ktcc-20251227

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________

FORM 10-Q

____________________________________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED DECEMBER 27, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE PERIOD FROM TO .

Commission File Number 0-11559

____________________________________________________________

KEY TRONIC CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________________________________


Washington			91-0849125
(State of Incorporation)			(I.R.S. Employer Identification No.)

N. 4424 Sullivan Road

Spokane Valley, Washington 99216

(Address of principal executive offices)

(509) 928-8000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address, and former fiscal year, if changed since last report)

____________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, no par value	KTCC	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements during the past 90 days. Yes ☒ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) for the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer

☐

Accelerated Filer

☐

Non-accelerated Filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of February 5, 2026, 10,859,269 shares of common stock, no par value (the only class of common stock), were outstanding.

KEY TRONIC CORPORATION

Index


		Page No.

PART I.	FINANCIAL INFORMATION:

Item 1.	Financial Statements (Unaudited):	4

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Operations	5

	Condensed Consolidated Statements of Comprehensive Loss	6

	Condensed Consolidated Statements of Cash Flows	7

	Condensed Consolidated Statements of Shareholders’ Equity	8

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41

Item 4.	Controls and Procedures	41

PART II.	OTHER INFORMATION:

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds*

Item 3.	Defaults upon Senior Securities*

Item 4.	Mine Safety Disclosures*

Item 5.	Other Information	42

Item 6.	Exhibits	42

Signatures		43

* Items are not applicable

“We,” “us,” “our,” “Company,” and “Key Tronic,” unless the context otherwise requires, means Key Tronic Corporation and its subsidiaries.

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)


	December 27, 2025		June 28, 2025
ASSETS
Current assets:
Cash and cash equivalents	$	788	$	1,384
Trade receivables, net of credit losses of $4,610 and $3,479	83,332		96,142
Contract assets, net of credit losses of $690 and $0	19,872		17,409
Inventories	88,440		97,321
Other, net of credit losses of $0 and $1,463	15,031		21,917
Total current assets	207,463		234,173
Property, plant and equipment, net	33,799		27,727
Operating lease right-of-use assets, net	29,193		11,347
Other long-term assets:
Deferred income tax asset	29,774		23,397
Other, net of credit losses of $500 and $500	25,038		19,230
Total other assets	54,812		42,627
Total assets	$	325,267	$	315,874
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	62,465	$	63,725
Accrued compensation and vacation	10,140		8,157
Current portion of long-term debt	7,518		6,215
Other	21,982		13,894
Total current liabilities	102,105		91,991
Long-term liabilities:
Long-term debt, net	90,168		98,936
Operating lease liabilities	22,356		6,859
Deferred income tax liability	20		—
Other long-term obligations	4,444		954
Total long-term liabilities	116,988		106,749
Total liabilities	219,093		198,740
Commitments and contingencies (Note 8)
Shareholders’ equity:
Common stock, no par value—shares authorized 25,000; issued and outstanding 10,859 and 10,762 shares, respectively	48,001		47,502
Retained earnings	57,778		68,603
Accumulated other comprehensive income	395		1,029
Total shareholders’ equity	106,174		117,134
Total liabilities and shareholders’ equity	$	325,267	$	315,874

See accompanying notes to consolidated financial statements.

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)


	Three Months Ended				Six Months Ended
	December 27, 2025		December 28, 2024		December 27, 2025		December 28, 2024
Net sales	$	96,319	$	113,853	$	195,069	$	245,411
Cost of sales	95,759		106,147		186,255		224,402
Gross profit	560		7,706		8,814		21,009
Research, development and engineering expenses	1,844		2,320		3,923		4,609
Selling, general and administrative expenses	8,974		6,507		15,733		13,077

Total operating expenses	10,818		8,827		19,656		17,686
Operating income (loss)	(10,258)		(1,121)		(10,842)		3,323
Interest expense, net	2,371		3,904		5,147		7,167
Loss before income taxes	(12,629)		(5,025)		(15,989)		(3,844)
Income tax benefit	(4,059)		(111)		(5,164)		(54)
Net loss	$	(8,570)	$	(4,914)	$	(10,825)	$	(3,790)
Net loss per share — Basic	$	(0.79)	$	(0.46)	$	(1.00)	$	(0.35)
Weighted average shares outstanding —Basic	10,859		10,762		10,815		10,762
Net loss per share — Diluted	$	(0.79)	$	(0.46)	$	(1.00)	$	(0.35)
Weighted average shares outstanding — Diluted	10,859		10,762		10,815		10,762

See accompanying notes to consolidated financial statements.

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in thousands)


	Three Months Ended				Six Months Ended
	December 27, 2025		December 28, 2024		December 27, 2025		December 28, 2024
Comprehensive income (loss):
Net loss	$	(8,570)	$	(4,914)	$	(10,825)	$	(3,790)
Other comprehensive income (loss):
Unrealized loss on hedging instruments, net of tax	(334)		42		(634)		(796)
Comprehensive loss	$	(8,904)	$	(4,872)	$	(11,459)	$	(4,586)

Other comprehensive loss for the three months ended December 27, 2025 and December 28, 2024, is reflected net of tax expense (benefit) of approximately $(0.1) million and $0.0 million, respectively. Other comprehensive loss for the six months ended December 27, 2025 and December 28, 2024, is reflected net of tax benefit of approximately $(0.2) million and $(0.2) million, respectively.

See accompanying notes to consolidated financial statements.

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited, in thousands)


	Six Months Ended
	December 27, 2025		December 28, 2024
Operating activities:
Net loss	$	(10,825)	$	(3,790)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	4,984		5,536
Amortization of deferred loan costs	293		1,286
Noncash lease expense	1,756		2,371
Inventory adjustments to net realizable value	2,571		—
Provision for warranty	—		16
Provision for credit losses	3,738		372
Loss on disposal of assets	—		8
Share-based compensation expense	499		83
Deferred income taxes	(6,357)		(2,166)
Changes in operating assets and liabilities:
Trade receivables	11,035		19,415
Contract assets	2,509		2,361
Inventories	6,310		4,390
Other assets	(1,807)		(3,922)
Accounts payable	(1,260)		(15,809)
Accrued compensation and vacation	1,983		(292)
Other liabilities	(1,447)		1,678
Cash provided by operating activities	13,982		11,537
Investing activities:
Purchase of property and equipment	(6,487)		(821)
Cash used in investing activities	(6,487)		(821)
Financing activities:
Payment of financing costs	(129)		(2,580)
Repayments of long term debt	(3,792)		(2,294)
Borrowings under revolving credit agreement	78,613		310,646
Repayments of revolving credit agreement	(82,892)		(343,489)
Principal payments on finance leases	(333)		(1,507)
Proceeds from issuance of long-term debt	442		28,000
Cash used in financing activities	(8,091)		(11,224)
Net decrease in cash and cash equivalents	(596)		(508)
Cash and cash equivalents, beginning of period	1,384		4,752
Cash and cash equivalents, end of period	$	788	$	4,244


Supplemental cash flow information:
Interest payments	$	5,329	$	5,986
Income tax payments, net of refunds	$	980	$	458
Recognition of operating lease liabilities and right-of-use assets	$	22,133	$	784
Recognition of financing lease liabilities and right-of-use assets	$	5,611	$	—
Derecognition of operating lease liabilities and right of use assets	$	(2,531)	$	—

See accompanying notes to consolidated financial statements.

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited, in thousands)


	Three Months Ended				Six Months Ended
	December 27, 2025		December 28, 2024		December 27, 2025		December 28, 2024
Total shareholders’ equity, beginning balances	$	114,800	$	124,343	$	117,134	$	123,990

Common stock (shares):
Beginning balances	10,859		10,762		10,762		10,762
Restricted stock awards released	—		—		97		—
Ending balances	10,859		10,762		10,859		10,762

Common stock:
Beginning balances	$	47,723	$	47,351	$	47,502	$	47,284
Share-based compensation expense	278		16		499		83

Ending balances	48,001		47,367		48,001		47,367

Retained Earnings:
Beginning balances	$	66,348	$	78,045	$	68,603	$	76,921
Net loss	(8,570)		(4,914)		(10,825)		(3,790)
Ending balances	57,778		73,131		57,778		73,131

Accumulated other comprehensive income (loss):
Beginning balances	$	729	$	(1,053)	$	1,029	$	(215)
Unrealized gain (loss) on hedging instruments, net	(334)		42		(634)		(796)
Ending balances	395		(1,011)		395		(1,011)
Total shareholders’ equity, ending balances	$	106,174	$	119,487	$	106,174	$	119,487

See accompanying notes to consolidated financial statements.

KEY TRONIC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Basis of Presentation

The consolidated financial statements included herein have been prepared by Key Tronic Corporation and subsidiaries (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. The year-end condensed consolidated balance sheet information was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The financial statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2025.

The Company’s reporting period is a 52/53 week fiscal year ending on the Saturday closest to June 30. The three month period ended December 27, 2025 and December 28, 2024, were both 13 week periods. Fiscal year 2026 will end on June 27, 2026, which is a 52 week year. Fiscal year 2025, which ended on June 28, 2025, was also a 52 week year.

Management’s Assessment of Liquidity

Historically, due to the timing between the procurement of raw materials, production cycle and payment from our customers, we have financed operations and met our capital expenditure requirements primarily through cash flows provided by operations and borrowings under our credit facilities. We generated cash from operations of $14.0 million and $11.5 million, respectively, during the six-month periods ended December 27, 2025, and December 28, 2024, respectively, and have positive working capital of $105.4 million as of December 27, 2025. Based on current projections, we anticipate continuing to generate cash from operations as revenue is expected to increase throughout fiscal year 2026 along with further gross margin improvements.

On December 3, 2024, we entered into an asset-based credit agreement with BMO Bank, N.A that provides for an asset-based senior secured revolving credit facility of up to $115 million, maturing on December 3, 2029. On December 3, 2024, we also entered into a $28 million term loan credit agreement with Callodine Commercial Finance, LLC. As of December 27, 2025, approximately $20.9 million was available under the asset-based senior secured revolving credit facility. Finally, $0.8 million of cash was on hand. We believe that projected cash from operations and funds available under our asset-based revolving credit facility will be sufficient to meet our working and fixed capital requirements for at least the next 12 months.

2.Significant Accounting Policies

Allowance for Credit Losses

The Company evaluates the collectability of accounts receivable, contract assets, and other recoverable costs and records an allowance for credit losses, which reduces these assets to an amount that management reasonably estimates will be collected. A specific allowance is recorded against receivables considered to be impaired based on the Company’s knowledge of the financial condition of the customer, and a general allowance is calculated and applied to remaining assets based on the Company's historical collection experience. In determining the amount of the allowance, the Company considers several factors including the aging of the receivables, the current business environment and historical experience. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

Leases

Lease assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using the Company’s incremental borrowing rate, unless the implicit rate is readily determinable. Our incremental borrowing rate represents the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment. Lease assets also include any lease prepayments. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the consolidated statements of operations. For further information, please refer to Note 11. “Leases.”

Revenue Recognition

The first step in its process for revenue recognition is to identify the contract with a customer. A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations. A contract can be written, oral, or implied. The Company generally enters into manufacturing service agreements (“MSA”) with its customers that outlines the terms of the business relationship between the customer and the Company. This includes matters such as warranty, indemnification, transfer of title and risk of loss, liability for excess and obsolete inventory, pricing, payment terms, etc. The Company will also bid on a program-by-program basis for customers in which an executed MSA may not be in place. In these instances, as well as when we have an MSA in place, we receive customer purchase orders for specific quantities and timing of products. As a result, the Company considers its contract with a customer to be the combination of the MSA and the purchase order. The transaction price is fixed and set forth in each purchase order. In the Company's normal course of business, there are no variable pricing components, or material amounts refunded to customers in the form of refunds or rebates.

The Company assesses whether control of the product or services promised under the contract is transferred to the customer at a point in time (shipment) or over time (as we manufacture the product). The Company is first required to evaluate whether its contracts meet the criteria for 'over-time' or 'point-in-time' recognition. The Company has determined that for the majority of its contracts the Company is manufacturing products for which there is no alternative use due to the unique nature of the customer-specific product, IP and other contract restrictions. The Company has an enforceable right to payment including a reasonable profit for performance completed to date with respect to these contracts. As a result, revenue is recognized under these contracts 'over-time' based on the input cost-to-cost method as it better depicts the transfer of control. This input method is based on the ratio of costs incurred to date as compared to the total estimated costs at completion of the performance obligation. For all other contracts that do not meet these criteria, such as manufacturing contracts for which the terms do not provide an enforceable right to payment for performance completed to date, the Company recognizes revenue when it has transferred control of the related manufactured products which generally occurs upon shipment to the customer. Revenue from engineering services is recognized over time as 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.

Earnings Per Common Share

Basic earnings per common share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the combination of other potentially dilutive weighted average common shares and the weighted average number of common shares outstanding during the period using the treasury stock method. The computation assumes the proceeds from the exercise of equity awards were used to repurchase common shares at the average market price during the period. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of common stock equivalent shares that would have an anti-dilutive effect on EPS.

Derivative Instruments and Hedging Activities

The Company has entered into foreign currency forward contracts which are accounted for as cash flow hedges in accordance with ASC 815, Derivatives and Hedging. The effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (“AOCI”) and is reclassified into earnings in the same period in which the underlying hedged transaction affects earnings. The derivative’s effectiveness represents the change in fair value of the hedge that offsets the change in fair value of the hedged item.

The Company uses derivatives to manage the variability of foreign currency fluctuations of expenses in our Mexico facilities. The foreign currency forward contracts have terms that are matched to the underlying transactions being hedged. As a result, these transactions fully offset the hedged risk and no ineffectiveness has been recorded.

The Company’s foreign currency forward contracts potentially expose the Company to credit risk to the extent the counterparty may be unable to meet the terms of the agreement. The Company minimizes such risk by utilizing a counterparty with a strong credit rating. The Company’s counterparty to the foreign currency forward contracts is a major banking institution. This institution does not require collateral for the contracts, and the Company believes that the risk of the counterparty failing to meet their contractual obligations is remote. The Company does not enter into derivative instruments for trading or speculative purposes.

Income Taxes

We generally compute our interim income tax provision through the use of an estimated tax rate (“ETR”) applied to year-to-date operating results and specific events that are discretely recognized as they occur. In determining the estimated annual ETR, we analyze various factors, including projections of our annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, our ability to use tax credits and available tax planning alternatives. In the current quarter and for the full fiscal year 2026, we have departed from the ETR approach with respect to China, as the decision to end manufacturing operations has caused a change in judgment regarding the realizability of our deferred tax assets in China, resulting in projected zero ETR in China for fiscal year 2026. Discrete items, including the effect of changes in tax laws, tax rates, and certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments, are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the estimated annual ETR..

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences and benefits attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as tax credit and net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities for a change in tax rates is recognized in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized.

We utilize a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments based on new assessments and changes in estimates and which may not accurately forecast actual outcomes. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. The tax years 2005 through the present remain open to examination by the major U.S. taxing jurisdictions to which we are subject. Refer to Note 5 for further discussions.

Recently Issued Accounting Standards

On November 4, 2024 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures. The ASU requires entities to disclose in the notes to the financial statements specified information about certain costs and expenses. The ASU applies to the Company’s annual reporting period beginning in fiscal year 2028 and interim reporting periods beginning in fiscal year 2029. The Company does not anticipate early adoption of the new disclosure standard.

On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires entities to disclose more detailed information relating to their reconciliation of statutory tax rate to effective tax rate, income taxes paid by jurisdiction, pretax income (or loss) from continuing operations, and income tax expense (or benefit). The ASU applies to the Company’s annual reporting period beginning in fiscal year 2026, and the Company is currently assessing the impact of the disclosure requirement on its consolidated financial statements.

On September 18, 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This update was made to modernize the accounting for software costs. The ASU is effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating the guidance and its impact to the financial statements.

On November 25, 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815), Hedge Accounting Improvements. This update was made to clarify certain aspects of the guidance on hedge accounting and to address several incremental hedge accounting issues arising from the global reference rate reform initiative. The ASU is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is currently assessing the impact of the requirements on its consolidated financial statements.

On December 4, 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832), Accounting for Government Grants Received by Business Entities. The FASB is issuing this Update to improve generally accepted accounting principles (GAAP) by establishing authoritative guidance on the accounting for government grants received by business entities. The ASU is effective for public business entities for annual reporting periods beginning after December 15, 2029, and interim reporting

periods within those annual reporting periods. Early adoption is permitted. The Company does not expect any material changes to its consolidated financial statements as a result of this update.

On December 8, 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270), Narrow-Scope Improvements. This update is intended to improving the navigability of the required interim disclosures and clarifying when that guidance is applicable. The amendments also provide additional guidance on what disclosures should be provided in interim reporting periods. The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027 for public business entities. Early adoption is permitted. The Company is currently assessing the impact of the requirements on its consolidated financial statements.

On December 17, 2025 the FASB issued ASU 2025-12, Codification Improvements. This evergreen project facilitates Codification updates for a broad range of Topics arising from technical corrections, unintended application of the Codification, clarifications, and other minor improvements. The resulting amendments are collectively referred to as Codification improvements. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The types of issues considered through this project are improvements that are not expected to have a significant effect on current accounting practice or result in significant costs to most entities, and the Company is currently assessing the impact of the requirements on its consolidated financial statements.

3.Inventories

Inventories as of December 27, 2025 are $88.4 million compared to $97.3 million as of June 28, 2025. The components of inventories consist of the following (in thousands):


	December 27, 2025		June 28, 2025
	(in thousands)
Raw materials and supplies	$	67,604	$	75,429
Work-in-process	20,836		21,892
Inventories	$	88,440	$	97,321

4.Long-Term Debt


	Maturity Date	Interest Rate	December 27, 2025		June 28, 2025
			(in thousands)
Asset-based senior secured revolving credit facility (1)	December 3, 2029	7.0%	$	63,000	$	67,900
Domestic term loan - Callodine (2)	December 3, 2029	10.9%	25,000		26,500
Foreign line of credit (3)	December 11, 2026	10.4%	1,115		3,253
Domestic term loan - Balboa (4)	September 19, 2029	6% to 8%	3,264		3,702
Foreign term loan - Banorte (5)	April 24, 2026	5.5%	400		1,000
Domestic term loan - Avtech 8 (6)	December 16, 2028	13.6%	711		278
Domestic term loan - Avtech 9 (7)	June 30, 2028	11.7%	4,355		4,996
Foreign term loan - Banorte (3)	September 7, 2030	11.0%	2,155		—
Total debt			100,000		107,629
Less: current portion of debt			(7,518)		(6,215)
Less: unamortized financing costs			(2,314)		(2,478)
Long-term debt, net			$	90,168	$	98,936

(1) On December 3, 2024, the Company entered into an asset-based credit agreement (the "Credit Agreement") among the Company, certain domestic subsidiaries (as co-borrowers or guarantors), BMO Bank, N.A (the "Bank"), as administrative agent and swing line lender, BMO Capital Markets as arranger and book runner, and certain financial institutions, as lenders. The Credit Agreement provides for an asset-based senior secured revolving credit facility (the "Credit Facility") of up to $115 million, maturing on December 3, 2029.

Generally, under the Credit Agreement and at the Company’s option: (i) each SOFR Loan shall bear interest at a rate per annum equal to Adjusted Term SOFR (Term SOFR plus 0.10%, subject to a floor of 0.00%) plus an applicable margin of 2.50% to 3.00%, depending on the availability of borrowing amounts under the Credit Agreement; and (ii) each Base Rate Loan, Swing Line Loan or other Obligation shall bear interest at a rate per annum equal to the Base Rate (subject to a floor of 1.00%) plus an

applicable margin of 1.50% to 2.00%, depending on the availability of borrowing amounts under the Credit Agreement. As of September 27, 2025, the applicable margin was 2.75% for SOFR Loans and 1.75% for Base Rate Loans. If there is an event of default under the Credit Agreement, all loans and other obligations may bear interest at a rate of an additional 2.00% on the otherwise applicable interest rates. In addition to the applicable interest rates, the Company is required to pay a fee of 0.2% per annum on the unused portion of the Credit Facility, monthly in arrears. Availability on the line of credit is generally determined based on eligible inventory and accounts receivable balances.

On May 13, 2025, the Company entered into a first amendment and limited waiver to the Credit Agreement. The amendment waived an existing event of cross-default created by an event of default under the Term Loan as defined and discussed in footnote (2) below. The amendment also adds an additional reporting requirement.

Proceeds from the Credit Facility and the Term Loan discussed below were used to pay-off the Company's prior loan and security agreement, as amended, with Bank of America, N.A. in the amount of $99.7 million, as well as its outstanding equipment term loan, and financing costs related to the Credit Agreement. The Term Loan may also be used to pay-off certain other existing debt, to issue letters of credit, and for other business purposes, including working capital needs.

As of December 27, 2025, the Company had an outstanding balance under the asset-based revolving credit facility of $63.0 million, $0.7 million in outstanding letters of credit and $20.9 million available for future borrowings.

As of June 28, 2025, the Company had an outstanding balance under the Credit Facility of $67.9 million, $0.4 million in outstanding letters of credit and $25.0 million available for future borrowings.

(2) On December 3, 2024, the Company entered into a $28 million term loan (the "Term Loan") credit agreement among the Company, certain domestic subsidiaries (as co-borrowers or guarantors), Callodine Commercial Finance, LLC (“Callodine”), as administrative agent, and certain financial institutions, as term loan lenders. The Term Loan requires quarterly repayments of principal in the amount of $0.75 million. The remainder will be payable at maturity which is the earlier of December 3, 2029 or the maturity of the Credit Agreement described above. The Term Loan bears interest at Adjusted Term SOFR (Term SOFR plus 0.15%, subject to a floor of 3.50%) plus an applicable margin of 7.00%. If there is an event of default under the Term Loan, all loans and other obligations may bear interest at a rate of an additional 2.00% on the otherwise applicable interest rate.

On May 13, 2025, the Company entered into a first amendment and limited waiver to the Term Loan. The amendment waived an existing event of default relating to non-compliance with minimum required earnings before interest, depreciation, amortization, and other adjustments for the period ending March 29, 2025. The amendment adds an additional reporting requirement, and requires minimum earnings before interest, taxes, depreciation, amortization, and other adjustments only if average daily availability for the applicable fiscal quarter is less than 12.5% of the combined borrowing base.

(3) On December 11, 2023, the Company entered into a loan agreement in Mexican peso with Banorte Financial Group. The agreement provides for a three-year secured line of credit up to MXN100 million, subject to the Company’s borrowing base, maturing on December 11, 2026. On October 2, 2025, the company refinanced its loan agreement with Banorte Financial Group. The refinanced agreement separated the existing MXN100 million line of credit into two separate debt instruments. The first instrument allows for a line of credit of up to MXN20 million, subject to the Company’s borrowing base, maturing on December 11, 2026. The second component is a MXN40 million term loan, requiring monthly payments of MXN678 thousand through maturity on September 7, 2030. The agreement is subject to certain financial covenants which are reviewed on an annual basis. No proceeds were received as a result of the refinanced agreement.

The credit facility bears interest at Iterbancario de Equilibrio Interest Rate plus 2.75%, and as of December 27, 2025, was 10.4%. As of December 27, 2025, the Company had an outstanding balance under the revolving credit facility of MXN20 million ($1.1 million USD) and MXN0 million ($0.0 million USD) was available for future borrowings.

(4) On September 19, 2023, the Company entered into a $1.1 million equipment financing agreement with Ameris Bank dba Balboa Capital ("Balboa Capital"). Combining with other equipment financing agreements entered in the third quarter of fiscal year 2023, a total of $5.5 million relates to the Company’s existing manufacturing equipment that bears an interest rate range of 6% - 8% and matures in the first quarter of fiscal 2030. Under these loan agreements, equal monthly payments of $94,000 commenced in the fourth quarter of fiscal year 2024 and will continue through the maturity of the equipment financing facility in the first quarter of fiscal 2030.

(5) On November 24, 2020, the Company entered into a $6.0 million equipment financing facility related to the Company’s existing manufacturing equipment that bears interest at 5.52% and matures on April 24, 2026. Under this loan agreement, equal monthly payments of $100,000 commenced on May 24, 2021 and will continue through the maturity of the equipment financing facility on April 24, 2026.

(6) On May 1, 2025, the Company entered into a $4.0 million equipment financing facility related to new manufacturing equipment that bears interest at 13.6% and matures on October 31, 2028. On December 16, 2025, the equipment financing facility was amended and restated to reduce the financing proceeds to $0.7 million and equal quarterly payments of $69,022. The equipment financing facility will mature on December 16, 2028.

(7) On March 6, 2025, the Company entered into a $5.0 million equipment financing facility related to the Company’s existing manufacturing equipment that bears interest at 11.71% and matures on June 30, 2028. Under this loan agreement, equal quarterly payments of $464,361 commenced on July 15, 2025 and will continue through the maturity of the equipment financing facility on June 30, 2028.

Debt maturities as of December 27, 2025 for the next five years are as follows (in thousands):


Fiscal Years Ending	Amount
2026 (1)	$	3,369
2027	7,250
2028	6,917
2029	4,339
2030	78,011
Thereafter	114
Total debt	100,000
Unamortized debt issuance costs	(2,314)
Long-term debt, net of debt issuance costs	$	97,686

(1) Represents scheduled payments for the remaining six-month period ending June 27, 2026.

The Company must comply with 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. The Credit Agreement requires the Company to grant certain inspection rights to BMO Bank, N.A., limit or restrict the Company’s cash management; limit or restrict the ability of the Company to incur additional liens, make acquisitions or investments, incur additional indebtedness, engage in mergers, consolidations, liquidations, dissolutions, or dispositions, pay dividends or other restricted payments, prepay certain indebtedness, engage in transactions with affiliates, and use proceeds. As of December 27, 2025, the Company was in compliance with all applicable financial covenants.

5.Income Taxes

Currently, all unremitted foreign earnings are expected to remain permanently reinvested for planned fixed assets purchases and improvements in foreign locations.

Repatriations of cash will generally be tax-free in the U.S. However, withholding taxes in China may still apply to any such future repatriations. Currently, management estimates no future repatriations of cash from China that would result in withholding tax. Withholding taxes would not apply to future repatriations from Mexico or Vietnam.

The Company has available approximately $11.4 million of gross federal research and development tax credits as of December 27, 2025 expiring in various fiscal years from 2033 to 2046. ASC 740 requires the Company to recognize in its financial statements uncertainties in tax positions taken that may not be sustained upon examination by the taxing authorities. Accordingly, as of December 27, 2025, the Company has recorded $2.9 million of unrecognized tax benefits associated with these federal tax credits, resulting in a net deferred tax benefit of approximately $8.5 million.

Management has reviewed all deferred tax assets for purposes of determining whether a valuation allowance may be required. A valuation allowance against deferred tax assets is required if it is more likely than not that some of the deferred tax assets will not be realized. In spite of the Company’s current cumulative loss position before nonrecurring items such as cyber losses and restructuring costs, based upon the Company’s historical profitability and forecasted income, management determined that it is more likely than not that the deferred tax assets will be realized, except for deferred tax assets in China, discussed below. The Company’s largest deferred tax assets are federal research and development tax credits, deferred research and development expenses, and interest expense deduction carryforwards. Company forecasts show that the credits will be utilized within the expiration period. Deferred research and development expenses are deductible in fiscal year 2026 under the One Big Beautiful Bill Act. Interest expense deduction carryforwards, which never expire and carry forward indefinitely, are projected to be utilized in future periods as profitability increases and interest expense decreases. Profitability is forecasted in the coming years due to the nonrecurrence of significant expense items in recent years such as cyber losses and restructuring costs, the future cost benefits associated with the restructuring costs, and significant income and increased margins from multiple new customers. The Company has closely monitored the realizability of deferred tax assets, tracking book income, permanent differences, and nonrecurring items while projecting future utilization of deferred tax assets, and will continue to do so as future actual results are compared to forecasted results. The Company’s decision to end manufacturing operations in China has resulted in loss carryforwards that more likely than not will not be realized in the carryforward period. Therefore, the Company has placed a full valuation allowance on the net deferred tax asset in China as of December 27, 2025.

The Company evaluated tax law changes and regulatory guidance issued through the fiscal quarter. After the end of fiscal year 2025, on July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, which includes several tax related provisions that will impact the Company beginning in fiscal year 2026. The Company expects these tax law changes may mitigate federal income taxes payable, but it is not expected to materially impact the Company’s overall tax position and effective tax rate in fiscal year 2026 or beyond.

On January 27, 2021, the Company received official notice from the Vietnamese tax authorities, confirming tax benefits awarded (the “tax holiday”) related to the Company’s principal product line in Vietnam. The tax rate related to this product line will be zero percent for four years beginning with fiscal year 2021, then five percent for nine years, then ten percent for one year (as opposed to the normal twenty percent each year).

The Company’s Advance Pricing Agreement for intercompany transfer pricing has expired, and our Mexico subsidiary is now subject to the Mexico safe harbor transfer pricing regulations. As a result, we generally expect our current tax liability in Mexico to increase. Overall, we do not expect the application of the safe harbor transfer pricing regulations to have a material impact on our consolidated tax position.

6.Earnings Per Share

Basic earnings per share (“EPS”) is calculated by dividing net loss (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Diluted EPS is computed by including both the weighted-average number of shares outstanding and any dilutive common share equivalents in the denominator. The following table presents a reconciliation of the denominator and the number of antidilutive common share awards that were not included in the diluted earnings per share calculation. These antidilutive securities occur when equity awards outstanding have an option price greater than the average market price for the period:


	Three Months Ended				Six Months Ended
	(in thousands, except per share information)
	December 27, 2025		December 28, 2024		December 27, 2025		December 28, 2024
Net loss	$	(8,570)	$	(4,914)	$	(10,825)	$	(3,790)
Weighted average shares outstanding—basic	10,859		10,762		10,815		10,762
Effect of dilutive common stock awards	—		—		—		—
Weighted average shares outstanding—diluted	$	10,859	$	10,762	$	10,815	$	10,762
Net loss per share—basic	$	(0.79)	$	(0.46)	$	(1.00)	$	(0.35)
Net loss per share—diluted	$	(0.79)	$	(0.46)	$	(1.00)	$	(0.35)
Antidilutive shares not included in diluted earnings per share	87		48		—		—

7. Stock-Based Compensation and Benefit Plans

The Company’s 2024 Incentive Plan provides for equity and liability awards to employees and non-employee directors with service and performance vesting conditions in the form of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, stock awards, stock units, performance shares, performance units, and other stock-based or cash-based awards. At December 27, 2025, 1,056,448 shares were available for grant. Compensation cost is recognized on a straight-line basis over the requisite employee service period, which is generally the vesting period, and is recorded as employee compensation expense in cost of goods sales, research, development and engineering, and selling, general and administrative expenses. Share-based compensation is recognized only for those awards that are expected to vest. For SARs awards, forfeitures are estimated at the date of grant based on historical experience and future expectations. Due to a lack of historical experience and a different grant pool than SARs, forfeitures for restricted stock units are accounted for prospectively as they occur.

Stock Appreciation Rights

In addition to service conditions, SARs contain a performance condition. The additional performance condition is based upon the achievement of Return on Invested Capital (“ROIC”) goals relative to a peer group. All awards with performance conditions are evaluated quarterly to determine the likelihood that performance metrics will be achieved during the performance period. These awards are charged to compensation expense over the requisite service period based on the number of shares expected to vest. If the performance and service conditions are attained, then the SARs cliff vest after the completion of the three-year period from date of grant and expire five years from date of grant.

SARs

Aggregate
Intrinsic
Value (in
thousands)

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life (in
years)

Outstanding, June 30, 2024

387,500

SEC Form 10-Q filed by Key Tronic Corporation