Washington | 91-0849125 |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ | |||
Emerging growth company | ¨ |
Page No. | ||
PART I. | ||
Item 1. | ||
8-21 | ||
Item 2. | 22-36 | |
Item 3. | ||
Item 4. | ||
PART II. | ||
Item 1. | ||
Item 1A. | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds* | |
Item 3. | Defaults upon Senior Securities* | |
Item 4. | Mine Safety Disclosures* | |
Item 5. | Other Information* | |
Item 6. | ||
December 29, 2018 | June 30, 2018 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 192 | $ | 343 | |||
Trade receivables | 72,248 | 70,262 | |||||
Contract assets | 19,118 | — | |||||
Inventories, net | 91,615 | 110,315 | |||||
Other | 18,264 | 13,600 | |||||
Total current assets | 201,437 | 194,520 | |||||
Property, plant and equipment, net | 27,903 | 27,548 | |||||
Other assets: | |||||||
Deferred income tax asset | 7,256 | 7,882 | |||||
Goodwill | 9,957 | 9,957 | |||||
Other intangible assets, net | 3,300 | 3,726 | |||||
Other | 2,976 | 2,895 | |||||
Total other assets | 23,489 | 24,460 | |||||
Total assets | $ | 252,829 | $ | 246,528 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 73,094 | $ | 76,198 | |||
Accrued compensation and vacation | 7,755 | 8,105 | |||||
Current portion of debt, net | 5,841 | 5,841 | |||||
Other | 7,048 | 8,769 | |||||
Total current liabilities | 93,738 | 98,913 | |||||
Long-term liabilities: | |||||||
Term loans | 10,011 | 12,932 | |||||
Revolving loan | 24,378 | 16,222 | |||||
Other long-term obligations | 476 | 380 | |||||
Total long-term liabilities | 34,865 | 29,534 | |||||
Total liabilities | 128,603 | 128,447 | |||||
Commitments and contingencies (Note 9) | |||||||
Shareholders’ equity: | |||||||
Common stock, no par value—shares authorized 25,000; issued and outstanding 10,760 and 10,760 shares, respectively | 46,518 | 46,244 | |||||
Retained earnings | 76,517 | 72,806 | |||||
Accumulated other comprehensive gain (loss) | 1,191 | (969 | ) | ||||
Total shareholders’ equity | 124,226 | 118,081 | |||||
Total liabilities and shareholders’ equity | $ | 252,829 | $ | 246,528 |
Three Months Ended | Six Months Ended | ||||||||||||||
December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | ||||||||||||
Net sales | $ | 123,037 | $ | 111,725 | $ | 250,509 | $ | 220,942 | |||||||
Cost of sales | 113,157 | 102,925 | 231,096 | 204,297 | |||||||||||
Gross profit | 9,880 | 8,800 | 19,413 | 16,645 | |||||||||||
Research, development and engineering expenses | 1,857 | 1,495 | 3,557 | 3,005 | |||||||||||
Selling, general and administrative expenses | 5,399 | 5,654 | 10,687 | 10,825 | |||||||||||
Total operating expenses | 7,256 | 7,149 | 14,244 | 13,830 | |||||||||||
Operating income | 2,624 | 1,651 | 5,169 | 2,815 | |||||||||||
Interest expense, net | 708 | 616 | 1,385 | 1,210 | |||||||||||
Income before income taxes | 1,916 | 1,035 | 3,784 | 1,605 | |||||||||||
Income tax provision | 327 | 1,259 | 602 | 1,397 | |||||||||||
Net income (loss) | $ | 1,589 | $ | (224 | ) | $ | 3,182 | $ | 208 | ||||||
Net income (loss) per share — Basic | $ | 0.15 | $ | (0.02 | ) | $ | 0.30 | $ | 0.02 | ||||||
Weighted average shares outstanding — Basic | 10,760 | 10,760 | 10,760 | 10,760 | |||||||||||
Net income (loss) per share — Diluted | $ | 0.15 | $ | (0.02 | ) | $ | 0.29 | $ | 0.02 | ||||||
Weighted average shares outstanding — Diluted | 10,881 | 10,760 | 10,986 | 10,760 |
Three Months Ended | Six Months Ended | ||||||||||||||
December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | ||||||||||||
Comprehensive income (loss): | |||||||||||||||
Net income (loss) | $ | 1,589 | $ | (224 | ) | $ | 3,182 | $ | 208 | ||||||
Other comprehensive income (loss): | |||||||||||||||
Unrealized gain (loss) on hedging instruments, net of tax | (889 | ) | (1,225 | ) | 2,160 | (213 | ) | ||||||||
Comprehensive income (loss) | $ | 700 | $ | (1,449 | ) | $ | 5,342 | $ | (5 | ) |
Six Months Ended | |||||||
December 29, 2018 | December 30, 2017 | ||||||
Operating activities: | |||||||
Net income | $ | 3,182 | $ | 208 | |||
Adjustments to reconcile net income to cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 3,767 | 3,889 | |||||
Amortization of deferred loan costs | 15 | 15 | |||||
Provision for obsolete inventory | 58 | 26 | |||||
Provision for warranty | 16 | 21 | |||||
Recovery of doubtful accounts | — | (84 | ) | ||||
Loss on disposal of assets | — | 11 | |||||
Share-based compensation expense | 274 | 251 | |||||
Deferred income taxes | (131 | ) | (372 | ) | |||
Changes in operating assets and liabilities: | |||||||
Trade receivables | (10,787 | ) | 5,515 | ||||
Contract assets | (7,212 | ) | — | ||||
Cash received from arbitration settlement | 6,684 | — | |||||
Inventories | 7,432 | (7,309 | ) | ||||
Other assets | (4,963 | ) | (4,803 | ) | |||
Accounts payable | (3,104 | ) | 8,459 | ||||
Accrued compensation and vacation | (350 | ) | (3,523 | ) | |||
Other liabilities | 23 | 990 | |||||
Cash (used in) provided by operating activities | (5,096 | ) | 3,294 | ||||
Investing activities: | |||||||
Purchase of property and equipment | (3,586 | ) | (2,155 | ) | |||
Proceeds from sale of fixed assets | 17 | 982 | |||||
Cash receipts from deferred purchase price of factored receivables | 3,302 | 3,606 | |||||
Cash (used in) provided by investing activities | (267 | ) | 2,433 | ||||
Financing activities: | |||||||
Payment of financing costs | (8 | ) | (12 | ) | |||
Repayments of long term debt | (2,936 | ) | (2,936 | ) | |||
Borrowings under revolving credit agreement | 94,468 | 91,707 | |||||
Repayments of revolving credit agreement | (86,312 | ) | (94,409 | ) | |||
Cash provided by (used in) financing activities | 5,212 | (5,650 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (151 | ) | 77 | ||||
Cash and cash equivalents, beginning of period | 343 | 373 | |||||
Cash and cash equivalents, end of period | $ | 192 | $ | 450 | |||
Non-cash investing activities: | |||||||
Beneficial interest in transferred receivables | (2,117 | ) | (2,325 | ) | |||
Supplemental cash flow information: | |||||||
Interest payments | $ | 1,332 | $ | 1,202 | |||
Income tax payments (refunds), net of refunds | $ | (50 | ) | $ | 516 |
Shares | Common Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | ||||||||||||||
Balances, June 30, 2018 | 10,760 | $ | 46,244 | $ | 72,806 | $ | (969 | ) | $ | 118,081 | ||||||||
Net income | — | — | 3,182 | — | 3,182 | |||||||||||||
ASC 606 Opening Balance Sheet Adjustment | — | — | 529 | — | 529 | |||||||||||||
Unrealized gain on hedging instruments, net | — | — | — | 2,160 | 2,160 | |||||||||||||
Share-based compensation | — | 274 | — | — | 274 | |||||||||||||
Balances, December 29, 2018 | 10,760 | $ | 46,518 | $ | 76,517 | $ | 1,191 | $ | 124,226 |
1. | Basis of Presentation |
2. | Significant Accounting Policies |
Consolidated Balance Sheet | |||||||
Impact of Adopting ASC 606 | |||||||
(Unaudited, in thousands) | Balance at June 30, 2018 | Adjustments | Balance at July 1, 2018 | ||||
ASSETS | |||||||
Contract assets | — | 11,906 | 11,906 | ||||
Inventories | 110,315 | (11,210 | ) | 99,105 | |||
Deferred income tax asset | 7,882 | (167 | ) | 7,715 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Retained earnings | 72,806 | 529 | 73,335 |
Consolidated Balance Sheet | |||||||
As of December 29, 2018 | |||||||
Impact of Adopting ASC 606 | |||||||
(Unaudited, in thousands) | As Reported | 606 Adjustment | Balance without 606 Adoption | ||||
ASSETS | |||||||
Contract assets | 19,118 | (19,118 | ) | — | |||
Inventories | 91,615 | 17,924 | 109,539 | ||||
Deferred income tax asset | 7,256 | 167 | 7,423 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Retained earnings | 76,517 | 1,027 | 77,544 |
Consolidated Statement of Income | ||||||||||||||||||||||||
Impact of Adopting ASC 606 | ||||||||||||||||||||||||
(Unaudited, in thousands) | Three Months Ended December 29, 2018 | Six Months Ended December 29, 2018 | ||||||||||||||||||||||
As Reported | 606 Adjustment | Balance without 606 Adoption | As Reported | 606 Adjustment | Balance without 606 Adoption | |||||||||||||||||||
Net sales | $ | 123,037 | $ | 2,347 | $ | 120,690 | $ | 250,509 | $ | 7,212 | $ | 243,297 | ||||||||||||
Cost of sales | 113,157 | 1,770 | 111,387 | 231,096 | 6,714 | 224,382 | ||||||||||||||||||
Gross profit | 9,880 | 577 | 9,303 | 19,413 | 498 | 18,915 | ||||||||||||||||||
Net income | $ | 1,589 | $ | 577 | $ | 1,012 | $ | 3,182 | $ | 498 | $ | 2,684 |
3. | Inventories |
December 29, 2018 | June 30, 2018 | ||||||
Finished goods | $ | 8,945 | $ | 14,927 | |||
Work-in-process | 11,918 | 22,254 | |||||
Raw materials and supplies | 70,752 | 73,134 | |||||
$ | 91,615 | $ | 110,315 |
4. | Long-Term Debt |
Fiscal Years Ending | Amount | ||
2019 (1) | $ | 2,935 | |
2020 | 5,871 | ||
2021 | 5,871 | ||
2022 | 1,250 | ||
2023 | — | ||
Thereafter | 24,378 | ||
Total debt | $ | 40,305 | |
Unamortized debt issuance costs | (75 | ) | |
Long-term debt, net of debt issuance costs | $ | 40,230 |
5. | Trade Accounts Receivable Purchase Programs |
6. | Income Taxes |
7. | Earnings Per Share |
Three Months Ended | |||||||
(in thousands, except per share information) | |||||||
December 29, 2018 | December 30, 2017 | ||||||
Net income (loss) | $ | 1,589 | $ | (224 | ) | ||
Weighted average shares outstanding—basic | 10,760 | 10,760 | |||||
Effect of dilutive common stock awards | 121 | — | |||||
Weighted average shares outstanding—diluted | 10,881 | 10,760 | |||||
Net income (loss) per share—basic | $ | 0.15 | $ | (0.02 | ) | ||
Net income (loss) per share—diluted | $ | 0.15 | $ | (0.02 | ) | ||
Antidilutive SARs not included in diluted earnings per share | 1,035 | 1,105 |
Six Months Ended | |||||||
(in thousands, except per share information) | |||||||
December 29, 2018 | December 30, 2017 | ||||||
Net income | $ | 3,182 | $ | 208 | |||
Weighted average shares outstanding—basic | 10,760 | 10,760 | |||||
Effect of dilutive common stock awards | 226 | — | |||||
Weighted average shares outstanding—diluted | 10,986 | 10,760 | |||||
Net income per share—basic | $ | 0.30 | $ | 0.02 | |||
Net income per share—diluted | $ | 0.29 | $ | 0.02 | |||
Antidilutive SARs not included in diluted earnings per share | 793 | 1,105 |
July 27, 2018 | July 28, 2017 | ||||||
SARs Granted | 161,250 | 272,500 | |||||
Strike Price | $ | 8.17 | $ | 7.26 | |||
Fair Value | $ | 2.27 | $ | 1.89 |
9. | Commitments and Contingencies |
10. | Derivative Financial Instruments |
Quarter Ending | Notional Contracts and Swaps in MXN | Notional Contracts and Swaps in USD | Estimated Fair Value | |||||||||
March 30, 2019 | $ | 137,944 | $ | 6,979 | $ | 1 | ||||||
June 29, 2019 | $ | 142,947 | $ | 6,828 | $ | 278 | ||||||
September 28, 2019 | $ | 148,468 | $ | 6,740 | $ | 521 | ||||||
December 28, 2019 | $ | 152,613 | $ | 7,187 | $ | 170 | ||||||
March 28, 2020 | $ | 146,613 | $ | 6,553 | $ | 404 | ||||||
June 27, 2020 | $ | 138,213 | $ | 6,257 | $ | 209 |
December 29, 2018 | June 30, 2018 | ||||||||
Derivatives Designated as Hedging Instruments | Balance Sheet Location | Fair Value | Fair Value | ||||||
Foreign currency forward contracts & swaps | Other current assets | $ | 981 | $ | 23 | ||||
Foreign currency forward contracts & swaps | Other long-term assets | $ | 613 | $ | 477 | ||||
Foreign currency forward contracts & swaps | Other current liabilities | $ | (11 | ) | $ | (1,618 | ) | ||
Foreign currency forward contracts & swaps | Other long-term liabilities | $ | — | $ | (58 | ) | |||
Interest rate swap | Other current assets | $ | 16 | $ | 20 | ||||
Interest rate swap | Other long-term assets | $ | — | $ | 4 |
Derivatives Designated as Hedging Instruments | Classification of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | AOCI Balance as of September 29, 2018 | Effective Portion Recorded In AOCI | Effective Portion Reclassified From AOCI Into Income | AOCI Balance as of December 29, 2018 | ||||||||||||
Forward contracts & swaps | Cost of sales | $ | 2,061 | $ | (1,266 | ) | $ | 383 | $ | 1,178 | |||||||
Interest rate swap | Interest expense | 19 | (1 | ) | (5 | ) | 13 | ||||||||||
Total | $ | 2,080 | $ | (1,267 | ) | $ | 378 | $ | 1,191 | ||||||||
Derivatives Designated as Hedging Instruments | Classification of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | AOCI Balance as of September 30, 2017 | Effective Portion Recorded In AOCI | Effective Portion Reclassified From AOCI Into Income | AOCI Balance as of December 30, 2017 | ||||||||||||
Forward contracts & swaps | Cost of sales | $ | (1,715 | ) | $ | (2,669 | ) | $ | 1,412 | $ | (2,972 | ) | |||||
Interest rate swap | Interest expense | (48 | ) | 8 | 24 | (16 | ) | ||||||||||
Total | $ | (1,763 | ) | $ | (2,661 | ) | $ | 1,436 | $ | (2,988 | ) |
Derivatives Designated as Hedging Instruments | Classification of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | AOCI Balance as of June 30, 2018 | Effective Portion Recorded In AOCI (1) | Effective Portion Reclassified From AOCI Into Income | AOCI Balance as of December 29, 2018 | ||||||||||||
Forward contracts & swaps | Cost of sales | $ | (988 | ) | $ | 1,249 | $ | 917 | $ | 1,178 | |||||||
Interest rate swap | Interest expense | 19 | 1 | (7 | ) | 13 | |||||||||||
Total | $ | (969 | ) | $ | 1,250 | $ | 910 | $ | 1,191 | ||||||||
Derivatives Designated as Hedging Instruments | Classification of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | AOCI Balance as of July 1, 2017 | Effective Portion Recorded In AOCI | Effective Portion Reclassified From AOCI Into Income | AOCI Balance as of December 30, 2017 | ||||||||||||
Forward contracts & swaps | Cost of sales | $ | (2,707 | ) | $ | (2,791 | ) | $ | 2,526 | $ | (2,972 | ) | |||||
Interest rate swap | Interest expense | (68 | ) | (1 | ) | 53 | (16 | ) | |||||||||
Total | $ | (2,775 | ) | $ | (2,792 | ) | $ | 2,579 | $ | (2,988 | ) |
11. | Fair Value Measurements |
December 29, 2018 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||
Financial Assets: | |||||||||||||||
Interest rate swaps | $ | — | $ | 16 | $ | — | $ | 16 | |||||||
Foreign currency forward contracts & swaps | $ | — | $ | 1,594 | $ | — | $ | 1,594 | |||||||
Financial Liabilities: | |||||||||||||||
Foreign currency forward contracts & swaps | $ | — | $ | (11 | ) | $ | — | $ | (11 | ) |
June 30, 2018 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||
Financial Assets: | |||||||||||||||
Interest rate swaps | $ | — | $ | 24 | $ | — | $ | 24 | |||||||
Foreign currency forward contracts & swaps | $ | — | $ | 500 | $ | — | $ | 500 | |||||||
Financial Liabilities: | |||||||||||||||
Foreign currency forward contracts & swaps | $ | — | $ | (1,676 | ) | $ | — | $ | (1,676 | ) |
12. | Goodwill and Other Intangible Assets |
December 29, 2018 | |||||||||||||
Amortization Period in Years | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
Intangible assets: | |||||||||||||
Customer Relationships | 10 | 4,803 | (2,311 | ) | 2,492 | ||||||||
Favorable Lease Agreements | 4 - 7 | 2,941 | (2,133 | ) | 808 | ||||||||
Total | $ | 7,744 | $ | (4,444 | ) | $ | 3,300 |
June 30, 2018 | |||||||||||||
Amortization Period in Years | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
Intangible assets: | |||||||||||||
Non-Compete Agreements | 3 - 5 | $ | 568 | $ | (568 | ) | $ | — | |||||
Customer Relationships | 10 | 4,803 | (2,071 | ) | 2,732 | ||||||||
Favorable Lease Agreements | 4 - 7 | 2,941 | (1,947 | ) | 994 | ||||||||
Total | $ | 8,312 | $ | (4,586 | ) | $ | 3,726 |
Fiscal Years Ending | Amount | |||
2019 (1) | 392 | |||
2020 | 783 | |||
2021 | 784 | |||
2022 | 531 | |||
2023 | 480 | |||
Thereafter | 330 | |||
Total amortization expense | $ | 3,300 |
13. | Revenue |
Contract Assets | |||
Beginning balance, June 30, 2018 | $ | — | |
Cumulative effect adjustment at July 1, 2018 | 11,906 | ||
Revenue recognized | 241,306 | ||
Amounts collected or invoiced | (234,094 | ) | |
Ending balance, December 29, 2018 | $ | 19,118 |
EMS Revenue | ||||||||
Recognition | Three Months Ended | Six Months Ended | ||||||
Over-Time | $ | 119,790 | $ | 241,306 | ||||
Point-in-Time | 3,247 | 9,203 | ||||||
Total | $ | 123,037 | $ | 250,509 |
• | Inactive, Obsolete, and Surplus Inventory Reserve |
• | Revenue Recognition |
• | Allowance for Doubtful Accounts |
• | Accrued Warranty |
• | Income Taxes |
• | Share-Based Compensation |
• | Impairment of Long-Lived Assets |
• | Derivatives and Hedging Activity |
• | Long-Term Incentive Compensation Accrual |
• | Impairment of Goodwill |
• | Business Combinations |
• | Contingent Liabilities |
Three Months Ended | ||||||||||||||||||||
December 29, 2018 | % of net sales | December 30, 2017 | % of net sales | $ change | % point change | |||||||||||||||
Net sales | $ | 123,037 | 100.0 | % | $ | 111,725 | 100.0 | % | $ | 11,312 | — | % | ||||||||
Cost of sales | 113,157 | 92.0 | % | 102,925 | 92.1 | % | 10,232 | (0.1 | )% | |||||||||||
Gross profit | 9,880 | 8.0 | % | 8,800 | 7.9 | % | 1,080 | 0.1 | % | |||||||||||
Research, development and engineering | 1,857 | 1.5 | % | 1,495 | 1.3 | % | 362 | 0.2 | % | |||||||||||
Selling, general and administrative | 5,399 | 4.4 | % | 5,654 | 5.1 | % | (255 | ) | (0.7 | )% | ||||||||||
Total operating expenses | 7,256 | 5.9 | % | 7,149 | 6.4 | % | 107 | (0.5 | )% | |||||||||||
Operating income | 2,624 | 2.1 | % | 1,651 | 1.5 | % | 973 | 0.6 | % | |||||||||||
Interest expense, net | 708 | 0.6 | % | 616 | 0.6 | % | 92 | — | % | |||||||||||
Income before income taxes | 1,916 | 1.6 | % | 1,035 | 0.9 | % | 881 | 0.7 | % | |||||||||||
Income tax provision | 327 | 0.3 | % | 1,259 | 1.1 | % | (932 | ) | (0.8 | )% | ||||||||||
Net income (loss) | $ | 1,589 | 1.3 | % | $ | (224 | ) | (0.2 | )% | $ | 1,813 | 1.5 | % | |||||||
Effective income tax rate | 17.1 | % | 121.6 | % |
Six Months Ended | ||||||||||||||||||||
December 29, 2018 | % of net sales | December 30, 2017 | % of net sales | $ change | % point change | |||||||||||||||
Net sales | $ | 250,509 | 100.0 | % | $ | 220,942 | 100.0 | % | $ | 29,567 | — | % | ||||||||
Cost of sales | 231,096 | 92.3 | % | 204,297 | 92.5 | % | 26,799 | (0.2 | )% | |||||||||||
Gross profit | 19,413 | 7.7 | % | 16,645 | 7.5 | % | 2,768 | 0.2 | % | |||||||||||
Research, development and engineering | 3,557 | 1.4 | % | 3,005 | 1.4 | % | 552 | — | % | |||||||||||
Selling, general and administrative | 10,687 | 4.3 | % | 10,825 | 4.9 | % | (138 | ) | (0.6 | )% | ||||||||||
Total operating expenses | 14,244 | 5.7 | % | 13,830 | 6.3 | % | 414 | (0.6 | )% | |||||||||||
Operating income | 5,169 | 2.1 | % | 2,815 | 1.3 | % | 2,354 | 0.8 | % | |||||||||||
Interest expense, net | 1,385 | 0.6 | % | 1,210 | 0.5 | % | 175 | 0.1 | % | |||||||||||
Income before income taxes | 3,784 | 1.5 | % | 1,605 | 0.7 | % | 2,179 | 0.8 | % | |||||||||||
Income tax provision | 602 | 0.2 | % | 1,397 | 0.6 | % | (795 | ) | (0.4 | )% | ||||||||||
Net income | $ | 3,182 | 1.3 | % | $ | 208 | 0.1 | % | $ | 2,974 | 1.2 | % | ||||||||
Effective income tax rate | 15.9 | % | 87.0 | % |
• | 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; |
• | 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. |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 4. | Controls and Procedures |
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
Item 6. | Exhibits | |||
31.1 | ||||
31.2 | ||||
32.1 | ||||
32.2 | ||||
101.INS | XBRL Instance Document * | |||
101.SCH | XBRL Taxonomy Extension Schema Document * | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document * | |||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document * | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document * | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document * |
KEY TRONIC CORPORATION | |||
/s/ CRAIG D. GATES | |||
Craig D. Gates | Date: | February 7, 2019 | |
President and Chief Executive Officer | |||
(Principal Executive Officer) | |||
/s/ Brett R. Larsen | |||
Brett R. Larsen | Date: | February 7, 2019 | |
Executive Vice President of Administration, Chief Financial Officer and Treasurer | |||
(Principal Financial Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Key Tronic Corporation; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | Designed such control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons fulfilling the equivalent functions); |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting |
Dated: | February 7, 2019 | |
/s/ Craig D. Gates | ||
Craig D. Gates | ||
President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Key Tronic Corporation; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b) | Designed such control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons fulfilling the equivalent functions); |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting |
Dated: | February 7, 2019 | |
/s/ Brett R. Larsen | ||
Brett R. Larsen | ||
Executive Vice President of Administration, Chief Financial Officer and Treasurer |
1. | The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
2. | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: | February 7, 2019 | |
/s/ Craig D. Gates | ||
Craig D. Gates | ||
President and Chief Executive Officer |
1. | The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
2. | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: | February 7, 2019 | |
/s/ Brett R. Larsen | ||
Brett R. Larsen | ||
Executive Vice President of Administration, Chief Financial Officer and Treasurer |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Dec. 29, 2018 |
Feb. 05, 2019 |
|
Document Documentand Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Dec. 29, 2018 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Trading Symbol | ktcc | |
Entity Registrant Name | KEY TRONIC CORP | |
Entity Central Index Key | 0000719733 | |
Current Fiscal Year End Date | --06-30 | |
Entity Filer Category | Accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | false | |
Entity Common Stock, Shares Outstanding | 10,759,680 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands |
Dec. 29, 2018 |
Jun. 30, 2018 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Trade receivables, allowance for doubtful accounts | $ 0 | $ 0 |
Common stock - par value | $ 0 | $ 0 |
Common stock - shares authorized | 25,000 | 25,000 |
Common stock - shares issued | 10,760 | 10,760 |
Common stock - shares outstanding | 10,760 | 10,760 |
CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 29, 2018 |
Dec. 30, 2017 |
Dec. 29, 2018 |
Dec. 30, 2017 |
|
Income Statement [Abstract] | ||||
Net sales | $ 123,037 | $ 111,725 | $ 250,509 | $ 220,942 |
Cost of sales | 113,157 | 102,925 | 231,096 | 204,297 |
Gross profit | 9,880 | 8,800 | 19,413 | 16,645 |
Operating expenses | ||||
Research, development and engineering expenses | 1,857 | 1,495 | 3,557 | 3,005 |
Selling, general and administrative expenses | 5,399 | 5,654 | 10,687 | 10,825 |
Total operating expenses | 7,256 | 7,149 | 14,244 | 13,830 |
Operating income | 2,624 | 1,651 | 5,169 | 2,815 |
Interest expense, net | 708 | 616 | 1,385 | 1,210 |
Income before income taxes | 1,916 | 1,035 | 3,784 | 1,605 |
Income tax provision | 327 | 1,259 | 602 | 1,397 |
Net income (loss) | $ 1,589 | $ (224) | $ 3,182 | $ 208 |
Earnings per share: | ||||
Net income (loss) per share — Basic | $ 0.15 | $ (0.02) | $ 0.30 | $ 0.02 |
Weighted average shares outstanding — Basic | 10,760 | 10,760 | 10,760 | 10,760 |
Net income (loss) per share — Diluted | $ 0.15 | $ (0.02) | $ 0.29 | $ 0.02 |
Weighted average shares outstanding — Diluted | 10,881 | 10,760 | 10,986 | 10,760 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 29, 2018 |
Dec. 30, 2017 |
Dec. 29, 2018 |
Dec. 30, 2017 |
|
Comprehensive income (loss): | ||||
Net income (loss) | $ 1,589 | $ (224) | $ 3,182 | $ 208 |
Other comprehensive income (loss): | ||||
Unrealized gain (loss) on hedging instruments, net of tax | (889) | (1,225) | 2,160 | (213) |
Comprehensive income (loss) | $ 700 | $ (1,449) | $ 5,342 | $ (5) |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 29, 2018 |
Dec. 30, 2017 |
Dec. 29, 2018 |
Dec. 30, 2017 |
|
Statement of Comprehensive Income [Abstract] | ||||
Unrealized gain (loss) on foreign exchange contracts, tax | $ (0.2) | $ (0.6) | $ 0.6 | $ (0.1) |
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY - 6 months ended Dec. 29, 2018 - USD ($) shares in Thousands, $ in Thousands |
Total |
Common Stock |
Retained Earnings |
Accumulated Other Comprehensive (Loss) Income |
---|---|---|---|---|
Balances (Shares) at Jun. 30, 2018 | 10,760 | |||
Balances, Period Start at Jun. 30, 2018 | $ 118,081 | $ 46,244 | $ 72,806 | $ (969) |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||
Net income (loss) | 3,182 | 3,182 | ||
ASC 606 Opening Balance Sheet Adjustment at Jun. 30, 2018 | 529 | 529 | ||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||
Unrealized gain on hedging instruments, net | 2,160 | 2,160 | ||
Share-based compensation expense | 274 | $ 274 | ||
Balances (Shares) at Dec. 29, 2018 | 10,760 | |||
Balances, Period End at Dec. 29, 2018 | $ 124,226 | $ 46,518 | $ 76,517 | $ 1,191 |
BASIS OF PRESENTATION |
6 Months Ended |
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Dec. 29, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
BASIS OF PRESENTATION | Basis of Presentation The consolidated financial statements included herein have been prepared by Key Tronic Corporation and subsidiaries (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. The year-end condensed consolidated balance sheet information was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The financial statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018. |
FISCAL YEAR | The Company’s reporting period is a 52/53 week fiscal year ending on the Saturday closest to June 30. The three and six month periods ended December 29, 2018 and December 30, 2017, were 13 and 26 week periods, respectively. Fiscal year 2019 will end on June 29, 2019, which is a 52 week year. Fiscal year 2018 which ended on June 30, 2018, was also a 52 week year. |
SIGNIFICANT ACCOUNTING POLICIES |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SIGNIFICANT ACCOUNTING POLICIES | Significant Accounting Policies Earnings Per Common Share Basic earnings per common share (EPS) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the combination of other potentially dilutive weighted average common shares and the weighted average number of common shares outstanding during the period using the treasury stock method. The computation assumes the proceeds from the exercise of equity awards were used to repurchase common shares at the average market price during the period. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of common stock equivalent shares that would have an anti-dilutive effect on EPS. Derivative Instruments and Hedging Activities The Company has entered into foreign currency forward contracts, foreign currency swaps and an interest rate swap which are accounted for as cash flow hedges in accordance with ASC 815, Derivatives and Hedging. The effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (AOCI) and is reclassified into earnings in the same period in which the underlying hedged transaction affects earnings. The derivative’s effectiveness represents the change in fair value of the hedge that offsets the change in fair value of the hedged item. The Company uses derivatives to manage the variability of foreign currency fluctuations of expenses in our Mexico facilities and interest rate risk associated with certain borrowings under the Company’s term loan arrangement. The foreign currency forward contracts, foreign currency swaps and interest rate swap have terms that are matched to the underlying transactions being hedged. As a result, these transactions fully offset the hedged risk and no ineffectiveness has been recorded. The Company’s foreign currency forward contracts, foreign currency swaps and interest rate swap potentially expose the Company to credit risk to the extent the counterparty may be unable to meet the terms of the agreement. The Company minimizes such risk by utilizing a counterparty with a strong credit rating. The Company’s counterparty to the foreign currency forward contracts, foreign currency swaps and interest rate swap is a major banking institution. This institution does not require collateral for the contracts, and the Company believes that the risk of the counterparty failing to meet their contractual obligations is remote. The Company does not enter into derivative instruments for trading or speculative purposes. Income Taxes We compute our interim income tax provision through the use of an estimated annual effective tax rate (ETR) applied to year-to-date operating results and specific events that are discretely recognized as they occur. In determining the estimated annual ETR, we analyze various factors, including projections of our annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, our ability to use tax credits and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates, and certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments, are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the estimated annual ETR. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences and benefits attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities for a change in tax rates is recognized in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. We utilize a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments based on new assessments and changes in estimates and which may not accurately forecast actual outcomes. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. The tax years 1998 through the present remain open to examination by the major U.S. taxing jurisdictions to which we are subject. Refer to Note 6 for further discussions. Impairment of Goodwill and Other Intangible Assets The Company records intangible assets that are acquired individually or with a group of other assets in the financial statements at acquisition. In accordance with ASC 350, Goodwill and Other Intangible Assets, goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are required to be reviewed for impairment at least annually or when events or circumstances indicate that carrying value may exceed fair value. The Company’s annual goodwill impairment analysis is performed as of the first day of the fourth quarter. The Company’s acquired intangible assets are subject to amortization over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. Recently Issued Accounting Standards In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-09 (ASU 2014-09), Revenue from Contracts with Customers (Topic 606) (also referred to as Accounting Standard Codification 606 (“ASC 606”). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. This may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Additionally, disclosures required for revenue recognition will include qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments, and assets recognized from costs to obtain or fulfill a contract. Such disclosures are more extensive than what is required under existing GAAP. The Company adopted the standard on July 1, 2018 using the modified retrospective approach by applying the guidance to all open contracts at the adoption date and has implemented revised accounting policies, new operational and financial reporting processes, enhanced systems capabilities and relevant internal controls. As part of adopting ASC 606, revenue for certain customer contracts where the Company is manufacturing products for which there is no alternative use and the Company has an enforceable right to payment including a reasonable profit for work-in-progress inventory will be recognized over time instead of upon shipment of products. In addition to the following disclosures, footnote 13 provides further disclosures required by the new standard. The cumulative effect of change made to our July 1, 2018 consolidated balance sheet for the adoption of ASC 606 was as follows:
The following tables summarize the impacts of ASC 606 adoption on the Company’s consolidated balance sheets and consolidated statements of income:
For the three months ended December 29, 2018 the reported revenue and gross profit was approximately $123.0 million, and $9.9 million; respectively. This reflects the adoption of ASC 606 as revenue and gross profit would have been $2.3 million and $0.6 million less without ASC 606 adoption. This is primarily due to the change from 'point-in-time' to 'over-time' recognition as the standard requires. There was not a material tax impact for the three months ended December 29, 2018 from adopting ASC 606. For the six months ended December 29, 2018 the reported revenue and gross profit was approximately $250.5 million, and $19.4 million; respectively. This reflects the adoption of ASC 606 as revenue and gross profit would have been $7.2 million and $0.5 million less without ASC 606 adoption. There was not a material tax impact for the six months ended December 29, 2018 from adopting ASC 606. In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases which supersedes ASC 840 Leases and creates a new topic, ASC 842 Leases. This update requires lessees to recognize a lease asset and a lease liability for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Upon initial evaluation, the Company believes the new guidance will have a material impact on its consolidated balance sheets when adopted. The Company intends to adopt the new lease guidance when it becomes effective in the first quarter of fiscal year 2020. In July 2018, the FASB issued Accounting Standards Update 2018-10, Codification Improvements to Topic 842, Leases. The update is intended to clarify certain aspects of the new leases standard, Topic 842. The amendments affect narrow aspects of the guidance issued in update 2016-02 discussed above. The amendments address residual value guarantees, the rate implicit in the lease, certain lessee and lessor reassessments, variable lease payments that depend on an index or rate, investment tax credits, lease term and purchase option, transition guidance and certain adjustments, impairment of the net investment in the lease, residual assets that are not guaranteed, as well as other areas of improvement and clarification. The amendments have the same effective date and transition requirements as the new leases standard. As noted above, the Company believes the new guidance will have a material impact on its consolidated balance sheets when adopted. The Company intends to adopt the new lease guidance when it becomes effective in the first quarter of fiscal year 2020. In August 2016, the FASB issued Accounting Standards Update 2016-15, Classification of Certain Cash Receipts and Cash Payments. The update is intended to provide guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows. Under the guidance, cash receipts from the deferred purchase price of the Company's factored receivables will be classified as cash flows from investing activities instead of the Company's former presentation as cash flows from operations. The Company adopted the guidance during the first quarter of fiscal year 2019 and retrospectively adjusted cash flows from operating and investing activities for the six months ended December 29, 2018 and December 30, 2017; respectively. Upon adoption of the standard, the Company recorded $3.3 million of cash receipts on the deferred purchase price from receivables factored by the Company during the six months ended December 29, 2018, and reclassified $3.6 million of cash receipts on the deferred purchase price from receivables factored by the Company for the six months ended December 30, 2017, from cash flows from operating activities to cash flows from investing activities. In January 2017, the FASB issued Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective prospectively to impairment tests beginning January 1, 2020, with early adoption permitted. The Company would apply this guidance to applicable impairment tests after the adoption date. The Company believes this new guidance will not have a material effect on its consolidated financial statements. In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation - Stock Compensation. This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company adopted the new guidance during the first quarter of fiscal year 2019 and the result had an immaterial impact on its consolidated financial statements. In August 2017, the FASB issued Accounting Standards Update 2017-12, Derivatives and Hedging, which amends the hedge accounting recognition and presentation requirements in ASC 815. The Board’s objectives in issuing this update are to (1) improve the transparency and understandability of information about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) simplify the application of hedge accounting. This update is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the effect of this update on its consolidated financial statements. The Company expects the new guidance will have an immaterial impact on its consolidated financial statements, and it intends to adopt the guidance when it becomes effective in the first quarter of fiscal year 2020. In January 2018, the FASB released guidance on the accounting for tax on the Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company elects to treat any potential GILTI inclusions as a period cost. |
INVENTORIES |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES | Inventories The components of inventories consist of the following (in thousands):
As a result of the adoption of ASC 606, amounts that would have been reported as inventory under prior guidance are now included in contract assets on the Consolidated Balance Sheet as disclosed in footnote 2. As a result of this accounting change, finished goods as of December 29, 2018 are $9.1 million less than they would have been had we not adopted ASC 606 and work-in-process inventory as of December 29, 2018 is $8.8 million less than they would have been had we not adopted ASC 606. The comparative information as of June 30, 2018, has not been restated and continues to be reported under the accounting standards in effect at that time. |
LONG-TERM DEBT |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
LONG-TERM DEBT | Long-Term Debt On September 30, 2018, the Company entered into a Fourth amendment to the amended and restated credit agreement to extend the maturity date to August 31, 2021 on the term loan in the amount of $35.0 million that was used to acquire all of the outstanding shares of CDR Manufacturing, Inc. (dba Ayrshire Electronics). The term loan requires quarterly payments of $1.25 million through June 15, 2021, with a final payment of the remaining outstanding balance on August 31, 2021. The Company had an outstanding balance of $13.8 million and $16.3 million under the term loan as of December 29, 2018 and June 30, 2018, respectively. On August 6, 2015, the Company entered into a First Amendment to the amended and restated credit agreement extending the limit on our line of credit facility to $45.0 million as evidenced by the Second Replacement Revolving Note. The agreement specifies that the proceeds of the revolving line of credit be used primarily for working capital and general corporate purposes. The line of credit is secured by substantially all of the assets of the Company. On September 30, 2018, the Company entered into a Fourth amendment to the amended and restated credit agreement to extend the maturity date to November 1, 2023, at which time all outstanding balances are payable. As of December 29, 2018, the Company had an outstanding balance under the credit facility of $24.4 million, $0.4 million in outstanding letters of credit and $20.2 million available for future borrowings. As of June 30, 2018, the Company had an outstanding balance under the credit facility of $16.2 million, $0.4 million in outstanding letters of credit and $28.4 million available for future borrowings. On December 28, 2016, the Company entered into an equipment term loan agreement in the amount of $3.9 million in order to further invest in production equipment. The equipment term loan is collateralized by production equipment. Under this loan agreement, equal quarterly payments of approximately $0.2 million commenced on March 31, 2017 and will continue through the maturity of the equipment term loan on June 30, 2021. Amortization of the debt issuance costs is reported as interest expense on the consolidated income statement. As of December 29, 2018, the Company had an outstanding balance of $2.2 million. As of June 30, 2018, the Company had an outstanding balance of $2.6 million. The Company has available an additional $2.1 million which can be borrowed in the future under this agreement. Borrowings under the revolving line of credit, term loan and equipment term loan bear interest at either a “Base Rate” or a “Fixed Rate,” as elected by the Company. The base rate is the higher of the Wells Fargo Bank prime rate, daily one month London Interbank Offered Rate (LIBOR) plus 1.5%, or the Federal Funds rate plus 1.5%. The fixed rate is LIBOR plus 1.75%, LIBOR plus 2.00%, or LIBOR plus 2.25% depending on the level of the Company’s trailing four quarters Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). The interest rates on outstanding debt as of December 29, 2018 range from 4.35% - 5.50% compared to 4.09% - 5.00% as of June 30, 2018. Debt maturities as of December 29, 2018 for the next five years and thereafter are as follows (in thousands):
(1) Represents scheduled payments for the remaining six-month period ending June 29, 2019. The Company must comply with certain financial covenants, including a cash flow leverage ratio, an asset coverage ratio, and a fixed charge coverage ratio. The credit agreement requires the Company to maintain a minimum profit threshold, limits the maximum capital lease expenditures and restricts the Company from declaring or paying dividends in cash or stock without prior bank approval. The Company was in compliance with all financial covenants as of December 29, 2018. |
TRADE ACCOUNTS RECEIVABLE PURCHASE PROGRAMS |
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Dec. 29, 2018 | |
Receivables [Abstract] | |
TRADE ACCOUNTS RECEIVABLE PURCHASE PROGRAMS | Trade Accounts Receivable Purchase Programs Sale Programs The Company utilizes an Account Purchase Agreement with Wells Fargo Bank, N.A. (“WFB”) which allows the Company to sell and assign to WFB and WFB may purchase from the Company the accounts receivable of certain Company customers in a maximum aggregate amount outstanding of $25.0 million. This agreement may be cancelled at any time by either party. The Company also has an Account Purchase Agreement with Orbian Financial Services (“Orbian”). This agreement allows the Company to sell accounts receivable of certain customers to Orbian and the agreement may be cancelled at any time by either party. Total accounts receivables sold during the six months ended December 29, 2018 and December 30, 2017 was approximately $41.1 million and $55.4 million, respectively. Accounts receivables sold and not yet collected were $2.1 million and $2.0 million as of December 29, 2018 and June 30, 2018, respectively. The receivables that were sold were removed from the condensed consolidated balance sheets and the cash received is reflected as cash provided by operating activities in the condensed consolidated statements of cash flows. Cash receipts related to the deferred purchase price from receivables factored by the Company is reflected as cash provided by investing activities. |
INCOME TAXES |
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Dec. 29, 2018 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | Income Taxes On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. The Tax Act reduced Federal corporate tax rates effective January 1, 2018 and changed certain other provisions, many of which were not effective until fiscal year 2019. As a result of the change of the U.S. tax system under the Tax Act from a global to a territorial model, a deemed one-time repatriation of all accumulated earnings and profits (AE&P) in Mexico and China occurred on December 31, 2017. For purposes of calculating the toll tax associated with this deemed repatriation, AE&P pools are stratified into two asset categories, subjected to certain allowable deductions and then the net amounts are subjected to the toll tax (15.5% for cash/cash equivalents and 8% for illiquid assets). Compliance with the 2017 Tax Act will require significant complex computations not previously required by U.S. tax law. It is unclear how certain provisions of the 2017 Tax Act will be applied absent further legislative, regulatory, or accounting clarification and guidance. Also, on December 22, 2017, the staff of the SEC issued Staff Accounting Bulletin No. 118 (“SAB No. 118”). SAB No. 118 provides guidance on accounting for the tax effects of the 2017 Tax Act and allows registrants to record provisional amounts for a period of up to one year from the date of enactment of the 2017 Tax Act. In compliance with SAB 118, we completed the accounting for the 2017 Tax Act during the second quarter of fiscal year 2019 after finalizing formal AE&P and tax pool studies for both Mexico and China, resulting in an increase of approximately $0.2 million to the net toll tax liability. However, as additional legislative, regulatory, and accounting guidance and interpretations become available, further adjustments to the net toll tax liability may be necessary. In future years, because of the toll tax on AE&P described above, repatriations of cash will generally be tax-free in the U.S. However, withholding taxes in China and Mexico may still apply to any such future repatriations. Management has not changed its indefinite investment assertions with regard to the portion of AE&P in China that may be repatriated in the future. Accordingly, management estimates that future repatriations of cash from China may result in approximately $0.8 million of withholding tax. There would be no offsetting foreign tax credits in the U.S. and as such, this potential liability is a direct cost associated with actual repatriations. Under Mexican tax law, any previously taxed earnings from before 2014 (“CUFIN”) are not subject to withholding when monies are repatriated to another country. In the second quarter of fiscal year 2019, the U.S. parent company received a distribution of the remaining CUFIN amount. As such, future distributions from Mexico will be subject to withholding tax. The currently remaining earnings in Mexico are permanently reinvested; therefore, no withholding tax liability has been recognized as of December 29, 2018. If, in the future, repatriations from Mexico are expected, the Company will be required to recognize a withholding tax as a deferred tax liability at that time. Similar to China, this withholding would not be creditable and would be a direct cost associated with the actual repatriation. The Company expects to repatriate a portion of its foreign earnings based on increased net sales growth driving additional capital requirements domestically, cash requirements for potential acquisitions and to implement certain tax strategies. The Company currently expects to repatriate approximately $7.5 million of foreign earnings in the future. All other unremitted foreign earnings are expected to remain permanently reinvested for planned fixed assets purchases and improvements in foreign locations. The Company has available approximately $8.4 million of gross federal research and development tax credits as of December 29, 2018. ASC 740 requires the Company to recognize in its financial statements uncertainties in tax positions taken that may not be sustained upon examination by the taxing authorities. Accordingly, as of December 29, 2018, the Company has recorded $4.1 million of unrecognized tax benefits associated with these federal tax credits, resulting in a net deferred tax benefit of approximately $4.3 million. |
EARNINGS PER SHARE |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | Earnings Per Share The following tables present a reconciliation of the denominator in the basic and diluted EPS calculation and the number of antidilutive common share awards that were not included in the diluted earnings per share calculation. These antidilutive securities occur when equity awards outstanding have an option price greater than the average market price for the period.
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SHARE-BASED COMPENSATION |
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Dec. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
SHARE BASED COMPENSATION | Share-based Compensation The Company’s incentive plan provides for equity and liability awards to employees and non-employee directors in the form of stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, stock awards, stock units, performance shares, performance units, and other stock-based or cash-based awards. Compensation cost is recognized on a straight-line basis over the requisite employee service period, which is generally the vesting period, and is recorded as employee compensation expense in cost of goods sold, research, development and engineering, and selling, general and administrative expenses. Share-based compensation is recognized only for those awards that are expected to vest, with forfeitures estimated at the date of grant based on historical experience and future expectations. In addition to service conditions, SARs contain a performance condition. The additional performance condition is based upon the achievement of Return on Invested Capital (ROIC) goals relative to a peer group. All awards with performance conditions are evaluated quarterly to determine the likelihood that performance metrics will be achieved during the performance period. These awards are charged to compensation expense over the requisite service period based on the number of shares expected to vest. The SARs cliff vest after a three-year period from date of grant and expire five years from date of grant. The grant date fair value for the awards granted below were estimated using the Black Scholes option valuation method:
Total share-based compensation expense recognized during the three months ended December 29, 2018 and December 30, 2017 was approximately $106,000 and $147,000, respectively. Total share-based compensation expense recognized during the six months ended December 29, 2018 and December 30, 2017 was approximately $274,000 and $251,000, respectively. As of December 29, 2018, total unrecognized compensation expense related to unvested share-based compensation arrangements was approximately $0.6 million. This expense is expected to be recognized over a weighted average period of 1.88 years. No SARs were exercised during the three months ended December 29, 2018 or December 30, 2017. |
COMMITMENTS AND CONTINGENCIES |
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Dec. 29, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Commitments and Contingencies Litigation and Other Matters The Company is party to certain lawsuits or claims in the ordinary course of business. The Company does not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on the financial position, results of operations or cash flow of the Company. Warranties The Company provides warranties on certain product sales. Allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires the Company to make estimates of product return rates and expected costs to repair or to replace the products under warranty. If actual return rates and/or repair and replacement costs differ significantly from management’s estimates, adjustments to recognize additional cost of sales may be required in future periods. The Company’s warranty reserve was approximately $11,000 as of December 29, 2018 and $20,000 as of June 30, 2018, respectively. |
DERIVATIVE FINANCIAL INSTRUMENTS |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE FINANCIAL INSTRUMENTS | of December 29, 2018, the Company had outstanding foreign currency forward contracts and swaps with a total notional amount of $40.5 million. The maturity dates for these contracts and swaps extend through June 2020. For the three months ended December 29, 2018, the Company entered into foreign currency forward contracts of $6.3 million and settled $6.7 million of such contracts. During the same period of the previous year, the Company entered into foreign currency forward contracts of $7.2 million and settled $11.2 million of such contracts. For the six months ended December 29, 2018, the Company entered into foreign currency forward contracts of $6.3 million and settled $12.0 million of such contracts. During the same period of the previous year, the Company entered into foreign currency forward contracts of $7.2 million and settled $16.6 million of such contracts. As of December 29, 2018, the aggregate notional amount of the Company’s outstanding foreign currency contracts and swaps along with their unrealized gains are expected to mature as summarized below (in thousands):
On October 1, 2014, the Company entered into an interest rate swap contract with an effective date of September 1, 2015 and a termination date of September 3, 2019, related to the borrowings outstanding under the term loan. This interest rate swap pays the Company variable interest at the one month LIBOR rate, and the Company pays the counter party a fixed interest rate. The fixed interest rate for the contract is 1.97% that replaces the one month LIBOR rate component of our contractual interest to be paid to WFB as part of our term loan. Based on the terms of the interest rate swap contract and the underlying borrowings outstanding under the term loan, the interest rate contract was determined to be effective, and thus qualifies as a cash flow hedge. The following table summarizes the fair value of derivative instruments in the Consolidated Balance Sheet as of December 29, 2018 and June 30, 2018 (in thousands):
The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Income for the three months ended December 29, 2018 and December 30, 2017, respectively (in thousands):
The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Income for the six months ended December 29, 2018 and December 30, 2017, respectively (in thousands):
As of December 29, 2018, the net amount of unrealized gain expected to be reclassified into earnings within the next 12 months is approximately $0.8 million. As of December 29, 2018, the Company does not have any foreign exchange contracts with credit-risk-related contingent features. |
FAIR VALUE MEASUREMENTS |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS | Fair Value Measurements The Company has adopted ASC 820, Fair Value Measurements, which defines fair value, establishes a framework for assets and liabilities being measured and reported at fair value and expands disclosures about fair value measurements. There are three levels of fair value hierarchy inputs used to value assets and liabilities which include: Level 1 – inputs are quoted market prices for identical assets or liabilities; Level 2 – inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 – inputs are unobservable inputs for the asset or liability. The following table summarizes the fair value of assets (liabilities) of the Company’s derivatives that are required to be measured on a recurring basis as of December 29, 2018 and June 30, 2018 (in thousands):
The Company currently has forward contracts and swaps to hedge known future cash outflows for expenses denominated in the Mexican peso and an interest rate swap to mitigate risk associated with certain borrowings under the Company’s debt arrangement. These contracts are measured on a recurring basis based on the foreign currency spot rates and forward rates quoted by banks or foreign currency dealers. These contracts are marked to market using level 2 input criteria every period with the unrealized gain or loss, net of tax, reported as a component of shareholders’ equity in accumulated other comprehensive loss, as they qualify for hedge accounting. The carrying values of cash and cash equivalents, accounts receivable and current liabilities reflected on the balance sheets at December 29, 2018 and June 30, 2018, reasonably approximate their fair value. The Company’s long-term debt, which is measured at amortized cost, primarily consists of a revolving line of credit, a term loan and an equipment term loan. These borrowings bear interest at either a “Base Rate” or a “Fixed Rate,” as elected by the Company. Each of these rates is a variable floating rate dependent upon current market conditions and the Company’s current credit risk as discussed in footnote 4. As a result of the determinable market rates for our revolving line of credit, term loan and equipment term loan, they are classified within Level 2 of the fair value hierarchy. Further, the carrying value of each of these instruments reasonably approximates their fair value as of December 29, 2018 and June 30, 2018. |
GOODWILL AND OTHER INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | Goodwill and Other Intangible Assets The Company recorded goodwill in connection with the Ayrshire and Sabre acquisitions resulting primarily from the synergies that resulted from the Company’s acquisitions and the assembled workforce. The goodwill is not amortized for financial accounting purposes. During the six months ended December 29, 2018 and December 30, 2017, no impairment was recognized. Goodwill was recorded at $10.0 million as of December 29, 2018 and June 30, 2018. The components of acquired intangible assets are as follows (in thousands):
Amortization expense was approximately $196,000 and $265,000 for the three months ended December 29, 2018 and December 30, 2017, respectively. Amortization expense was approximately $426,000 and $542,000 for the six months ended December 29, 2018 and December 30, 2017, respectively. Aggregate amortization expense relative to existing intangible assets by fiscal year is currently estimated to be as follows (in thousands):
(1) Represents estimated amortization for the remaining six-month period ending June 29, 2019. |
REVENUE |
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Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE FROM CONTRACT WITH CUSTOMER | Revenue Revenue Recognition The Company specializes in services ranging from product manufacturing to engineering and tooling services. The first step in its process for revenue recognition is to identify the contract with a customer. A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations. A contract can be written, oral, or implied. The Company generally enters into manufacturing service agreements (“MSA”) with its customers that outlines the terms of the business relationship between the customer and the Company. This includes matters such as warranty, indemnification, transfer of title and risk of loss, liability for excess and obsolete inventory, pricing, payment terms, etc. The Company will also bid on a program-by-program basis for customers in which an executed MSA may not be in place. In these instances, as well as when we have an MSA in place, we receive customer purchase orders for specific quantities and timing of products. As a result, the Company considers its contract with a customer to be the combination of the MSA and the purchase order. The transaction price is fixed and set forth in each purchase order. In the Company's normal course of business, there are no variable pricing components, or material amounts refunded to customers in the form of refunds or rebates. The Company assesses whether control of the product or services promised under the contract is transferred to the customer at a point in time (shipment) or over time (as we manufacture the product). The Company is first required to evaluate whether its contracts meet the criteria for 'over-time' or 'point-in-time' recognition. The Company has determined that for the majority of its contracts the Company is manufacturing products for which there is no alternative use due to the unique nature of the customer-specific product, IP and other contract restrictions. The Company has an enforceable right to payment including a reasonable profit for performance completed to date with respect to these contracts. As a result, revenue is recognized under these contracts 'over-time' based on the input cost-to-cost method as it better depicts the transfer of control. This input method is based on the ratio of costs incurred to date as compared to the total estimated costs at completion of the performance obligation. For all other contracts that do not meet these criteria, such as manufacturing contracts for which the terms do not provide an enforceable right to payment for performance completed to date, the Company recognizes revenue when it has transferred control of the related manufactured products which generally occurs upon shipment to the customer. Revenue from engineering services is recognized over time as the services are performed. The Company’s typical payment terms are 30 to 45 days and its sales arrangements do not contain any significant financing component for its customers. The Company generally provides a warranty for workmanship on its manufacturing contracts. Historically, the amount of returns for workmanship issues has been de minimis under the Company’s warranties. The Company elected to not disclose information about remaining performance obligations as they are part of contracts that that have expected durations of one year or less. During the second quarter of fiscal 2019, no revenues were recognized from performance obligations satisfied or partially satisfied in previous periods. Contract Balances A contract asset is recognized when the Company has recognized revenue, but has not issued an invoice for payment. Contract assets are classified separately on the condensed consolidated balance sheet and transferred to receivables when the right to payment becomes unconditional. The following table summarizes the activity in the Company’s contract assets during the six months ended December 29, 2018 (in thousands):
Disaggregation of Revenue The following table presents the Company’s revenue disaggregated for the three and six months ended December 29, 2018 (in thousands):
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SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Earnings Per Common Share | Earnings Per Common Share Basic earnings per common share (EPS) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the combination of other potentially dilutive weighted average common shares and the weighted average number of common shares outstanding during the period using the treasury stock method. The computation assumes the proceeds from the exercise of equity awards were used to repurchase common shares at the average market price during the period. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of common stock equivalent shares that would have an anti-dilutive effect on EPS. |
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Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities The Company has entered into foreign currency forward contracts, foreign currency swaps and an interest rate swap which are accounted for as cash flow hedges in accordance with ASC 815, Derivatives and Hedging. The effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (AOCI) and is reclassified into earnings in the same period in which the underlying hedged transaction affects earnings. The derivative’s effectiveness represents the change in fair value of the hedge that offsets the change in fair value of the hedged item. The Company uses derivatives to manage the variability of foreign currency fluctuations of expenses in our Mexico facilities and interest rate risk associated with certain borrowings under the Company’s term loan arrangement. The foreign currency forward contracts, foreign currency swaps and interest rate swap have terms that are matched to the underlying transactions being hedged. As a result, these transactions fully offset the hedged risk and no ineffectiveness has been recorded. The Company’s foreign currency forward contracts, foreign currency swaps and interest rate swap potentially expose the Company to credit risk to the extent the counterparty may be unable to meet the terms of the agreement. The Company minimizes such risk by utilizing a counterparty with a strong credit rating. The Company’s counterparty to the foreign currency forward contracts, foreign currency swaps and interest rate swap is a major banking institution. This institution does not require collateral for the contracts, and the Company believes that the risk of the counterparty failing to meet their contractual obligations is remote. The Company does not enter into derivative instruments for trading or speculative purposes. |
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Income Taxes | Income Taxes We compute our interim income tax provision through the use of an estimated annual effective tax rate (ETR) applied to year-to-date operating results and specific events that are discretely recognized as they occur. In determining the estimated annual ETR, we analyze various factors, including projections of our annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, our ability to use tax credits and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates, and certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments, are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the estimated annual ETR. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences and benefits attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities for a change in tax rates is recognized in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. We utilize a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments based on new assessments and changes in estimates and which may not accurately forecast actual outcomes. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. The tax years 1998 through the present remain open to examination by the major U.S. taxing jurisdictions to which we are subject. Refer to Note 6 for further discussions. |
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Impairment of Goodwill | Impairment of Goodwill and Other Intangible Assets The Company records intangible assets that are acquired individually or with a group of other assets in the financial statements at acquisition. In accordance with ASC 350, Goodwill and Other Intangible Assets, goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are required to be reviewed for impairment at least annually or when events or circumstances indicate that carrying value may exceed fair value. The Company’s annual goodwill impairment analysis is performed as of the first day of the fourth quarter. The Company’s acquired intangible assets are subject to amortization over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. |
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Recently Issued Accounting Standards | Recently Issued Accounting Standards In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-09 (ASU 2014-09), Revenue from Contracts with Customers (Topic 606) (also referred to as Accounting Standard Codification 606 (“ASC 606”). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. This may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Additionally, disclosures required for revenue recognition will include qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments, and assets recognized from costs to obtain or fulfill a contract. Such disclosures are more extensive than what is required under existing GAAP. The Company adopted the standard on July 1, 2018 using the modified retrospective approach by applying the guidance to all open contracts at the adoption date and has implemented revised accounting policies, new operational and financial reporting processes, enhanced systems capabilities and relevant internal controls. As part of adopting ASC 606, revenue for certain customer contracts where the Company is manufacturing products for which there is no alternative use and the Company has an enforceable right to payment including a reasonable profit for work-in-progress inventory will be recognized over time instead of upon shipment of products. In addition to the following disclosures, footnote 13 provides further disclosures required by the new standard. The cumulative effect of change made to our July 1, 2018 consolidated balance sheet for the adoption of ASC 606 was as follows:
The following tables summarize the impacts of ASC 606 adoption on the Company’s consolidated balance sheets and consolidated statements of income:
For the three months ended December 29, 2018 the reported revenue and gross profit was approximately $123.0 million, and $9.9 million; respectively. This reflects the adoption of ASC 606 as revenue and gross profit would have been $2.3 million and $0.6 million less without ASC 606 adoption. This is primarily due to the change from 'point-in-time' to 'over-time' recognition as the standard requires. There was not a material tax impact for the three months ended December 29, 2018 from adopting ASC 606. For the six months ended December 29, 2018 the reported revenue and gross profit was approximately $250.5 million, and $19.4 million; respectively. This reflects the adoption of ASC 606 as revenue and gross profit would have been $7.2 million and $0.5 million less without ASC 606 adoption. There was not a material tax impact for the six months ended December 29, 2018 from adopting ASC 606. In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases which supersedes ASC 840 Leases and creates a new topic, ASC 842 Leases. This update requires lessees to recognize a lease asset and a lease liability for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Upon initial evaluation, the Company believes the new guidance will have a material impact on its consolidated balance sheets when adopted. The Company intends to adopt the new lease guidance when it becomes effective in the first quarter of fiscal year 2020. In July 2018, the FASB issued Accounting Standards Update 2018-10, Codification Improvements to Topic 842, Leases. The update is intended to clarify certain aspects of the new leases standard, Topic 842. The amendments affect narrow aspects of the guidance issued in update 2016-02 discussed above. The amendments address residual value guarantees, the rate implicit in the lease, certain lessee and lessor reassessments, variable lease payments that depend on an index or rate, investment tax credits, lease term and purchase option, transition guidance and certain adjustments, impairment of the net investment in the lease, residual assets that are not guaranteed, as well as other areas of improvement and clarification. The amendments have the same effective date and transition requirements as the new leases standard. As noted above, the Company believes the new guidance will have a material impact on its consolidated balance sheets when adopted. The Company intends to adopt the new lease guidance when it becomes effective in the first quarter of fiscal year 2020. In August 2016, the FASB issued Accounting Standards Update 2016-15, Classification of Certain Cash Receipts and Cash Payments. The update is intended to provide guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows. Under the guidance, cash receipts from the deferred purchase price of the Company's factored receivables will be classified as cash flows from investing activities instead of the Company's former presentation as cash flows from operations. The Company adopted the guidance during the first quarter of fiscal year 2019 and retrospectively adjusted cash flows from operating and investing activities for the six months ended December 29, 2018 and December 30, 2017; respectively. Upon adoption of the standard, the Company recorded $3.3 million of cash receipts on the deferred purchase price from receivables factored by the Company during the six months ended December 29, 2018, and reclassified $3.6 million of cash receipts on the deferred purchase price from receivables factored by the Company for the six months ended December 30, 2017, from cash flows from operating activities to cash flows from investing activities. In January 2017, the FASB issued Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective prospectively to impairment tests beginning January 1, 2020, with early adoption permitted. The Company would apply this guidance to applicable impairment tests after the adoption date. The Company believes this new guidance will not have a material effect on its consolidated financial statements. In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation - Stock Compensation. This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company adopted the new guidance during the first quarter of fiscal year 2019 and the result had an immaterial impact on its consolidated financial statements. In August 2017, the FASB issued Accounting Standards Update 2017-12, Derivatives and Hedging, which amends the hedge accounting recognition and presentation requirements in ASC 815. The Board’s objectives in issuing this update are to (1) improve the transparency and understandability of information about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) simplify the application of hedge accounting. This update is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the effect of this update on its consolidated financial statements. The Company expects the new guidance will have an immaterial impact on its consolidated financial statements, and it intends to adopt the guidance when it becomes effective in the first quarter of fiscal year 2020. In January 2018, the FASB released guidance on the accounting for tax on the Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company elects to treat any potential GILTI inclusions as a period cost. |
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Maximum Amount Of Income Tax Benefits Percentage Realized Upon Ultimate Settlement | 50.00% |
INVENTORIES (Tables) |
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Components of Inventories | The components of inventories consist of the following (in thousands):
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LONG-TERM DEBT (Tables) |
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Schedule of Maturities of Long-term Debt | Debt maturities as of December 29, 2018 for the next five years and thereafter are as follows (in thousands):
(1) Represents scheduled payments for the remaining six-month period ending June 29, 2019. |
EARNINGS PER SHARE (Tables) |
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Reconciliation of Denominator and Number of Antidilutive Common Share Awards not Included in Diluted Earnings Per Share Calculation | These antidilutive securities occur when equity awards outstanding have an option price greater than the average market price for the period.
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SHARE-BASED COMPENSATION (Tables) |
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Disclosure of Share-based Compensation Arrangements by Share-based Payment Award | The grant date fair value for the awards granted below were estimated using the Black Scholes option valuation method:
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DERIVATIVE FINANCIAL INSTRUMENTS (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Derivative Instruments | As of December 29, 2018, the aggregate notional amount of the Company’s outstanding foreign currency contracts and swaps along with their unrealized gains are expected to mature as summarized below (in thousands):
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Summerized Fair Value of Derivative Instruments in Consolidated Balance Sheets | The following table summarizes the fair value of derivative instruments in the Consolidated Balance Sheet as of December 29, 2018 and June 30, 2018 (in thousands):
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Gain (Loss) of Derivative Instruments in Statement of Operations | The following tables summarize the gain (loss) on derivative instruments, net of tax, on the Consolidated Statements of Income for the three months ended December 29, 2018 and December 30, 2017, respectively (in thousands):
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FAIR VALUE MEASUREMENTS (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and Liabilities Measured at Fair Value on Recurring Basis | The following table summarizes the fair value of assets (liabilities) of the Company’s derivatives that are required to be measured on a recurring basis as of December 29, 2018 and June 30, 2018 (in thousands):
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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Finite-Lived Intangible Assets | The components of acquired intangible assets are as follows (in thousands):
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Schedule of Finite-Lived Intangible Assets, Future Amortization Expense | Aggregate amortization expense relative to existing intangible assets by fiscal year is currently estimated to be as follows (in thousands):
(1) Represents estimated amortization for the remaining six-month period ending June 29, 2019. |
REVENUE (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 29, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract with Customer, Asset and Liability | Contract Balances A contract asset is recognized when the Company has recognized revenue, but has not issued an invoice for payment. Contract assets are classified separately on the condensed consolidated balance sheet and transferred to receivables when the right to payment becomes unconditional. The following table summarizes the activity in the Company’s contract assets during the six months ended December 29, 2018 (in thousands):
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Disaggregation of Revenue | Disaggregation of Revenue The following table presents the Company’s revenue disaggregated for the three and six months ended December 29, 2018 (in thousands):
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Inventories (Components Of Inventories) (Detail) - USD ($) $ in Thousands |
Dec. 29, 2018 |
Jul. 01, 2018 |
Jun. 30, 2018 |
---|---|---|---|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Finished goods | $ 8,945 | $ 14,927 | |
Work-in-process | 11,918 | 22,254 | |
Finished goods | 8,945 | 14,927 | |
Work-in-process | 11,918 | 22,254 | |
Raw materials and supplies | 70,752 | 73,134 | |
Inventories | 91,615 | $ 99,105 | $ 110,315 |
Accounting Standards Update 2014-09 [Member] | Difference between Revenue Guidance in Effect before and after Topic 606 [Member] | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Finished goods | 9,076 | ||
Work-in-process | 8,848 | ||
Finished goods | 9,076 | ||
Work-in-process | 8,848 | ||
Inventories | $ 17,924 | $ (11,210) |
Trade Accounts Receivable Purchase Programs (Detail) - USD ($) $ in Millions |
6 Months Ended | ||
---|---|---|---|
Dec. 29, 2018 |
Dec. 30, 2017 |
Jun. 30, 2018 |
|
Receivables [Abstract] | |||
Account Purchase Agreement Maximum Aggregate Amount | $ 25.0 | ||
Trade Accounts Receivable Sold To Third Party | 41.1 | $ 55.4 | |
Accounts Receivable Factored To Banking Institutions | $ 2.1 | $ 2.0 |
Income Taxes (Detail) - USD ($) $ in Millions |
6 Months Ended | |
---|---|---|
Dec. 29, 2018 |
Jun. 30, 2018 |
|
Income Tax Disclosure [Abstract] | ||
Accumulated unremitted earnings tax rate for cash repatriation | 15.50% | |
Accumulated unremitted earnings tax rate for non liquid asset | 8.00% | |
Toll Tax Liability | $ 0.2 | |
Estimated Federal And State Income Taxes And Potential Withholding Taxes | $ 0.8 | |
Foreign tax credits related to future repatriations of earnings | 7.5 | |
Gross potential research and development (R&D) tax credit | 8.4 | |
Unrecognized tax benefits associated with federal tax credits | 4.1 | |
Deferred Tax Assets, Tax Credit Carryforwards | $ 4.3 |
Earnings Per Share (Reconciliation Of Denominator And Number Of Antidilutive Common Share Awards Not Included In Diluted Earnings Per Share Calculation) (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 29, 2018 |
Dec. 30, 2017 |
Dec. 29, 2018 |
Dec. 30, 2017 |
|
Earnings Per Share [Abstract] | ||||
Net income (loss) | $ 1,589 | $ (224) | $ 3,182 | $ 208 |
Weighted average shares outstanding - basic | 10,760 | 10,760 | 10,760 | 10,760 |
Effect of dilutive common stock options (Shares) | 121 | 0 | 226 | 0 |
Weighted average shares outstanding - Diluted | 10,881 | 10,760 | 10,986 | 10,760 |
Net income (loss) per share—diluted | $ 0.15 | $ (0.02) | $ 0.30 | $ 0.02 |
Net income (loss) per share—diluted | $ 0.15 | $ (0.02) | $ 0.29 | $ 0.02 |
Antidilutive options not included in diluted earnings per share (Shares) | 1,035 | 1,105 | 793 | 1,105 |
Share-Based Compensation (Detail) - USD ($) |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jul. 27, 2018 |
Jul. 28, 2017 |
Dec. 29, 2018 |
Dec. 30, 2017 |
Dec. 29, 2018 |
Dec. 30, 2017 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Unrecognized Share-based Compensation Expense | $ 600,000 | $ 600,000 | ||||
Unrecognized Share-based Compensation, Period for Recognition | 1 year 10 months 17 days | |||||
Stock Appreciation Rights (SARs) [Member] | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
SARs Granted | 161,250 | 272,500 | ||||
Strike Price | $ 8.17 | $ 7.26 | ||||
Fair Value | $ 2.27 | $ 1.89 | ||||
Share-based Compensation Expense | $ 106,000 | $ 147,000 | $ 274,000 | $ 251,000 |
Commitments And Contingencies (Detail) - USD ($) |
Dec. 29, 2018 |
Jun. 30, 2018 |
---|---|---|
Commitments and Contingencies Disclosure [Abstract] | ||
Warranty reserve | $ 11,000 | $ 20,000 |
Derivative Financial Instruments (Detail) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Dec. 29, 2018 |
Dec. 30, 2017 |
Dec. 29, 2018 |
Dec. 30, 2017 |
Sep. 01, 2015 |
|
Derivative [Line Items] | |||||
Derivative, Notional Amount | $ 40.5 | $ 40.5 | |||
Contract maturity date | Jun. 24, 2020 | ||||
Foreign currency forward contracts entered | 6.3 | $ 7.2 | $ 6.3 | $ 7.2 | |
Foreign currency forward contracts settled | 6.7 | $ 11.2 | 12.0 | $ 16.6 | |
Derivative, Fixed Interest Rate | 1.97% | ||||
Net amount of existing losses expected to be reclassified into earnings within the next 12 months | $ 0.8 | $ 0.8 |
Schedule of Derivative Instruments (Detail) - USD ($) $ in Thousands |
Jun. 27, 2020 |
Mar. 28, 2020 |
Dec. 28, 2019 |
Sep. 28, 2019 |
Jun. 29, 2019 |
Mar. 30, 2019 |
Dec. 29, 2018 |
---|---|---|---|---|---|---|---|
Derivative [Line Items] | |||||||
Derivative, Notional Amount | $ 40,500 | ||||||
Subsequent Event [Member] | |||||||
Derivative [Line Items] | |||||||
Derivative, Fair Value, Net | $ 209 | $ 404 | $ 170 | $ 521 | $ 278 | $ 1 | |
Subsequent Event [Member] | Mexico, Pesos | |||||||
Derivative [Line Items] | |||||||
Derivative, Notional Amount | 138,213 | 146,613 | 152,613 | 148,468 | 142,947 | 137,944 | |
Subsequent Event [Member] | United States of America, Dollars | |||||||
Derivative [Line Items] | |||||||
Derivative, Notional Amount | $ 6,257 | $ 6,553 | $ 7,187 | $ 6,740 | $ 6,828 | $ 6,979 |
Goodwill and Intangible Assets (Aggregate Amortization Expense by Fiscal Year) (Detail) - USD ($) $ in Thousands |
Dec. 29, 2018 |
Jun. 30, 2018 |
---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||
2019 (1) | $ 392 | |
2019 | 783 | |
2020 | 784 | |
2021 | 531 | |
2022 | 480 | |
Thereafter | 330 | |
Total amortization expense | $ 3,300 | $ 3,726 |
REVENUE Contract with Customer, Asset and Liability (Detail) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Dec. 29, 2018 |
Jun. 30, 2018 |
|
Revenue from Contract with Customer [Abstract] | ||
Cumulative effect adjustment at July 1, 2018 | $ 11,906 | |
Revenue recognized | 241,306 | |
Amounts collected or invoiced | (234,094) | |
Ending balance, December 29, 2018 | $ 19,118 | $ 0 |
Revenue (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 29, 2018 |
Dec. 30, 2017 |
Dec. 29, 2018 |
Dec. 30, 2017 |
|
Disaggregation of Revenue [Line Items] | ||||
Net sales | $ 123,037 | $ 111,725 | $ 250,509 | $ 220,942 |
Over-Time | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 119,790 | 241,306 | ||
Point-in-Time | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | $ 3,247 | $ 9,203 |
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