SPOKANE VALLEY, WA -- Key Tronic today announced fiscal second quarter revenue of $111.7 million, down 5.7% from a year ago.

For the period ended Dec. 30, the company had a net loss of $200,000, compared to net income of $1.5 million last year.

The EMS firm took discrete charges for unrepatriated overseas earnings and a write-down of certain deferred tax assets related to tax reform and an adjustment relating to foreign exchange totaling approximately $1.1 million. In coming quarters, the company expects its estimated effective tax rate will drop five percentage points to 20%.

Excluding the impact of the discrete tax adjustments, net income was approximately $900,000.

For the quarter, gross margin was 7.9% and operating margin was 1.5%, compared to 8.1% and 2.1%, respectively, in the same period of fiscal 2017.

“New programs continue to ramp and we have continued to win significant new business from EMS competitors, including two new programs involving products for new and established customers in IoT for consumers and commercial applications,” said Craig Gates, president and chief executive. “While changes in the U.S. corporate tax law may have caused a net loss in the second quarter, we expect to benefit by paying less taxes in the U.S. under the new law in coming periods.

“Moving into the third quarter, we continue to see a strong pipeline of potential new business and our new programs continue to ramp. Recent customer wins are expected to contribute to sales growth in coming quarters. The details of the manufacturing ramp discussed last quarter relating to a consumer security product are yet to be finalized.”

During the third quarter, the Company anticipates charges of approximately $700,000 for legal expenses in connection with a binding arbitration hearing relating to roughly $10 million of purchased and paid inventory and receivables due from a former customer. In addition to the inventory at issue in the arbitration, the Company is pursuing reimbursement for certain cancellation fees and other carrying costs already expensed but believed to be contractually due from the former customer. The Company has not accrued for any outcomes related to the claim, which could result in a one-time gain or loss.

Key Tronic will also take about $500,000 in severance costs related to workforce reductions in Mexico during the March quarter. The moves should reduce overall Mexican facility expenses by 9% in the June quarter and beyond. Gates added that the US facilities are "increasingly profitable." For its fiscal third quarter, the company expects to revenue in the range of $110 million to $115 million.

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