KTCC 10-K & 10-Q changes, risk factors and insider trading
Key Tronic Corp. · Nasdaq · Printed Circuit Boards · CIK 719733 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “The ongoing wind-down of our China-based manufacturing operations may adversely affect our business, results of operations and financial condition.”
New heading “Legal proceedings and government investigations could affect our financial condition or results of operations.”
Removed heading “RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS”
Removed heading “The following risks and uncertainties could affect our actual results and could cause results to differ materially from past results or those contemplated by our forward-looking statements. When used herein, the words “expects,” “believes,” “anticipates” and other similar expressions are intended to identify forward-looking statements.”
Removed heading “In the past, we have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective due to the existence of material weaknesses, which has adversely affected our ability to report our financial results in a timely and accurate manner and similar recurrences could have a material adverse impact our business and financial condition.”
Removed heading “Matters relating to or arising from the subject of the Audit Committee’s internal investigation, including expenses and diversion of personnel and resources, regulatory investigations, and proceedings and litigation matters, could have an adverse effect on our business, results of operations and financial condition.”
Removed heading “We are involved in various legal proceedings.”
Largest changes
“In addition, we continue to cooperate with the SEC in its inquiries related to the internal investigation. If the SEC or any other regulator were to commence legal action against us, we could be required to pay significant penalties and become subject to injunctions, cease and desist orders or the SEC could impose other sanctions against us or against our officers and members of our Board of Directors. We can provide no assurances as to the outcome of any governmental inquiry or investigation. …”see in full comparison
“Matters relating to or arising from the subject of the Audit Committee’s internal investigation, including expenses and diversion of personnel and resources, regulatory investigations, and proceedings and litigation matters, could have an adverse effect on our business, results of operations and financial condition.”see in full comparison
“In the past, we have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective due to the existence of material weaknesses, which has adversely affected our ability to report our financial results in a timely and accurate manner and similar recurrences could have a material adverse impact our business and financial condition.”see in full comparison
“In addition, from time to time we, or our officers and members of our Board of Directors, may be involved in lawsuits and regulatory actions relating to our business and operations. As discussed in more detail under “Legal Proceedings,” we reached a settlement with the SEC in April 2026 that fully resolved an inquiry by the SEC related to the subject matter of our 2021 internal investigation. …”see in full comparison
“Legal proceedings and government investigations could affect our financial condition or results of operations.”see in full comparison
“The ongoing wind-down of our China-based manufacturing operations may adversely affect our business, results of operations and financial condition.”see in full comparison
Full comparison: every changed paragraph (42)
RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS
The following risks and uncertainties could affect our actual results and could cause results to differ materially from past results or those contemplated by our forward-looking statements. When used herein, the words “expects,” “believes,” “anticipates” and other similar expressions are intended to identify forward-looking statements.
We manufacture and/or source product in facilities located in Mexico, China, VietnamVietnam, and the United States. These operations may be subject to a number of risks, including:
•general macroeconomic economic factors, such as periods of inflation
•cash liquidity, the ability to acquire new debt capacity,capacity and related interest expenses, and capital constraints;
•rising costs to store and transport manufactured goods, such as fuel prices.
•burdens of complying with a wide variety of foreign laws and labor practices; subject to trade wars and tariffs;
Our quarterly operating results have varied in the past and may vary in the future due to a variety of factors, including adverse changes in the U.S. and global macroeconomic environment, volatility in overall demand for our customers’ products, success of customers’ programs, timing of new programs, new product introductions or technological advances by us, our customers and our competitors, and changes in pricing policies by us, our customers, our suppliers, and our competitors. Our customer base is diverse in the markets they serve, however, decreases in demand, particularly from customers in certain industries, have affected our results and could affect future quarterly results. Additionally, we and our customers could be adversely impacted by illiquidity in the credit markets which could directly impact our operating results.
Adverse economic conditions and uncertainty in the global economy such as unstable global financial and credit markets, changing trade policies, inflation, and recession can negatively impact our business.business Unfavorableand economicfinancial condition. These conditions couldhave, affectand themay demandcontinue forto our customers’ products by triggering a reduction or delaying orders as well as a declineresult in forecastsfurther which could adversely affect our sales in future periods. Additionally, the financial strengthtightening of our customerscredit andavailability consequentially causing suppliers andto theirrequire abilitycash in advance or further tightening of terms in our supply agreements. This could result in manufacturing delays to obtainour andexisting relyor onexpected creditdemand, financingor mayan affect their abilityinability to fulfill theirmeet obligations toas usthey andbecome have an adverse effect on our financial results.due.
Unfavorable economic conditions could also affect the demand for our customers’ products by triggering a reduction or delaying orders as well as a decline in forecasts which could adversely affect our sales in future periods. Additionally, the financial strength of our customers and suppliers and their ability to obtain and rely on credit financing may affect their ability to fulfill their obligations to us and have an adverse effect on our financial results.
The ongoing wind-down of our China-based manufacturing operations may adversely affect our business, results of operations and financial condition.
On December 19, 2025, the Company committed to a plan to modify its China-based operations and cease manufacturing activities at its China-based facility. The manufacturing wind-down has been substantially completed, and the Company has refocused its China operations on sourcing and procurement activities intended to support its remaining global locations. Although only limited transition and administrative activities remain, the Company may identify additional obligations, costs, or adjustments associated with the wind-down that were not previously anticipated. Further, the timing and resolution of these remaining matters may be affected by factors outside of the Company’s control. If actual costs or obligations differ from current estimates, our results of operations and financial condition could be adversely affected.
Although we maintain significant manufacturing capacity in the U.S.,U.S. and have substantially completed our manufacturing operations in China, the majority of our manufacturing operations are currently located outside the U.S (in countries such as Vietnam, China,Vietnam and Mexico). We also source certain components and materials for our products from various countries.countries, including China. The U.S. has imposed tariffs impacting certain components and products imported from these countries by us into the U.S. These tariffs apply to both components imported into the U.S. from these countries for use in the manufacture of products at our U.S. plants and to certain of our customers’ products that we manufacture for them in these countries and that are then imported into the U.S.
Changes in tariffs and other trade policies can be announced with little or no advance notice. The recent broad increase in tariffs on imported products and components from certain countries, including higher tariff levels on those imported from China and Mexico have resulted, and are expected to further result, in retaliatory measures on U.S. goods by those countries and others. If maintained, these tariffs, and the potential escalation of trade disputes, could pose a risk to our business that could affect our revenue and cost of sourcing materials. We are currently shielded from Mexico related tariffs under the United States-Mexico-Canada Agreement, but there is no assurance that this agreement will not be amended or cancelled in the future. Actions we take to adapt to new tariffs or trade restrictions may increase our costs or may cause us to modify our operations, and could drive up our prices to customers. For example, we incurred significant one-time expenses in the second quarter of 2026 related to the wind-down of our China manufacturing operations. Any decision by a large number of our customers to cease using our manufacturing services due to the application of tariffs could materially reduce our revenue and net income. In addition, tariffs or other trade restrictions have caused, and may continue to cause, adverse changes and uncertainty in U.S. and global financial and economic conditions, which adversely impacts the demand for our products.
In February 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were unauthorized. In March 2026, the U.S. Court of International Trade ordered U.S. Customs and Border Protection to refund IEEPA tariffs collected; however, the refund process and timing remain uncertain, and the order may be subject to further government action or challenge. Accordingly, we only record refunds at the time of receipt.
We rely on timely and regular payments from our customers, and the inability or failure of our principal customers to meet their obligations to us or their bankruptcy, insolvency or liquidation may adversely affect our business, financial condition and results of operations. Financial difficulties experienced by one or more of our customers could negatively affect our business by decreasing demand from such customers and through the potential inability of these companies to make full payment on amounts owed to us. For example, in the first and fourth quarter of fiscal 2026, our financial results were affected by inventory and receivable write-offs due to a customer bankruptcy. Customer bankruptcies also entail the risk of potential recovery by the bankruptcy estate of amounts previously paid to us that are deemed a preference under bankruptcy laws. There can be no assurance that customers will not declare bankruptcy or suffer financial distress, in which case our future revenues, net income and cash flow could be reduced.
We have manufacturing and other operations located in Mexico, China, and Vietnam. A significant portion of our operations are denominated in the Mexican Peso, the Chinese currency, the renminbi ("RMB"), and the Vietnamese dong. Currency exchange rates fluctuate daily as a result of a number of factors, including changes in a country's political and economic policies. Volatility in the currencies of our entities and the United States dollar, as well as inflationary costs, could seriously harm our business, operating results and financial condition. The primary impact of currency exchange fluctuations is on the cash, receivables, payables and expenses of our operating entities. As part of our hedging strategy, we currently use Mexican Peso forward contracts to hedge future foreign currency fluctuations for a portion of our Mexican Peso denominated expenses. We currently do not hedge expenses denominated in RMB or the Vietnamese dong, and have occasionally also been unable to hedge expenses denominated in Mexican Peso. Losses have occurred from increases in the value of these currencies relative to the United States dollar and further losses could occur, which could be material to our business, financial results or operations.
Start-up costs and inefficiencies related to new or transferred programs can adversely affect our operating results and such costs may not be recoverable if such new programs or transferred programs are canceled or don’tdo not meet expected sales volumes.
We are subject to a variety of domestic and foreign environmental regulations relating to the use, storage, and disposal of materials used in our manufacturing processes. In addition, increasing governmental focus on climate change may result in new environmental regulations that may negatively affect us, our vendors or our customers. As a result, we may incur additional costs or obligations in complying with any new environmental and reporting requirements, as well as increased indirect costs resulting from our vendors or suppliers that get passed on to us.
Certain components that we use in our manufacturing process are petroleum-based. In addition, we, along with our suppliers and customers, rely on various energy sources in our transportation activities. While significant uncertainty currently exists about the future levels of energy prices, a significant increase, such as the increasedcurrent fuel priceslevels experiencedare at all-time highs. Further increases in fiscal year 2022, is possible. Increased energy prices could also cause ancontinued increaseincreases to our raw material costs and transportation costs. In addition, increased transportation costs related to certain suppliers and customers could be passed along to us. We may not be able to increase our product prices enough to offset these increased costs. In addition, any increase in our product prices may reduce our future customer orders and profitability.
The threat actor in the Previously Disclosed Cyber Incident exfiltrated certain personally identifiable information, and future cybersecurity incidents could also result in the misappropriation of proprietary or confidential information of the Company or that of its customers, employees, vendors or suppliers. We have incurred and expect to continue to incur costs to mitigate against the Previously Disclosed Cyber Incident and other cybersecurity incidents as threats are expected to continue to become more persistent and sophisticated. If our systems for protecting against cybersecurity incidents, including the Previously Disclosed Cyber Incident, prove not to be sufficient, we could be adversely affected by, among other things, loss of or damage to intellectual property, proprietary or confidential information, or employee, vendor or customer data; interruption of our business operations; and increased costs to prevent, respond to or mitigate cybersecurity incidents. In addition, our investigation of the Previously Disclosed Cyber Incident is ongoing, and we may discover other impacts or new events related to this incident that could affect the Company, including our business, financial condition or results of operations. Any of these risks could harm our reputation and our relationships with employees, vendors and customers and may result in claims or enforcement actions and investigations against us.
Our new asset-based senior secured revolving credit facility (the “Credit Facility”), also includes certain financial covenants, including average and daily availability and, if triggered, earnings before interest, taxes, depreciation, amortization and other adjustments and a fixed charge coverage ratio covenant will apply. We have in the past failed to meet certain covenants, and may not meet such covenants in the future and may not be able to obtain waivers or amendments from the relevant lenders on terms acceptable to us, or at all. In the event we breach any covenant that results in an event of default, we may be required to amend the creditCredit facilityFacility on terms that would be less favorable to us, such as an increase in the interest rate. Similarly, our lenders could choose to accelerate payment of the amounts owed by the Company. Under those circumstances our borrowings could become immediately payable. The amendment of our credit arrangements on unfavorable terms or the acceleration of our payment obligations thereunder, would have a material adverse effect on our business, financial condition, results of operations and cash flows. For a summary of our debt obligations, see Note 4 - “Long-Term Debt” of the Notes to Consolidated Financial Statements.
There is no assurance that we will be able to retain, renew, or refinance our credit arrangements in the future.future or to maintain sufficient collateral to support our borrowing capacity.
In the event that our business grows rapidlyrapidly, or there is uncertainty in the macroeconomic climate, additional financing resources could be necessary in the current or future fiscal years. There is no assurance that we will be able to obtain equity or debt financing at acceptable terms, or at all, in the future. For a summary of our debt obligations, see Note 4 - “Long-Term Debt” of the Notes to Consolidated Financial Statements.
Our stock price has and may continue to be subject to wide fluctuations and possible rapid increases or declines over a short time period. These fluctuations may be due to factors specific to us such as our stock's thinly traded nature, variations in quarterly operating results, changes in earnings estimates, matters arising from the subject matter of the Audit Committee's internal investigation, or to factors relating to the contract manufacturing industry or to the securities markets in general, which, in recent years, have experienced significant price fluctuations. These fluctuations often have been unrelated to the operating performance of the specific companies whose stocks are traded. In addition, holders of our common stock will suffer immediate dilution to the extent outstanding equity awards are exercised to purchase common stock.
RISKS RELATED TO OUR CONTROLS AND PROCEDURES AND THE INTERNAL INVESTIGATION
In the past, we have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective due to the existence of material weaknesses, which has adversely affected our ability to report our financial results in a timely and accurate manner and similar recurrences could have a material adverse impact our business and financial condition.
We are required to evaluate the effectiveness of our disclosure controls and procedures and our internal control over financial reporting on a periodic basis and publicly disclose the results of these evaluations and related matters in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). As described in Item 9A. Controls and Procedures of our Annual Report on Form 10-K, in the previous fiscal year we identified a material weakness in the design and implementation of effective controls over the accounting for revenue recognition relating to cost recovery of material price variances. We also identified a material weakness in the design and implementation of effective controls over the adoption of new accounting standards. As a result of these material weaknesses, our management concluded that our internal control over financial reporting and disclosure controls and procedures were not effective as of June 29, 2024.
We completed a remediation plan, as described in Item 9A. Controls and Procedures of our Annual Report on Form 10-K, designed to address the material weaknesses. Although these material weaknesses are considered remediated and internal control over financial reporting and control disclosures and procedures were effective as of June 28, 2025, there is no assurance that similar material weaknesses could arise from future changes in systems, personnel, or processes. Any of these risks could have a material adverse impact on our business and financial condition.
We are required to evaluate the effectiveness of our disclosure controls and procedures and our internal control over financial reporting on a periodic basis and publicly disclose the results of these evaluations and related matters in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). We cannot assure you that we will not discover deficiencies in our internal control over financial reporting. Moreover, as discussed in the following risk factor, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all. As of June 29, 2025, weWe are a non-accelerated filer under the Securities Exchange Act of 1934 (the “Exchange Act”) and are not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. Therefore, our internal controls over financial reporting will not receive the level of review provided by the process relating to the auditor attestation included in annual reports of issuers that are subject to the auditor attestation requirements.
For the fiscal year ended June 29, 2024, we identified a material weakness in the design and implementation of effective controls over the accounting for revenue recognition relating to cost recovery of material price variances. We also identified a material weakness in the design and implementation of effective controls over the adoption of new accounting standards. As a result of these material weaknesses, our management concluded that our internal control over financial reporting and disclosure controls and procedures were not effective as of June 29, 2024. We completed a remediation plan designed to address the material weaknesses, and such material weaknesses are considered remediated.
Our internal control over financial reporting and disclosure controls and procedures were effective as of June 28, 2025 and June 27, 2026 but there is no assurance that similar material weaknesses could arise from future changes in systems, personnel, or processes.
Further andor continued determinations that there are deficiencies in the effectiveness of the Company’s internal control over financial reporting could result in another restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations, reduce our ability to obtain financing, negatively affect investor confidence in our management and the accuracy of our financial statements and disclosures, or result in adverse publicity and concerns from investors, any of which could have a negative effect on the price of our common stock, subject us to regulatory investigations and penalties or stockholder litigation, and materially adversely impact our business, financial condition, results of operations and cash flows.
Matters relating to or arising from the subject of the Audit Committee’s internal investigation, including expenses and diversion of personnel and resources, regulatory investigations, and proceedings and litigation matters, could have an adverse effect on our business, results of operations and financial condition.
During fiscal year 2021, the Company’s Audit Committee completed an internal investigation arising from a notification from an employee regarding certain alleged accounting irregularities. In January 2021, the Company determined that improper accounting resulted in an understatement of cost of goods sold and an overstatement of inventories. Subsequent to the matter identified in January 2021, additional inventory accounting errors unrelated to the investigation were also identified by management. We have incurred, and may continue to incur, significant expenses related to legal, accounting and other professional services in connection with matters relating to or arising from the subject of such investigation. To the extent the steps taken to remediate identified deficiencies in our internal controls over financial reporting were not successful, we may incur significant additional time and expense.
In addition, we continue to cooperate with the SEC in its inquiries related to the internal investigation. If the SEC or any other regulator were to commence legal action against us, we could be required to pay significant penalties and become subject to injunctions, cease and desist orders or the SEC could impose other sanctions against us or against our officers and members of our Board of Directors. We can provide no assurances as to the outcome of any governmental inquiry or investigation. Further, we, our officers and members of our Board of Directors could be named as defendants in lawsuits asserting claims arising out of the subject matter of the Audit Committee’s internal investigation. As a result of any legal proceedings and any related indemnification requirements to our officers and directors, we could be required to pay monetary damages that may be in excess of our insurance coverage or may have additional penalties or other remedies imposed against us or our officers and directors.
All of these expenses, and the diversion of the attention of management and other personnel that has occurred and is expected to continue, could adversely affect our business, financial condition, results of operations and cash flows. In addition, publicity surrounding the foregoing, or any SEC enforcement action or settlement, even if ultimately resolved favorably for us, could have an adverse impact on our reputation, business, financial condition and results of operations.
Legal proceedings and government investigations could affect our financial condition or results of operations.
We are involved in various legal proceedings.
In addition, from time to time we, or our officers and members of our Board of Directors, may be involved in lawsuits and regulatory actions relating to our business and operations. As discussed in more detail under “Legal Proceedings,” we reached a settlement with the SEC in April 2026 that fully resolved an inquiry by the SEC related to the subject matter of our 2021 internal investigation. If we are subject in the future to lawsuits or regulatory action, we could be required to pay monetary damages that may be in excess of our insurance coverage or may have additional penalties or other remedies imposed against us or our officers and directors. Any such expenses, the potential diversion of the attention of management and other personnel as a result of such legal proceedings, or negative publicity arising from any such matters could adversely affect our business, financial condition, results of operations and cash flows.
We are subject to additional requirements contained in the U.S. federal securities laws, including the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The Sarbanes-Oxley and Dodd-Frank Acts required or will requirecertain changes in some of our corporate governance, securities disclosure and compliance practices. The SEC and NASDAQ Global Market have promulgated new rules over time, resulting in increased legal, financial and accounting costs as well as a potential risk of noncompliance. Absent significant changes in related rules, which we cannot assure, we anticipate some level of increased costs related to these new regulations to continue indefinitely. We also expect these developments to make it more difficult and more expensive to obtain director and officer liability insurance, and we may be forced to accept reduced coverage or incur substantially higher costs to obtain coverage. Likewise, these developments may make it more difficult for us to attract and retain qualified members of our Board of Directors or qualified management personnel. Further, the costs associated with the compliance with and implementation of procedures under these and future laws and related rules could have a material impact on our results of operations. In addition, the costs associated with noncompliance with additional securities laws and regulations could also impact our business.
Our consolidated financial statements are prepared in conformity with accounting standards generally accepted in the United States, or U.S. GAAP. These principles are subject to amendments made primarily by the Financial Accounting Standards Board (“FASB”) and the SEC. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions which are completed before a change is announced. Changes to accounting rules or challenges to our interpretation or application of the rules by regulators may have a material adverse effect on our reported financial results or on the way we conduct business.
Management's Discussion & Analysis (MD&A)
Largest changes
“Gross profit as a percentage of net sales was 6.2 percent in fiscal year 2026 and 7.8 percent in fiscal year 2025. During fiscal year 2026, the decrease largely related to the revenue reductions discussed above, as well as restructuring charges incurred during the year related to the wind-down of our China manufacturing operations and further workforce reductions at our Mexico facility. These decreases were offset by operational efficiencies gained from previous reductions in workforce initiatives over the past two years.”see in full comparison
“We reported net sales of $386.7 million for fiscal year 2026, down 17.4 percent from $467.9 million for fiscal year 2025. The revenue reduction in fiscal year 2026 largely reflected reduced demand from certain legacy and end-of-life programs, as well as a variety of uncertainties in the global economy throughout the year. These uncertainties caused constraints of tightening credit availability and liquidity pressures across the global supply chain affecting the entire electronics manufacturing services industry.”see in full comparison
“These investments are a direct response to evolving customer requirements and position Key Tronic to capitalize on long-term industry trends toward supply chain diversification, tariff mitigation, and operational resilience. While clearly not immune to the economic challenges encountered during the past year, we believe our operational discipline, strengthened manufacturing footprint, and long-standing customer relationships have positioned us better than many of our competitors.”see in full comparison
“The net loss for fiscal year 2026 was $(47.8) million or $(4.41) per share, compared to a net loss of $(8.3) million or $(0.77) per share for fiscal year 2025. The net loss in 2026 was primarily driven by a $28.4 million non-cash charge recorded during the quarter to establish a valuation allowance against certain deferred tax assets. The accounting adjustment was driven primarily by the cumulative loss of US taxable income over the last few years. …”see in full comparison
“We reported net sales of $467.9 million for fiscal year 2025, down 17.5 percent from $566.9 million for fiscal year 2024. The revenue in fiscal year 2025 was adversely impacted by the continued worldwide economic disruptions caused by the recent escalation and fluctuations in global tariffs, which caused business paralysis throughout much of the year and ultimately led to delays in new programs originally scheduled to ramp in the year. …”see in full comparison
“Key Tronic expects long-term growth and profitability despite revenue trends in fiscal year 2025. In order to better align costs with current customer demand and boost automation, the Company cut approximately 300 more jobs during the fourth quarter of fiscal year 2025, for a total net headcount reduction during fiscal year 2025 of approximately 600. These measures have improved competitiveness for new program bids, which have increased recently. …”see in full comparison
Full comparison: every changed paragraph (40)
Key Tronic is a leading contract manufacturer offering value-added design and manufacturing services from its facilities in the United States, Mexico, China, and Vietnam.Vietnam with procurement support from its facility in China. The Company provides its customers full engineering services, materials management, worldwide manufacturing facilities, assembly services, in-house testing, and worldwide distribution. Its customers include some of the world’s leading original equipment manufacturers. Our combined capabilities and vertical integration are proving to be a desirable offering to our expanded customer base.
During fiscal year 2026, we won new programs in medical devices, industrial equipment, automotive, pest control, construction, data centers and power management. During the fourth quarter of fiscal 2026 alone, we secured more than $60 million in new program awards. We also continued to ramp the previously announced significant manufacturing services contract with a large data processing OEM that is consigning its material and components for production at our Corinth, Mississippi manufacturing facility.
We reported net sales of $386.7 million for fiscal year 2026, down 17.4 percent from $467.9 million for fiscal year 2025. The revenue reduction in fiscal year 2026 largely reflected reduced demand from certain legacy and end-of-life programs, as well as a variety of uncertainties in the global economy throughout the year. These uncertainties caused constraints of tightening credit availability and liquidity pressures across the global supply chain affecting the entire electronics manufacturing services industry.
Key Tronic expects long-term growth and profitability despite these challenges and revenue trends in fiscal year 2026. Over the past year, we have taken decisive actions as a result of these challenges to strengthen Key Tronic's competitive position and create a more efficient global manufacturing footprint. We successfully exited manufacturing operations in China, right-sized our Mexico facility, and expanded production capacity in both the United States and Vietnam.
Specifically in Vietnam, we completed a significant capacity expansion during fiscal 2026, doubling our manufacturing footprint to support anticipated growth in medical device and other high-value programs. Vietnam has emerged as an increasingly important part of our global manufacturing strategy, providing customers with a highly competitive combination of quality, cost, and regional supply chain.
We also opened our new technology and research and development center in Arkansas during the first quarter of fiscal 2026. This investment strengthens our ability to provide customers with enhanced engineering support, faster collaboration, and increased manufacturing flexibility through a U.S.-based solution. Customer interest in our Arkansas operations continues to grow, and we expect the facility to deliver double-digit revenue growth during fiscal 2027 as new programs ramp and existing customers expand their engagement with us.
These initiatives have improved our cost structure, enhanced supply chain flexibility, and enabled us to provide customers with attractive manufacturing options amid ongoing macroeconomic and geopolitical uncertainties.
These investments are a direct response to evolving customer requirements and position Key Tronic to capitalize on long-term industry trends toward supply chain diversification, tariff mitigation, and operational resilience. While clearly not immune to the economic challenges encountered during the past year, we believe our operational discipline, strengthened manufacturing footprint, and long-standing customer relationships have positioned us better than many of our competitors.
During the fourth quarter of fiscal year 2025, we continued to win new programs in pest control, personal protection, air purification, automotive, medical technology and utilities inspection equipment. We also announced a new manufacturing services contract with a large data processing OEM that will consign its material and components for new production in our Corinth, Mississippi manufacturing facility. We have never had a consigned program at this scale, which has the potential to ramp significantly during fiscal year 2026 and is estimated to eventually exceed $20 million in annual revenue.
We reported net sales of $467.9 million for fiscal year 2025, down 17.5 percent from $566.9 million for fiscal year 2024. The revenue in fiscal year 2025 was adversely impacted by the continued worldwide economic disruptions caused by the recent escalation and fluctuations in global tariffs, which caused business paralysis throughout much of the year and ultimately led to delays in new programs originally scheduled to ramp in the year. In addition, approximately $48 million of this decrease related to a reduction in scrap and component sales in fiscal year 2025, as certain large programs went end of life in 2024 and their final shipments of product, inventory, and any scrap were recorded at that time.
Key Tronic expects long-term growth and profitability despite revenue trends in fiscal year 2025. In order to better align costs with current customer demand and boost automation, the Company cut approximately 300 more jobs during the fourth quarter of fiscal year 2025, for a total net headcount reduction during fiscal year 2025 of approximately 600. These measures have improved competitiveness for new program bids, which have increased recently. To support its near-shoring and tariff mitigation strategies, Key Tronic is also expanding its manufacturing footprint, with a new US facility and added capacity in Vietnam.
For the first quarter of fiscal year 2026,2027, we believe ongoing tariff-related concerns, global logistics problems, China-US political tensions and continued supply-chain concerns will continue to drive the favorable trend of contract manufacturing returning to North America, where we are well-positioned with our domestic and Mexico operations, as well as to our expanding Vietnam facilities. We continue to see improvement across the metrics associated with business development, including an increase in the number of active quotes with prospective customers.
The net loss for fiscal year 2026 was $(47.8) million or $(4.41) per share, compared to a net loss of $(8.3) million or $(0.77) per share for fiscal year 2025. The net loss in 2026 was primarily driven by a $28.4 million non-cash charge recorded during the quarter to establish a valuation allowance against certain deferred tax assets. The accounting adjustment was driven primarily by the cumulative loss of US taxable income over the last few years. While management remains confident in the Company's expected return to profitability and the future expected utilization of certain tax benefits, the valuation allowance was based on the relative weighting of historical results. The adjustment has no impact on cash flows, debt covenant compliance, or the Company's underlying operating performance. Additionally, approximately $10.3 million of distressed customer related long term receivables were also written off during the year.
Gross profit as a percentage of net sales was 7.86.2 percent in fiscal year 2025,2026, updown from 7.07.8 percent in 2024.2025. During fiscal year 2025,2026, the increasedecrease in gross margin is largely related to the revenue reductions and restructuring charges incurred during the year offset by operational efficiencies gained from theprevious reductions in workforce offsetinitiatives byover the expensespast incurredtwo for the related severance.years. The level of gross margin is also impacted by product mix, timing of the startup of new programs, facility utilization, and pricing within the electronics industry and material costs, which can fluctuate significantly from quarter-to-quarter and year-to-year.
Operating income as a percentage of net sales for fiscal year 20252026 was 0.1(3.8) percent compared to 1.20.1 percent for fiscal year 2024.2025. InThese additionchanges largely relate to the factors discussed above, thisincluding decreasethe is$10.3 primarilymillion of long-term receivable write-offs, offset partially by $5.9 million of gain on insurance related to approximatelystorm $1.8damage millionat inthe adjustmentsCompany's forMississippi estimated collections from customers during 2025.facility.
The net loss for fiscal year 2025 was $(8.3) million or $(0.77) per share, compared to a net loss of $(2.8) million or $(0.26) per share for fiscal year 2024. The net loss in 2025 is primarily related to reductions in demand, severance expenses incurred, and adjustments for estimated collections from customers.
The following table sets forth for the periods indicated certain items of the consolidated statements of incomeoperations expressed as a percentage of net sales. The financial information and discussion below should be read in conjunction with the consolidated financial statements and Footnotes contained in this Annual Report on Form 10-K.
Net sales decreased $99.1$81.2 million from the prior fiscal year. Approximately $48$80 million of this decrease related to a reduction in scrapdemand from certain existing and componentongoing salescustomers, inwhile fiscalapproximately year$48 2025,million asrelates certainto largeend-of-life programs wentthat end of life in 2024 and theirhad final shipments of product, inventory, and any scrap recorded during 2026. These decreases were recorded at that time. Additionally, worldwide economic disruptions causedoffset by theapproximately recent$38 escalation and fluctuations in global tariffs led to disruptions throughout the year and ultimately led to delaysmillion in new programs originallyor scheduledprograms tothat rampsignificantly inramped during the year.
Gross profit as a percentage of net sales was 6.2 percent in fiscal year 2026 and 7.8 percent in fiscal year 2025. During fiscal year 2026, the decrease largely related to the revenue reductions discussed above, as well as restructuring charges incurred during the year related to the wind-down of our China manufacturing operations and further workforce reductions at our Mexico facility. These decreases were offset by operational efficiencies gained from previous reductions in workforce initiatives over the past two years.
Gross profit as a percentage of net sales was 7.8 percent in fiscal year 2025 and 7.0 percent in fiscal year 2024. During fiscal year 2025, the increase in gross margin was primarily driven by cost reductions and strategic headcount reductions implemented in prior quarters, partially offset by the related severance expenses.
Selling, general, and administrative expenses (SG&A) consist principally of salaries and benefits, advertising and marketing programs, sales commissions, travel expenses, provision for credit losses, facilities costs, and professional services. Total SG&A expenses were $26.7$36.5 million and $25.2$26.7 million in fiscal years 20252026 and 2024,2025, respectively. Total SG&A expenses as a percent of net sales were 5.79.5 percent and 4.45.7 percent in fiscal years 20252026 and 2024,2025, respectively. This increase is largely attributable to an approximately $1.8$10.4 million increase in adjustmentscharges for estimated collections from customers.
We had net interest expense of $12.5$10.1 million and $11.9$12.5 million in fiscal years 20252026 and 2024,2025, respectively. This increasedecrease is largely attributable to the write-off in the second quarter of fiscal year 2025 of approximately $1.0 million of unamortized loan fees related to refinancing our debt, partially offset by a reduction in maturing equipment leases and a lower average revolving credit loan balance.
We had income tax expense of approximately $23.0 million during fiscal year 2026 and benefits of approximately $3.6 million during fiscal year 2025 and $2.4 million during fiscal year 2024.2025. The income tax expense/benefit recognized during both fiscal years 20252026 and 20242025 was primarily a function of U.S. and foreign taxes recognized at statutory rates, the net benefit associated with federal research and development tax credits, the change in valuation allowances in the U.S. and China in fiscal year 2026, and the change in deferred tax liability related to future distributions from China in fiscal year 2025.
Our assessment of the realizability of deferred tax assets is a critical accounting estimate because it requires significant judgment regarding the amount and timing of future taxable income and the relative weight assigned to positive and negative evidence. Our largest U.S. deferred tax assets relate primarily to federal research and development tax credits, capitalized research and development expenditures, interest expense deduction carryforwards, net operating loss carryforwards and other deductible temporary differences. Realization of these assets requires taxable income of the appropriate character within the applicable carryforward periods. After considering the scheduled reversal of existing taxable temporary differences, realization of a significant portion of our net U.S. deferred tax assets depended on future U.S. taxable income. We did not have carryback availability or qualifying tax-planning strategies sufficient to support realization of the remaining deferred tax assets.
At June 28, 2025, our fiscal 2026 forecast for the U.S. tax-paying group at that time contemplated that losses would be concentrated in the first half of the year, followed by improved results and a return to operating profitability later in fiscal 2026. Actual results in the first and second quarters were below forecast, and the timing of anticipated new-program ramps continued to shift. At those interim reporting dates, however, management’s forecast continued to reflect improved operating results later in fiscal 2026 based on expected program ramps and operating cost reductions.
At March 28, 2026, a return to operating profitability in the fourth quarter remained a significant component of the forecast used in the realizability assessment. Based on the evidence then available, management concluded that the positive evidence remained sufficient to outweigh the negative evidence. During the fourth quarter, however, the profitability did not materialize due to supply chain constraints. These results provided additional objective negative evidence and reduced our ability to place sufficient weight on projections of future taxable income as positive evidence. We also ended fiscal 2026 with a U.S. loss before income taxes of approximately $26.5 million and a significant three-year cumulative U.S. loss position.
Based on the totality of evidence available at June 27, 2026, we concluded that it was no longer more likely than not that our net U.S. deferred tax assets would be realized. We therefore established a full valuation allowance of approximately $28.4 million against the U.S. tax-paying group deferred tax assets. The conclusion changed in the fourth quarter because the additional actual operating results and forecast shortfalls provided new objective evidence and changed the relative weight of the evidence supporting realizability.
The U.S. valuation allowance increased fiscal 2026 income tax expense by approximately $28.4 million and was the principal reason we recognized total income tax expense of approximately $23.0 million on a consolidated loss before income taxes of approximately $24.8 million. Our effective tax rate was approximately (92.8)% in fiscal 2026, compared with an income tax benefit of approximately $3.6 million in fiscal 2025. We will continue to evaluate the realizability of our deferred tax assets at each reporting date. The valuation allowance may be reduced in a future period if sufficient objectively verifiable positive evidence supports realization, such as sustained U.S. taxable income. Any such adjustment would be recognized in the period in which the evidence changes; this discussion should not be interpreted as indicating that a reversal is expected.
•Key Tronic Juarez, SA de CV owns five facilities and leases threetwo facilities in Juarez, Mexico. These facilities include an SMT facility, an assembly and molding facility, a sheet metal fabrication facility, and assembly and warehouse facilities. This subsidiary primarily supports our U.S. operations.
•Key Tronic Computer Peripherals (Shanghai) Co., Ltd. leases one facility with SMT, assembly, global purchasing, and warehousepurchasing capabilities in Shanghai, China, which began operations in 1999. Its primary function is to provide contractstrategic sourcing in support of manufacturing services.operations at our other facilities.
Comparison of the Fiscal Year Ended June 29,28, 20242025 with the Fiscal Year Ended JulyJune 1,29, 20232024
To review the results of operations comparison of the fiscal year ended June 29,28, 20242025 with the fiscal year ended JulyJune 1,29, 20232024 please refer to our Annual Report on Form 10-K filed OctoberSeptember 15,17, 20242025 with the Securities and Exchange Commission or follow the link below.
Net cash provided by operating activities for fiscal year 20252026 was $18.9$4.4 million compared to net cash provided by operating activities of $13.8$18.9 million in fiscal year 2024.2025. The additionaldecrease in cash provided in fiscal year 20252026 was primarily due to a focus on collecting accounts receivable faster and working down inventory balances to be in line with currentdecreasing revenue levels.throughout the year.
The $18.9$4.4 million of net cash provided by operating activities during fiscal year 20252026 is primarily related to $8.3$47.8 million of net loss adjusted for $9.6$10.2 million of depreciation and amortization, $32.4$4.4 million of noncash lease amortization, $3.3 million of provision for inventories, $11.6 million of provision for credit losses, a $22.0 million provision for deferred taxes, a $11.5 million decrease in accounts receivable, and a $7.7$12.2 million increase in accounts payable partially offset by a $5.9 million gain on insurance proceeds (net of losses), a $5.8 million increase in other assets, a $2.7 million decrease in accrued compensation and vacation, a $1.8 million increase in inventory, a $3.8$0.5 million decreaseincrease in contract assets, and aan $1.6 million increase in accrued compensation and vacation partially offset by a $15.7 million decrease in accounts payable, a $10.5 million increase in other assets and a $3.6$8.0 million decrease in other liabilities.
The $13.8$18.9 million of net cash provided by operating activities during fiscal year 20242025 was primarily related to $2.8$8.3 million of net loss adjusted for $11.0$9.6 million of depreciation and amortization, an $15.8$32.4 million decrease in accounts receivable, a $32.5$7.7 million decrease in inventory, an $8.7$3.8 million decrease in contract assetsassets, and a $1.6 million increase in accrued compensation and vacation partially offset by a $36.5$15.7 million decrease in accounts payable, a $2.9$10.5 million decreaseincrease in accruedother compensationassets, and vacation,a and an $8.1$3.6 million decrease in other liabilities.
Cash flows used in investing activities were $4.2$4.0 million for fiscal year 20252026 and $2.1$4.2 million in fiscal year 2024.2025. Our primary use of cash in investing activities during fiscal years 20252026 and 20242025 was purchasing equipment to support production for new programs. During fiscal year 2024,2026 there was a source of cash provided by investing activities from insurance claims related to storm damage at our Mississippi facility. During 2025, there was a source of cash provided by investing activities from insurance claims paid for replacing equipment and facility repairs in our Arkansas facility related to a lightning strike and water damage.
Cash flows used in financing activities were $1.2 million in fiscal year 2026 and $18.1 million in fiscal year 2025 and $10.5 million in fiscal year 2024.2025. Our primary financing activities during both fiscal year 20252026 and fiscal year 20242025 were borrowings and repayments under our asset-based revolving line of credit facility with Bank of Montreal, our Prior Credit Facility with Bank of America, and term loans. In fiscal year 2025,2026, there was a significantly higherlower percentage of repayments against the borrowings on the revolving line of credit.
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. Further, 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 costs related to the services are incurred, which approximates proportional performance of the service. This method is used because management considers it to be the best available measure of progress on the contracts. Revenue from scrap and excess inventory sales is recognized at the point-in-time of scrap at the customers direction, or, if applicable, shipment of the material to the customer.
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 costs related to the services are incurred, which approximates proportional performance of the service. This method is used because management considers it to be the best available measure of progress on the contracts. Revenue from scrap and excess inventory sales is recognized at the point-in-time of scrap at the customers direction, or, if applicable, shipment of the material to the customer.
We value our accounts receivablereceivable, contract assets, and other costs recoverable from customers net of an allowance for credit losses. As of June 27, 2026, the allowance for credit losses was approximately $14.0 million. As of June 28, 2025, the allowance for credit losses was approximately $3.5 million. As of June 29, 2024, the allowance for credit losses was approximately $2.9$5.4 million. This allowance is based on estimates of the portion of accountsthese receivablebalances that may not be collected in the future, and the increase during fiscal year 20252026 relates to ongoing revisions to this estimated amount. The estimates used are based on specific identification of potentially uncollectible accounts as well as a general calculation based on the company's collection history. Such accounts are identified using publicly available information in conjunction with evaluations of current payment activity. However, if any of our customers were to develop unexpected and immediate financial problems that would prevent payment of open invoices, we could incur additional and possibly material expenses that would negatively impact earnings.
What changed in the latest 10-Q
Risk Factors
Information regarding risk factors appear in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 3, “Quantitative and Qualitative Disclosures about Market Risk” of this Form 10-Q.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Legal proceedings and government investigations could affect our financial condition or results of operations.”
Removed heading “Matters relating to or arising from the subject of the Audit Committee’s internal investigation, including expenses and diversion of personnel and resources, regulatory investigations, and proceedings and litigation matters, could have an adverse effect on our business, results of operations and financial condition.”
Removed heading “We are involved in various legal proceedings.”
Largest changes
“In addition, we continue to cooperate with the SEC in its inquiries related to the internal investigation. If the SEC or any other regulator were to commence legal action against us, we could be required to pay significant penalties and become subject to injunctions, cease and desist orders or the SEC could impose other sanctions against us or against our officers and members of our Board of Directors. We can provide no assurances as to the outcome of any governmental inquiry or investigation. …”see in full comparison
“Matters relating to or arising from the subject of the Audit Committee’s internal investigation, including expenses and diversion of personnel and resources, regulatory investigations, and proceedings and litigation matters, could have an adverse effect on our business, results of operations and financial condition.”see in full comparison
“In addition, from time to time we, or our officers and members of our Board of Directors, may be involved in lawsuits and regulatory actions relating to our business and operations. As discussed in more detail under “Legal Proceedings,” we reached a settlement with the SEC in April 2026 that fully resolved an inquiry by the SEC related to the subject matter of our 2021 internal investigation. …”see in full comparison
“Legal proceedings and government investigations could affect our financial condition or results of operations.”see in full comparison
This Quarterly Report contains forward-looking statements in addition to historical information. Forward-looking statements include, but are not limited to those including such words as aims, anticipates, believes, continues, could, estimates, expects, hopes, intends, plans, predicts, projects, targets, or will, similar verbs, or nouns corresponding to such verbs, which may be forward looking. Forward-looking statements also include other passages that are relevant to expected future events, performances, and actions or that can only be fully evaluated by events that will occur in the future. Forward-looking statementssee in full comparisonareinsubjectthis Quarterly Report include, without limitation, the Company’s statements regarding its expectations with respect tocertainfinancialrisksconditions anduncertaintiesresults,thatincludingcouldrevenue,causeearnings,actualandresultsmargins, the Company’s ability todiffershiftmateriallyitsfromfocusthoseinreflectedChina and build out production capacity in theforward-looking statements. RisksUS anduncertaintiesVietnamthatandmightthecausetimingsuchofdifferencescompletioninclude,ofbutthosearefacilities,notcostlimitedsavings from headcount reduction and the wind-down of manufacturing operations in China, demand for certain products and the effectiveness of some of its programs, business from customers and programs, new program launches, impacts from operational streamlining and efficiencies, including reductions in inventories, and impacts of repairs tothoseitsoutlined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risks and Uncertainties that May Affect Future Results.” Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s opinions only as of the date hereof. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaims any obligation to do so. Readers should carefully review the risk factors described in this report and other periodic reports the Company filesfacilities fromtimewintertostormtime with the Securities and Exchange Commission, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.damage.
“During the quarter, the Company continued to prepare for anticipated long-term growth by executing its near-shoring and tariff mitigation strategies to reduce costs while maintaining the diversity and flexibility of its key locations and capabilities. Key Tronic believes that these cost reductions have enabled the Company to become more competitive on recent quoting opportunities. During the quarter, Key Tronic continued the wind-down of its manufacturing operations at its China based facility that began in its second quarter. …”see in full comparison
Full comparison: every changed paragraph (61)
This Quarterly Report contains forward-looking statements in addition to historical information. Forward-looking statements include, but are not limited to those including such words as aims, anticipates, believes, continues, could, estimates, expects, hopes, intends, plans, predicts, projects, targets, or will, similar verbs, or nouns corresponding to such verbs, which may be forward looking. Forward-looking statements also include other passages that are relevant to expected future events, performances, and actions or that can only be fully evaluated by events that will occur in the future. Forward-looking statements arein subjectthis Quarterly Report include, without limitation, the Company’s statements regarding its expectations with respect to certainfinancial risksconditions and uncertaintiesresults, thatincluding couldrevenue, causeearnings, actualand resultsmargins, the Company’s ability to differshift materiallyits fromfocus thosein reflectedChina and build out production capacity in the forward-looking statements. RisksUS and uncertaintiesVietnam thatand mightthe causetiming suchof differencescompletion include,of butthose arefacilities, notcost limitedsavings from headcount reduction and the wind-down of manufacturing operations in China, demand for certain products and the effectiveness of some of its programs, business from customers and programs, new program launches, impacts from operational streamlining and efficiencies, including reductions in inventories, and impacts of repairs to thoseits outlined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risks and Uncertainties that May Affect Future Results.” Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s opinions only as of the date hereof. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaims any obligation to do so. Readers should carefully review the risk factors described in this report and other periodic reports the Company filesfacilities from timewinter tostorm time with the Securities and Exchange Commission, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.damage.
Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Risks and uncertainties that might cause such differences include, but are not limited to those outlined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risks and Uncertainties that May Affect Future Results.” Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s opinions only as of the date hereof. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaims any obligation to do so. Readers should carefully review the risk factors described in this report and other periodic reports the Company files from time to time with the Securities and Exchange Commission, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.
During the secondthird quarter of fiscal 2026, we won new programs in automotive technology, industrial tooling, pest control,control and industrial equipment.power management.
We reported net sales of $89.6 million the third quarter of fiscal year 2026, down 20.0 percent from $112.0 million in the same period of fiscal year 2025. Decreases in revenue were largely attributable to decreased demand from a legacy customer and an end-of-life program transition. The reported revenue for the third quarter of fiscal year 2026 was also adversely impacted by Winter Storm Fern in the South which caused temporary site closures due to facility damage that the Company expects will be largely covered by insurance. Finally, Key Tronic faced challenges during the quarter related to customer design delays on a new program with a legacy customer, as well as delays in receiving allocated components on a separate program. The Company is expecting revenue growth on increased demand from legacy customers and new program launches in its fourth quarter of 2026. This includes the ongoing ramp of a new manufacturing services contract with a large data processing OEM that consigns its material and components for new production in our Corinth, Mississippi manufacturing facility and is estimated to grow over time.
The Company reported margin improvements in the third quarter of fiscal year 2026, despite lower revenue levels compared to prior periods.This demonstrates the operating efficiencies gained from our cost-cutting initiatives during the past two years. Gross margin and operating margins were 8.0 percent and (0.3) percent, respectively, in the third quarter of fiscal year 2026 compared to 7.7 percent and (0.4) percent, respectively, for the same period of fiscal year 2025. Adjusted gross margin was 8.5% for the third quarter of fiscal year 2026 up from 8.4% in the same period of fiscal year 2025. See “Non-GAAP Financial Measures,” below for additional information about adjusted gross margin. As revenue rebounds, Key Tronic expects continued margin increases in coming periods.
We reported net sales of $96.3 million the second quarter of fiscal year 2026, down 15.4 percent from $113.9 million in the same period of fiscal year 2025. Net sales in the second quarter of fiscal year 2026 were adversely impacted by reductions in demand from longstanding customers and continued delays to some new program launches as we believe customers continue to face uncertainties in the global economy and also due to product design modifications to certain new customers. In addition, the Company continued to ramp its large consigned materials program that was previously announced. As this program ramps, the Company anticipates less overall revenue when compared to traditional turnkey programs, but an increase in its gross margins.
Additionally during the quarter, Key Tronic initiated a wind-down of its manufacturing operations at its China based facility and instead intends to refocus operations in China on sourcing and procurement activities intended to support its remaining global locations. This initiative is expected to shift more production to the Company’s expanding facilities in the US and Vietnam. The wind-down is expected to be completed by the end of the current fiscal year, and is anticipated to save approximately $1.2 million per quarter following completions. During the second quarter of fiscal year 2026, the Company accrued approximately $1.1 million in severance-related expenses related to this wind-down and approximately $5.0 million in additional non-cash expenses related to the transfer, disposal, and write-off of certain existing inventory, fixed assets, deferred taxes, and other assets.
Furthermore, as previously disclosed, the Company has been restructuring its operations in Juarez, Mexico to focus on higher volume manufacturing. In connection with this restructuring and related headcount reductions, the Company has incurred severance charges in prior periods and has incurred $3.3 million in charges related to severance during its second fiscal quarter related at its Mexico based facility. The restructuring is expected to provide approximately $1.5 million in quarterly savings after the reductions are fully executed.
Gross marginsmargin wereand 0.6operating margin was 5.6 percent in the second quarter and 4.5(3.9) percent for the year-to-date period of fiscal year 2026,2026 compared to 6.8 percent in the second quarter and 8.6 percent for the year-to-date period in fiscal year 2025. Operating margin was (10.7) percent in the second quarter and (5.6) percent for the six-month year to date period in fiscal year 2026, down from (1.0)8.3 percent and 1.40.8 percentpercent, respectively, for the same periodsperiod of fiscal year 2025. The year-over-yearThese decreases in gross and operating margins are primarily related to the significant one-time expenses related to the wind-down of China manufacturing operations and severance expenses incurred in Mexico as discussed above.
During the quarter, the Company continued to prepare for anticipated long-term growth by executing its near-shoring and tariff mitigation strategies to reduce costs while maintaining the diversity and flexibility of its key locations and capabilities. Key Tronic believes that these cost reductions have enabled the Company to become more competitive on recent quoting opportunities. During the quarter, Key Tronic continued the wind-down of its manufacturing operations at its China based facility that began in its second quarter. As previously reported, the Company instead intends to refocus operations in China on sourcing and procurement activities intended to support its remaining global locations. This initiative is expected to shift more production to the Company’s expanding facilities in the US and Vietnam. The wind-down is expected to be completed by the end of the current fiscal year, and is anticipated to save approximately $1.2 million per quarter following completion. During the third quarter of fiscal year 2026, there were no significant additional charges related to this wind-down.
The concentration of our top three customers’ net sales decreased to 25.121.6 percent of total sales in the secondthird quarter of fiscal year 2026 from 41.833.5 percent in the same period of the prior fiscal year. This decrease is related to a decrease in demand from a longstanding customer as well as the transition of an end of life program. As new customer programs ramp, we expect that concentration of our top three customers will continue to decrease.
Net loss for the secondthird quarter of fiscal year 2026 was $(8.62.6) million or $(0.790.24) per diluted share, as compared to net loss of $(4.90.6) million or $(0.460.06) per diluted share for the secondthird quarter of fiscal year 2025. Year-to-date net loss for the first halfnine months of fiscal year 2026 was $(10.813.5) million or $(1.001.24) per diluted share, compared to $(3.84.4) million, or $(0.350.41) per diluted share for the same period of fiscal year 2025. The year-over-year decreases in earnings are a result of the wind-down of manufacturing operations in China, additional headcount reductions in Mexico, and continued reduced demand from longstanding customers.
The adjusted net income was $0.0$(2.8) million or $0.00$(0.26) per share for the secondthird quarter of fiscal year 2026, compared to adjusted net lossincome of $(4.1)$0.1 million or $(0.38)$0.01 per share for the same period of fiscal year 2025. For the first sixnine months of fiscal year 2026, the adjusted net loss was $(1.13.9) million or $(0.100.36) per share, compared to adjusted net loss of $(1.31.2) million or $(0.120.11) per share for the same period of fiscal year 2025. See “Non-GAAP Financial Measures,” below for additional information about adjusted net income (loss) and adjusted net income (loss) per share.
Moving into the thirdfourth quarter of fiscal year 2026, we continue to see a favorable trend of contract manufacturing returning to North America, as well as continued increases in Mexican wages, and continued market uncertainty related to current and future potential tariffs. In response to these sustained and ongoing trends, the Company continues to restructure its Juarez operations to focus on higher volume manufacturing, while lower volume products with higher service level requirements will migrate to our other sites. These restructuring efforts resulted in a significant headcount reduction which started in the third quarter of fiscal year 20242024, and will continuecontinued into the third quarter of fiscal year 2026 and potentiallymay include smaller further reductions throughout the remainder of fiscal year 2026. Additionally,Key globalTronic logisticsbelieves problems,that China-U.S.these geopoliticalcost tensionsreductions have enabled the Company to become more competitive on recent quoting opportunities, and relatedis tariffexpecting increasesboth mayrevenue continueand tomargin drive Original Equipment Manufacturers (“OEMs”) to examine their traditional outsourcing strategies. The decision to onshore or near shore production appears to be becoming more widely acceptedgrowth as a smart, long-term strategy. As previously announced, the Company has increased its production capacity and capabilities in its Arkansas and Vietnam facilities in order to continue to benefit from this growing customer demand for rebalancing their contract manufacturing. All of these changes to the Company's international and domestic manufacturing footprint and cost structure provide flexibility to respond to market conditions. We expect this will allow us to mitigate tariff implications and optimize pricing for our customers. As a result, we see opportunities for growth moving forward.result.
Additionally, global logistics problems, China-U.S. geopolitical tensions and related tariff increases may continue to drive Original Equipment Manufacturers (“OEMs”) to examine their traditional outsourcing strategies. The decision to onshore or near shore production appears to be becoming more widely accepted as a smart, long-term strategy. As previously announced, the Company has increased its production capacity and capabilities in its Arkansas and Vietnam facilities in order to continue to benefit from this growing customer demand for rebalancing their contract manufacturing. All of these changes to the Company's international and domestic manufacturing footprint and cost structure provide flexibility to respond to market conditions. We expect this will allow us to mitigate tariff implications and optimize pricing for our customers. As a result, we see opportunities for growth moving forward.
We maintain a strong balance sheet with a current ratio of 2.02.1 and a debt-to-equity ratio of 0.91.0 as of DecemberMarch 27,28, 2025.2026. Total cash provided by operating activities as defined on our cash flow statement was $14.0$10.0 million for the sixnine months ended DecemberMarch 27,28, 2025.2026. We believe we maintain sufficient liquidity for our expected future operations and as of DecemberMarch 27,28, 2025,2026, had $63.0$66.3 million in borrowings under our asset-based revolving credit facility with $20.9$20.2 million remaining available and $0.8$0.4 million of cash on hand.
Comparison of the Three Months Ended DecemberMarch 27,28, 20252026 with the Three Months Ended DecemberMarch 28,29, 20242025
The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the three months ended DecemberMarch 27,28, 20252026 as compared to the three months ended DecemberMarch 28,29, 2024.2025. It is provided to assist in assessing differences in our overall performance (in thousands):
Net sales of $96.3$89.6 million for the secondthird quarter of fiscal year 2026 decreased by 15.420.0 percent as compared to net sales of $113.9$112.0 million for the secondthird quarter of fiscal year 2025.
As noted above, the $22.4 million decrease was primarily due to reductions in demand of approximately $16.1 million from a longstanding customer and $7.2 million on the transition of an end-of-life program. Net sales for the third quarter of fiscal year 2026 was also adversely impacted by Winter Storm Fern in the southern United States, which caused temporary site closures due to facility damage, as well as certain customer design delays on a new program with a legacy customer and delays in receiving allocated components on a separate program.
The $17.5 million decrease was primarily due to reductions in demand of approximately $28 million from a longstanding customer and transition of an end-of-life program offset by approximately $11 million in additional revenue from currently ramping programs and increased demand from other longstanding customers. This includes the ongoing ramp of a new manufacturing services contract with a large data processing OEM that consigns its material and components for new production in our Corinth, Mississippi manufacturing facility. This program has the potential to ramp significantly during fiscal year 2026 and is estimated to grow over time to potentially exceed $20 million in annual revenue.
Gross profit as a percentage of net sales for the three months ended DecemberMarch 27,28, 20252026 was 0.68.0 percent compared to 6.87.7 percent for the three months ended DecemberMarch 28,29, 2024.2025. The year-over-yearquarter-over-quarter decreasesincreases in gross and operating margins areis primarily related to the significantefficiency one-timegains expenses related tofrom the wind-downcompany’s ofcost Chinareduction manufacturinginitiatives operationsover andthe severancepast expensestwo incurred in Mexico as discussed above.years.
The level of gross margin is additionally impacted by facility utilization, product mix, timing, severity and steepness of new program ramps, pricing within the electronics industry and material costs, all of which can fluctuate significantly from quarter to quarter.
Included in gross profit are charges related to reductions in the carrying value of our inventory due to obsolescence. We recorded an impairment of approximately $1.3$0.3 million and $0.1$0.0 million for obsolete inventory during the three months ended DecemberMarch 27,28, 20252026 and DecemberMarch 28,29, 2024,2025, respectively. We adjust the carrying value for estimated obsolescence as necessary in an amount equal to the difference between the cost of inventory and its net realizable value based on assumptions as to future demand and market conditions. The provisions are established for inventory that we have determined customers are not contractually responsible for and also inventory that we believe customers will be unable to purchase.
There were no significant changes to operating expenses during the secondthird quarter of fiscal year 2026. Total research, development, and engineering (“RD&E”) expenses were $1.8 million during the three months ended DecemberMarch 27,28, 20252026 and $2.3 million during the three months ended DecemberMarch 28,29, 2024,2025, respectively. Total RD&E expenses as a percent of net sales were 1.9 percent during the three months ended December 27, 2025 and 2.0 percent during the three months ended DecemberMarch 28, 2024.2026 and 2.1 percent during the three months ended March 29, 2025.
Total selling, general and administrative (“SG&A”) expenses were $9.0$6.2 million during the three months ended DecemberMarch 27,28, 20252026 compared to $6.5$6.8 million for the three months ended DecemberMarch 28,29, 2024.2025. Total SG&A expenses as a percentage of net sales were 9.37.0 percent for the three months ended DecemberMarch 27,28, 20252026 and 5.76.0 percent for the three months ended DecemberMarch 28,29, 2024.2025. TheseThe increasesdecrease areis attributable to approximately $3.4 million in estimated reserves associated with the decision to wind-down manufacturing in China partially offset by less variablereserve spendcharges duefor tocustomer the decrease in revenues.receivables.
Interest expense was $2.4 million during the three months ended DecemberMarch 27,28, 20252026 and $3.9$2.6 million during the three months ended DecemberMarch 28,29, 2024.2025. This decrease is largely attributable to lowerless interest costs as a result of refinancing ouroverall debt with a new lender, and a reduction in amounts borrowed, as described in Note 4 of the “Notes to Consolidated Financial Statements.”outstanding.
The effective tax rate for the three months ended DecemberMarch 27,28, 20252026 was 32.10.3 percent compared to 2.280.1 percent for the three months ended DecemberMarch 28,29, 2024.2025. The increasedecrease was primarily due to federal research and development tax credits and permanent book-to-tax differences relative to the respective pretax income (or loss) amounts of each period, and the recognition of a full valuation allowance against net deferredno tax assetsbenefit for losses incurred in China.China, and federal research and development tax credits.
Our judgments regarding deferred tax assets and liabilities may change due to changes in market conditions, changes in estimates, changes in tax laws or other factors. If assumptions and estimates change in the future, the deferred tax assets and liability will be adjusted accordingly and any increase or decrease will result in an additional deferred income tax expense or benefit in subsequent periods. For further information on taxes, see Note 5, “Income Taxes” of the Notes to Consolidated Financial Statements.
Comparison of the SixNine Months Ended DecemberMarch 27,28, 20252026 with the SixNine Months Ended DecemberMarch 28,29, 20242025
The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the sixnine months ended DecemberMarch 27,28, 20252026 as compared to the sixnine months ended DecemberMarch 28,29, 2024.2025. It is provided to assist in assessing differences in our overall performance (in thousands):
Net sales of $195.1$284.6 million for the sixnine months ended DecemberMarch 27,28, 20252026 decreased by 20.520.4 percent as compared to net sales of $245.4$357.4 million for the sixnine months ended DecemberMarch 28,29, 2024.2025.
The $50.3$72.7 million decrease was primarily due to reductions in demand of approximately $75$97 million from longstanding or end-of-life customers, offset by approximately $30$25 million in additional revenue from currently ramping programs or increases in demand from other longstanding customers. This includes the ongoing ramp of a new manufacturing services contract with a large data processing OEM that consigns its material and components for new production in our Corinth, Mississippi manufacturing facility. This program has the potential to ramp significantly during fiscal year 2026 and is estimated to grow over time to potentially exceed $20 million in annual revenue.
Gross profit as a percentage of net sales for the sixnine months ended DecemberMarch 27,28, 20252026 was 4.55.6 percent compared to 8.68.3 percent for the sixnine months ended DecemberMarch 28,29, 2024.2025. The year-to-date, year-over-year decreases in gross and operating margins are primarily related to the significant one-time expenses related to the wind-down of China manufacturing operations and severance expenses incurred in Mexico as discussed above.
The level of gross margin is additionally impacted by facility utilization, product mix, timing, severity and steepness of new program ramps, pricing within the electronics industry and material costs, all of which can fluctuate significantly from quarter to quarter.
Included in gross profit are charges related to reductions in the carrying value of our inventory due to obsolescence. We recorded an impairment of approximately $2.6$2.9 million and $0.0 million for obsolete inventory during the sixnine months ended DecemberMarch 27,28, 20252026 and DecemberMarch 28,29, 2024,2025, respectively. Approximately $0.9$1.0 million of this amount is related to the wind-down of our manufacturing operations in China. We adjust the carrying value for estimated obsolescence as necessary in an amount equal to the difference between the cost of inventory and its net realizable value based on assumptions as to future demand and market conditions. The provisions are established for inventory that we have determined customers are not contractually responsible for and also inventory that we believe customers will be unable to purchase.
There were no significant changes to operating expenses during the sixnine months ended DecemberMarch 27,28, 2025.2026. Total research, development, and engineering (“RD&E”) expenses were $3.9$5.7 million during the sixnine months ended DecemberMarch 27,28, 20252026 and $4.6$6.9 million during the sixnine months ended DecemberMarch 28,29, 2024,2025, respectively. Total RD&E expenses as a percent of net sales were 2.0 percent during the sixnine months ended DecemberMarch 27,28, 20252026 and 1.9 percent during the sixnine months ended DecemberMarch 28,29, 2024.2025.
Total selling, general and administrative (“SG&A”) expenses were $15.7$22.0 million during the sixnine months ended DecemberMarch 27,28, 20252026 compared to $13.1$19.8 million for the sixnine months ended DecemberMarch 28,29, 2024.2025. Total SG&A expenses as a percentage of net sales were 8.17.7 percent for the sixnine months ended DecemberMarch 27,28, 20252026 and 5.35.6 percent for the sixnine months ended DecemberMarch 28,29, 2024.2025. These increases are attributable to approximately $3.4 million in estimated reserves associated with the decision to wind-down manufacturing in China partially offset by less variable spend due to the decrease in revenues.
Interest expense was $5.1$7.5 million during the sixnine months ended DecemberMarch 27,28, 20252026 and $7.2$9.7 million during the sixnine months ended DecemberMarch 28,29, 2024.2025. This decrease is largely attributable to lower interest costs as a result of refinancing our debt with a new lender in December 2024, which resulted in a $1.0 million write-off of unamortized loan fees in December of 2024, and a reduction in amounts borrowed, as described in Note 4 of the “Notes to Consolidated Financial Statements.”
The effective tax rate for the sixnine months ended DecemberMarch 27,28, 20252026 was 32.327.8 percent compared to 1.436.2 percent for the sixnine months ended DecemberMarch 28,29, 2024.2025. The increasedecrease was primarily was primarily due to federal research and development tax credits andcredits, permanent book-to-tax differences relative to the respective pretax income (or loss) amounts of each periodperiod, no tax benefit for losses incurred in China, and the recognitionimpairment of a full valuation allowance against net deferred tax assets in China.
On DecemberMarch 27,28, 2025,2026, we had an order backlog of approximately $139.1$159.5 million. This compares with a backlog of approximately $162.5$138.1 million on DecemberMarch 28,29, 2024.2025. The decreaseincrease in order backlog is primarily related to softeningstrengthening of demand for a number of existing programs. We expect backlog to increase in the coming periods due to recent sizable program wins. Order backlog consists of purchase orders received for products expected to be shipped within the next 12 months, although shipment dates are subject to change due to design modifications or changes in other customer requirements. Order backlog should not be considered an accurate measure of future net sales.
Net cash provided by operating activities for the sixnine months ended DecemberMarch 27,28, 20252026 was $14.0$10.0 million. Net cash provided by operating activities was $11.5$10.1 million for the sixnine months ended DecemberMarch 28,29, 2024.2025.
The $14.0$10.0 million of net cash provided by operating activities for the sixnine months ended DecemberMarch 27,28, 20252026 was primarily related to $10.8$13.5 million in net loss for the period adjusted for $5.0$7.1 million of depreciation and amortization, an $11.0$9.6 million decrease in accounts receivable, a $6.3$8.6 million decrease in inventories, a $2.5$0.1 million decrease in contract assets, and a $2.0$2.1 million increase in accounts payable partially offset by a $2.2 million decrease in accrued compensation and vacation partially offset byvacation, a $1.3 million decrease in accounts payable, a $1.4$4.0 million decrease in other liabilities, and a $1.8$2.1 million increase in other assets.
The $11.5$10.1 million of net cash provided by operating activities for the sixnine months ended DecemberMarch 28,29, 20242025 was primarily related to $3.8$4.4 million in net loss for the period adjusted for $5.5$7.9 million of depreciation and amortization, a $4.4$5.8 million decrease in inventory, a $19.4$19.6 million decrease in accounts receivable, a $2.4$2.2 million decrease in contract assets, and a $1.7 million increase in other liabilities partially offset by a $15.8$14.1 million decrease in accounts payable, a $3.9$7.3 million increase in other assets, a $0.4 million decrease in other liabilities and a $0.3$0.7 million decrease in accrued compensation and vacation.
Cash used in investing activities was $6.5$3.7 million during the sixnine months ended DecemberMarch 27,28, 20252026 as compared to cash used in investing activities of $0.8$3.0 million during the sixnine months ended DecemberMarch 28,29, 2024.2025. Our primary investing activities during the sixnine months ended DecemberMarch 27,28, 20252026 and DecemberMarch 28,29, 2024,2025, related to purchasing equipment to support increased production levels for new programs.
Cash used in financing activities was $8.1$7.2 million during the sixnine months ended DecemberMarch 27,28, 20252026 as compared to $11.2$9.4 million used in financing activities in the same period of the previous fiscal year. Our primary financing activities during the sixnine months ended DecemberMarch 27,28, 2025,2026, and DecemberMarch 28,29, 2024,2025, were borrowings and repayments under our asset-based credit agreement with BMO Bank, N.A. that provides for an asset-based senior secured revolving credit facility (the “Credit Facility”) of up to $115 million, maturing on December 3, 2029, our prior loan and security agreement, as amended, with Bank of America, N.A. and term loans.
Our cash requirements are affected by the level of current operations and new programs. As discussed in Note 4 – “Long Term Debt” of the Notes to the Consolidated Financial Statements, we entered into the Credit Facility, and also entered into a $28 million term loan (the "Term Loan") credit agreement with Callodine Commercial Finance, LLC.
As of DecemberMarch 27,28, 2025,2026, we had approximately $0.8$0.4 million of cash held by foreign subsidiaries. If cash is to be repatriated in the future from these foreign subsidiaries, the Company would be subject to certain withholding taxes in the foreign jurisdictions. The total amount of tax payments required for the amount of foreign subsidiary cash on hand as of DecemberMarch 27,28, 20252026 would approximate $16,000.$11,000. We have accrued withholding taxes for expected future repatriation of foreign earnings as discussed in Note 5 of the “Notes to Consolidated Financial Statements.”
On December 19, 20252025, the Company committed to a plan to modify its China-based operations, and will end the manufacturing operations at its China-based facility. Instead, the Company intends to refocus operations in China on sourcing and procurement activities intended to support its remaining global locations. The wind down activities remain ongoing and are expected to be substantially completed by the end of the Company’s fiscal year 2026, after which there will still be ongoing sourcing and procurement activities intended to support its remaining global locations.2026. As wind down activities progress, we may discover other facts necessitating additional expenses or charges that may differ from our initial expectations. In addition, we may not be able to complete the wind down activities in all respects or in the expected time frame, due to factors outside of our control. If actual amounts were to differ from our estimates, or if the full and complete wind down takes longer than expected, our results of operations and financial condition could be materially and adversely affected.
Changes in tariffs and other trade policies can be announced with little or no advance notice. The recent broad increase in tariffs on imported products and components from certain countries, including higher tariff levels on those imported from China and Mexico have resulted, and are expected to further result, in retaliatory measures on U.S. goods by those countries and others. If maintained, these tariffs, and the potential escalation of trade disputes, could pose a risk to our business that could affect our revenue and cost of sourcing materials. We are currently shielded from Mexico related tariffs under the United States-Mexico-Canada Agreement, but there is no assurance that this agreement will not be amended or cancelled in the future. Actions we take to adapt to new tariffs or trade restrictions may increase our costs or may cause us to modify our operations, and could drive up our prices to customers. For example, we have incurred significant one-time expenses in the second quarter of 2026 related to the wind-down of our China manufacturing operations. Any decision by a large number of our customers to cease using our manufacturing services due to the application of tariffs could materially reduce our revenue and net income. In addition, tariffs or other trade restrictions have caused, and may continue to cause, adverse changes and uncertainty in U.S. and global financial and economic conditions, which adversely impacts the demand for our products.
In February 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were unauthorized. In March 2026, the U.S. Court of International Trade ordered U.S. Customs and Border Protection to refund IEEPA tariffs collected; however, the refund process and timing remain uncertain, and the order may be subject to further government action or challenge. Accordingly, as of March 28, 2026, we have not recorded any benefit related to potential refunds of IEEPA tariffs paid.
We have manufacturing and other operations located in Mexico, China, and Vietnam. A significant portion of our operations are denominated in the Mexican Peso, the Chinese currency, the renminbi ("RMB"), and the Vietnamese dong. Currency exchange rates fluctuate daily as a result of a number of factors, including changes in a country's political and economic policies. Volatility in the currencies of our entities and the United States dollar, as well as inflationary costs, could seriously harm our business, operating results and financial condition. The primary impact of currency exchange fluctuations is on the cash, receivables, payables and expenses of our operating entities. As part of our hedging strategy, we currently use Mexican Peso forward contracts to hedge future foreign currency fluctuations for a portion of our Mexican Peso denominated expenses. We currently do not hedge expenses denominated in RMB or the Vietnamese dong, and have occasionally also been unable to hedge expenses denominated in Mexican Peso. Losses have occurred from increases in the value of these currencies relative to the United States dollar and further losses could occur, which could be material to our business, financial results or operations.
Start-up costs and inefficiencies related to new or transferred programs can adversely affect our operating results and such costs may not be recoverable if such new programs or transferred programs are canceled or don’tdo not meet expected sales volumes.
RISKS RELATED TO OUR CONTROLS AND PROCEDURES AND THE INTERNAL INVESTIGATION
Matters relating to or arising from the subject of the Audit Committee’s internal investigation, including expenses and diversion of personnel and resources, regulatory investigations, and proceedings and litigation matters, could have an adverse effect on our business, results of operations and financial condition.
During fiscal year 2021, the Company’s Audit Committee completed an internal investigation arising from a notification from an employee regarding certain alleged accounting irregularities. In January 2021, the Company determined that improper accounting resulted in an understatement of cost of goods sold and an overstatement of inventories. Subsequent to the matter identified in January 2021, additional inventory accounting errors unrelated to the investigation were also identified by management. We have incurred, and may continue to incur, significant expenses related to legal, accounting and other professional services in connection with matters relating to or arising from the subject of such investigation. To the extent the steps taken to remediate identified deficiencies in our internal controls over financial reporting were not successful, we may incur significant additional time and expense.
In addition, we continue to cooperate with the SEC in its inquiries related to the internal investigation. If the SEC or any other regulator were to commence legal action against us, we could be required to pay significant penalties and become subject to injunctions, cease and desist orders or the SEC could impose other sanctions against us or against our officers and members of our Board of Directors. We can provide no assurances as to the outcome of any governmental inquiry or investigation. Further, we, our officers and members of our Board of Directors could be named as defendants in lawsuits asserting claims arising out of the subject matter of the Audit Committee’s internal investigation. As a result of any legal proceedings and any related indemnification requirements to our officers and directors, we could be required to pay monetary damages that may be in excess of our insurance coverage or may have additional penalties or other remedies imposed against us or our officers and directors.
All of these expenses, and the diversion of the attention of management and other personnel that has occurred and is expected to continue, could adversely affect our business, financial condition, results of operations and cash flows. In addition, publicity surrounding the foregoing, or any SEC enforcement action or settlement, even if ultimately resolved favorably for us, could have an adverse impact on our reputation, business, financial condition and results of operations.
Legal proceedings and government investigations could affect our financial condition or results of operations.
We are involved in various legal proceedings.
KTCC insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 16 filings (8 insiders, 2 trade dates, 23,023 shares, about $73.6K). Net open-market shares: -23,023 (purchases minus sales); net value about -$73.6K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-04 | Voorhees Anthony Gene |
Open-market sale | 1,403 | $2.34 | $3.3K |
| 2026-09-04 | Orebaugh Chad Thomas |
Open-market sale | 925 | $2.34 | $2.2K |
| 2026-09-04 | Mackleit Duane D |
Open-market sale | 925 | $2.34 | $2.2K |
| 2026-09-04 | Larsen Brett R. |
Open-market sale | 1,840 | $2.34 | $4.3K |
| 2026-09-04 | Knaggs David H. |
Open-market sale | 925 | $2.34 | $2.2K |
| 2026-09-04 | Hochberg Philip Scott |
Open-market sale | 1,153 | $2.34 | $2.7K |
| 2026-09-04 | Courtney Mark R |
Open-market sale | 566 | $2.34 | $1.3K |
| 2026-09-04 | Agress Adam L |
Open-market sale | 1,112 | $2.34 | $2.6K |
| 2026-09-03 | Voorhees Anthony Gene |
Option exercise | 4,619 | — | — |
| 2026-09-03 | Orebaugh Chad Thomas |
Option exercise | 3,695 | — | — |
| 2026-09-03 | Mackleit Duane D |
Option exercise | 3,695 | — | — |
| 2026-09-03 | Larsen Brett R. |
Option exercise | 7,391 | — | — |
| 2026-09-03 | Knaggs David H. |
Option exercise | 3,695 | — | — |
| 2026-09-03 | Hochberg Philip Scott |
Option exercise | 4,619 | — | — |
| 2026-09-03 | Courtney Mark R |
Option exercise | 1,847 | — | — |
| 2026-09-03 | Agress Adam L |
Option exercise | 3,695 | — | — |
| 2026-08-27 | Voorhees Anthony Gene |
Open-market sale | 2,252 | $3.73 | $8.4K |
| 2026-08-27 | Voorhees Anthony Gene |
Option exercise | 7,494 | — | — |
| 2026-08-27 | Shamash Yacov A |
Option exercise | 14,388 | — | — |
| 2026-08-27 | Orebaugh Chad Thomas |
Option exercise | 5,995 | — | — |
| 2026-08-27 | Orebaugh Chad Thomas |
Open-market sale | 1,482 | $3.73 | $5.5K |
| 2026-08-27 | Mackleit Duane D |
Open-market sale | 1,482 | $3.73 | $5.5K |
| 2026-08-27 | Mackleit Duane D |
Option exercise | 5,995 | — | — |
| 2026-08-27 | Larsen Brett R. |
Open-market sale | 2,957 | $3.73 | $11.0K |
| 2026-08-27 | Larsen Brett R. |
Option exercise | 11,990 | — | — |
| 2026-08-27 | Kulkarni Subodh K |
Option exercise | 14,388 | — | — |
| 2026-08-27 | Knaggs David H. |
Option exercise | 5,995 | — | — |
| 2026-08-27 | Knaggs David H. |
Open-market sale | 1,482 | $3.73 | $5.5K |
| 2026-08-27 | Klawitter Ronald F |
Option exercise | 14,388 | — | — |
| 2026-08-27 | Hochberg Philip Scott |
Open-market sale | 1,851 | $3.73 | $6.9K |
| 2026-08-27 | Hochberg Philip Scott |
Option exercise | 7,494 | — | — |
| 2026-08-27 | Gates Craig D |
Option exercise | 14,388 | — | — |
| 2026-08-27 | Courtney Mark R |
Open-market sale | 884 | $3.73 | $3.3K |
| 2026-08-27 | Courtney Mark R |
Option exercise | 2,997 | — | — |
| 2026-08-27 | Beranek Cheryl |
Option exercise | 14,388 | — | — |
| 2026-08-27 | Bean James R |
Option exercise | 14,388 | — | — |
| 2026-08-27 | Agress Adam L |
Open-market sale | 1,784 | $3.73 | $6.7K |
| 2026-08-27 | Agress Adam L |
Option exercise | 5,995 | — | — |
Well-known investors holding KTCC (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Renaissance Technologies | 2026-06-30 | 86,900 | $358.9K | 0.0% | Reduced 3% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 36,215 | $149.6K | 0.0% | Reduced 31% |