pay discounts will fluctuate based on our liquidity and changes in the discounts and terms offered by our suppliers. Research, Development and Engineering Research, development and engineering expenses (RD&E) consists principally of employee related costs, third party development costs, program materials, depreciation and allocated information technology and facilities costs.
These and other factors can cause variations in operating results. There can be no assurance that gross margins will not decrease in future periods. Research, Development and Engineering Research, development and engineering expenses (RD&E) consists principally of employee related costs, third party development costs, program materials, depreciation and allocated information technology and facilities costs.
Net income for fiscal year 2021 was $4.3 million or $0.39 per share, as compared to $4.8 million or $0.44 per share for fiscal year 2020. Earnings for the fourth quarter of fiscal 2021 continued to be adversely impacted by supply chain and transportation and logistics issues causing both factory downtime and overtime expenses.
Net income for fiscal year 2022 was $3.4 million or $0.31 per share, as compared to $4.3 million or $0.39 per share for fiscal year 2021.
These agreements depend in part on the type of materials purchased as well as the circumstances surrounding any requested cancellations. In addition to the cash requirements presented above, we have various other accruals which are not included in the table above.
These agreements depend in part on the type of materials purchased as well as the circumstances surrounding any requested cancellations. We do not use off-balance sheet financing techniques other than traditional operating leases, and we have not guaranteed the obligations of any entity that is not one of our wholly owned subsidiaries.
Our primary financing activities during fiscal year 2019 was repayments on our term loans of $5.9 million as well as borrowings and repayments under our revolving line of credit facility. As of July 3, 2021, the Company had an outstanding balance on the line of credit of $90.9 million.
Our primary financing activities during fiscal year 2022, were proceeds from capital equipment finance leases and borrowings and repayments under our revolving line of credit facility; partially offset by repayments on our term loans and principal payments on finance leases.
We believe that cash flows generated from operations, factoring, leasing facilities, and funds available under the revolving credit facility will satisfy cash requirements for a period in excess of 12 months and into the foreseeable future. 26 Critical Accounting Policies and Estimates Preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses.
For a summary of our lease obligations as of July 2, 2022, please refer to Footnote “Leases” of the “Notes to Consolidated Financial Statements.” For a summary of our long-term debt obligations as of July 2, 2022, please refer to Footnote “Long-Term Debt” of the “Notes to Consolidated Financial Statements.” 23 Critical Accounting Policies and Estimates Preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses.
However, partially offsetting the increase in revenue during fiscal year 2021, the Company’s revenue was constrained by tightening worldwide supply chain and transportation and logistics issues which delayed the arrival of key components, causing factory downtime.
However, partially offsetting the increase in revenue during fiscal year 2022, the Company’s revenue was constrained by the global supply chain and transportation issues that continued to limit production throughout the year and to a lesser extent the Chinese government mandated COVID-19 shutdown of our Shanghai, China facilities for most of the fourth quarter.
Moving into fiscal 2022, the COVID-19 crisis, component shortages and logistic delays continue to present multiple business challenges, but we continue to see the favorable trend of contract manufacturing returning to North America. With our recent investments in new capacity, we’re increasingly well-prepared for long term growth.
Moving into fiscal 2023, the global supply chain and COVID-19 crises continue to present uncertainty and multiple business challenges. At the same time, global logistics problems and heightened assurance of supply concerns continue to drive the favorable trend of contract manufacturing returning to North America.
Removed
Gross profit as a percent of net sales was 8.1 percent in fiscal year 2021 compared to 7.8 percent for the prior fiscal year.
Added
During the fourth quarter of fiscal year 2022, the results were impacted by intermittent parts supply and factory downtime. The Company’s facilities in Shanghai, China were closed for most of the fourth quarter due to a government mandated COVID-19 shutdown. While the reopening of the Company’s China facility took longer than anticipated, operations have since resumed.
Removed
The increase in gross profit as a percentage of net sales was primarily related to streamlining efforts in the Company’s Juarez facilities partially offset by supply chain constraints, a temporary four-day closure of our Mexico facilities during a late winter storm that caused power disruptions in the region, and continued but lessening expenses related to COVID-19.
Added
Earnings for fiscal 2022 continued to be adversely impacted by supply chain and transportation and logistics issues, legal and other professional service expenses related specifically to the SEC’s review of last year’s whistleblower complaint, and increased interest expense. 19 We maintained a strong balance sheet with a current ratio of 2.1 and a debt to equity ratio of 0.86.
Removed
Earnings for the fourth quarter of fiscal 2021 were also constrained by legal and other professional service expenses related to the previously disclosed internal investigation of approximately $1.0 million during quarter, and we expect some additional expenses to occur prospectively.
Added
Cost of Sales Total cost of sales as a percentage of net sales was 91.9 percent in both fiscal years 2022 and 2021. We record our inventories at net realizable value based on specific identification of inventory against current demand and recent usage.
Removed
Additionally, the Company recorded approximately $0.5 million in non-cash tax expense related to expired stock appreciation rights during the fourth quarter of fiscal year 2021. 21 We maintained a strong balance sheet with a current ratio of 2.4 and a debt to equity ratio of 0.81.
Added
Income Tax Provision We had an income tax expense of approximately $0.3 million during fiscal year 2022 and an income tax expense of approximately $1.6 million during fiscal year 2021.
Removed
The 0.3 percentage point increase in gross profit as a percentage of net sales during fiscal year 2021 as compared to fiscal year 2020 is primarily related to streamlining efforts in the Company’s Juarez facilities and material cost reductions, partially offset by supply chain constraints, a temporary four-day closure of our Mexico facilities during a late winter storm that caused power disruptions in the region, and continued but lessening expenses related to COVID-19.
Added
The $4.9 million of net cash used in operating activities during fiscal year 2022 is primarily related to $3.4 million of net income adjusted for $7.6 million of depreciation and amortization, $25.6 million increase in accounts receivable, a $19.4 million increase in inventory, a $3.6 million increase in other liabilities, partially offset by a $28.6 million increase in accounts payable, and a $2.8 million decrease in contract assets.
Removed
These and other factors can cause variations in operating results. There can be no assurance that gross margins will not decrease in future periods. We took early pay discounts to suppliers that totaled approximately $32,000 and $0.1 million in fiscal years 2021 and 2020, respectively.
Added
During fiscal year 2020, our primary source of cash provided by investing activities came from receipts of the deferred purchase price on factored receivables. 22 Leases are often utilized when potential technical obsolescence and funding requirement advantages outweigh the benefits of equipment ownership.
Removed
Total RD&E expenses were $9.8 million in fiscal year 2021 and $7.4 million in fiscal year 2020, respectively. The Company invested more in its RD&E in fiscal year 2021 for development and design of customer programs. The Company anticipates higher RD&E costs in the future as the Company continues to offer these services.
Added
Capital expenditures and periodic lease payments are expected to be financed with internally generated funds as well as our revolving line of credit facility and equipment term loan . Financing Cash Flow Cash flows provided by financing activities were $11.2 million, $28.6 million, and $34.5 million in fiscal years 2022, 2021, and 2020.
Removed
Accounts receivable fluctuates based on the timing of shipments, terms offered and collections. In addition, accounts receivable will fluctuate based upon the amount of accounts receivable sold under our Trade Accounts Receivable Purchase Program. The Company did not sell any accounts receivables during the twelve months ended July 3, 2021.
Removed
During fiscal years 2020 and 2019, we factored receivables of $41.4 million and $81.0 million, respectively, from accounts receivable sold to financial institutions, which are not included on our Consolidated Balance Sheets. The Company no longer had factored receivables at year end fiscal 2021 or 2020.
Removed
Operating and finance leases under accounting guidance that became effective in fiscal year 2020, and capital leases prior to that date are often utilized when potential technical obsolescence and funding requirement advantages outweigh the benefits of equipment ownership. Capital expenditures and periodic lease payments are expected to be financed with internally generated funds and available borrowing capacities.
Removed
During fiscal years 2021, 2020 and 2019, we did not receive any cash resulting from the sale and leaseback of equipment under operating leases. Financing Cash Flow Cash flows provided by financing activities were $28.6 million, $34.5 million, and $1.2 million in fiscal years 2021, 2020, and 2019.
Removed
The table below sets forth our significant future obligations by fiscal year: Payments Due by Fiscal Year (in thousands) Total 2022 2023 2024 2025 2026 Thereafter Term loans (1) $ 10,049 $ 2,143 $ 2,190 $ 2,239 $ 2,290 $ 1,187 $ — Bank of America revolving loan (2) $ 90,886 $ — $ — $ — $ — $ 90,886 $ — Operating leases (3) $ 18,308 $ 4,225 $ 3,140 $ 2,526 $ 2,427 $ 1,865 $ 4,125 Purchase orders (4) $ 116,067 (1) The terms of the Bank of America term loans are discussed in the consolidated financial statements at Note 4, “Long-Term Debt.” The equipment financing facility relating to the Company’s existing U.S. manufacturing equipment is payable in equal monthly payments of approximately $94,000 which commenced on September 14, 2020 and will continue through the maturity of the equipment financing facility on August 14, 2025.
Removed
The equipment financing facility relating to the Company’s existing Mexico manufacturing equipment is payable in equal monthly payments of approximately $100,000 which commenced on May 24, 2021 and will continue through the maturity of the equipment term loan on April 24, 2026.
Removed
(2) The terms of the Bank of America asset-based revolving credit facility are discussed in the consolidated financial statements at Note 4, “Long-Term Debt.” As of July 3, 2021, we were in compliance with our loan covenants. (3) We maintain vertically integrated manufacturing operations in the United States, Mexico, China and Vietnam.
Removed
We lease some of our administrative and manufacturing facilities and equipment. A complete discussion of properties can be found in Part 1, Item 2 at “Properties.” Leases have proven to be an acceptable method for us to acquire new or replacement equipment and to maintain facilities with a minimum impact on our short term cash flows for operations.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+0 added−0 removed1 unchanged
Biggest changeThere was $10.6 million of foreign currency forward contracts outstanding as of July 3, 2021. The fair value of these contracts was approximately $3.6 million. See Note 10 – “Derivative Financial Instruments” to the Consolidated Financial Statements for additional information regarding our derivative instruments. 30
Biggest changeThere were no foreign currency forward contracts outstanding as of July 2, 2022. For additional information regarding our derivative instruments, please refer to Footnote “Derivative Financial Instruments” of the “Notes to Consolidated Financial Statements.” 26
As a result, transactions occur in currencies other than the U.S. dollar. Exchange rate fluctuations among other currencies used by us would directly or indirectly affect our financial results. We currently use Mexican peso forward contracts to hedge foreign currency fluctuations for a portion of our Mexican peso denominated expenses.
As a result, transactions occur in currencies other than the U.S. dollar. Exchange rate fluctuations among other currencies used by us would directly or indirectly affect our financial results. We use Mexican peso forward contracts to hedge foreign currency fluctuations for a portion of our Mexican peso denominated expenses.
The interest rates applicable to our asset-based senior secured revolving credit facility fluctuate with LIBOR rates. There was outstanding $90.9 million in borrowings under our asset-based senior secured revolving credit facility and $10.0 million outstanding on our equipment financing facilities as of July 3, 2021.
The interest rates applicable to our asset-based senior secured revolving credit facility fluctuate with SOFR rates. There was outstanding $95.1 million in borrowings under our asset-based senior secured revolving credit facility and $7.9 million outstanding on our equipment financing facilities as of July 2, 2022.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and Liquidity” and Note 4 – “Long-Term Debt” to the Consolidated Financial Statements for additional information regarding our revolving credit facility and term loans. Foreign Currency Exchange Risk A significant portion of our operations are in foreign locations.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and Liquidity”in this Annual Report on Form 10-K and the Footnote “Long-Term Debt” of the “Notes to Consolidated Financial Statements” for additional information regarding our revolving credit facility and term loans. Foreign Currency Exchange Risk A significant portion of our operations are in foreign locations.

Other KTCC 10-K year-over-year comparisons