KEY TRONIC CORP

Previous wording

For the first quarter of fiscal year 2025, we believe 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, as well as to our expanding Vietnam facilities. We continue to see improvement across the metrics associated with business development, including a significant increase in the number of active quotes with prospective customers.

Current wording

For the first quarter of fiscal year 2026, 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, 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.

Previous wording

We aim to diversify our customer base by adding additional programs and customers. Our current customer relationships involve a variety of products including sheet metal fabrication, medical devices and components, water purification products, consumer security products, aerospace and defense products, recreational and outdoor equipment, and plastics.

Current wording

We aim to diversify our customer base by adding additional programs and customers. Our current customer relationships involve a variety of products including sheet metal fabrication, medical devices and components, water purification products, data processing equipment, utilities inspection, consumer security products, aerospace and defense products, recreational and outdoor equipment, and plastics.

Previous wording

Mexican wages as well as the strengthening of the Mexican Peso relative to the US Dollar. Additionally, as previously disclosed, a restructuring of our Mexico-based facility to focus on higher volume manufacturing resulted in severance expenses incurred late in the year which we expect to provide benefits to the gross profit margin in future periods. The level of gross margin is impacted by product mix, timing of the startup of new programs, facility utilization, and pricing within the electronics industry and material costs, which can fluctuate significantly from quarter-to-quarter and year-to-year.

Current wording

Gross profit as a percentage of net sales was 7.8 percent in fiscal year 2025, up from 7.0 percent in 2024. During fiscal year 2025, the increase in gross margin is largely related to operational efficiencies gained from the reductions in workforce offset by the expenses incurred for the related severance. 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.

Previous wording

We maintained a strong balance sheet with a current ratio of 2.8 and a debt-to-equity ratio of 0.96. Total cash provided by operating activities as defined on our cash flow statement was $13.8 million during fiscal year 2024, as we have continued to focus on decreasing accounts receivable and inventory balances. We believe we maintain sufficient liquidity for our expected future operations, dependent upon executing projected cash flows from operations and potentially adding additional credit capacities through refinancing current credit agreements or pursuing additional debt structures.

Current wording

We maintained a strong balance sheet with a current ratio of 2.5 and a debt-to-equity ratio of 0.90. Total cash provided by operating activities as defined on our cash flow statement was $18.9 million during fiscal year 2025, as we have continued to focus on optimizing inventory balances and reducing the days to collect accounts receivable. We believe we maintain sufficient liquidity for our expected future operations, dependent upon executing projected cash flows from operations and potentially adding additional credit capacities through refinancing current credit agreements or pursuing additional debt structures.

Previous wording

Sales to foreign locations represented 22.5 percent and 14.3 percent of our total net sales in fiscal years 2024 and 2023, respectively.

Current wording

Sales to foreign locations represented 21.2 percent and 22.5 percent of our total net sales in fiscal years 2025 and 2024, respectively.

Previous wording

Total cost of sales as a percentage of net sales was 93.0 percent in fiscal year 2024 and 92.2 percent in fiscal year 2023.

Current wording

Total cost of sales as a percentage of net sales was 92.2 percent in fiscal year 2025 and 93.0 percent in fiscal year 2024.

Previous wording

We record our inventories at net realizable value based on specific identification of inventory against current demand and recent usage. We also consider our customers' ability to pay for inventory whether or not there is a lead-time assurance agreement for a specific program. The amounts charged to expense for these inventories were approximately $0.3 million and $0.4 million in fiscal years 2024 and 2023, respectively.

Current wording

We record our inventories at net realizable value based on specific identification of inventory against current demand and recent usage. We also consider our customers' ability to pay for inventory and whether or not there is a lead-time assurance agreement for a specific program. The amounts charged to expense for these inventories were approximately $0.1 million and $0.3 million in fiscal years 2025 and 2024, respectively.

Previous wording

We provide warranties on certain products we sell and estimate warranty costs based on historical experience and anticipated product returns. Warranty expense is related to workmanship claims. The amounts charged to expense are determined based on an estimate of warranty exposure. The net warranty expense was approximately $0.3 million and $0.3 million in fiscal years 2024 and 2023, respectively.

Current wording

We provide warranties on certain products we sell and estimate warranty costs based on historical experience and anticipated product returns. Warranty expense is related to workmanship claims. The amounts charged to expense are determined based on an estimate of warranty exposure. The net warranty expense was approximately $0.0 million and $0.3 million in fiscal years 2025 and 2024, respectively.

Previous wording

Research, development and engineering expenses (RD&E) consist principally of employee related costs, third-party development costs, program materials, depreciation, and allocated information technology and facilities costs. Total RD&E expenses were $8.3 million and $9.7 million in fiscal years 2024 and 2023, respectively. Total RD&E expenses as a percent of net sales was 1.5 percent in fiscal year 2024 and 1.6 percent in fiscal year 2023.

Current wording

Research, development and engineering expenses (RD&E) consist principally of employee related costs, third-party development costs, program materials, depreciation, and allocated information technology and facilities costs. Total RD&E expenses were $9.2 million and $8.3 million in fiscal years 2025 and 2024, respectively. Total RD&E expenses as a percent of net sales was 2.0 percent in fiscal year 2025 and 1.5 percent in fiscal year 2024.

Previous wording

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 $25.2 million and $25.7 million in fiscal years 2024 and 2023, respectively. Total SG&A expenses as a percent of net sales were 4.4 percent and 4.2 percent in fiscal years 2024 and 2023, respectively.

Current wording

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 million and $25.2 million in fiscal years 2025 and 2024, respectively. Total SG&A expenses as a percent of net sales were 5.7 percent and 4.4 percent in fiscal years 2025 and 2024, respectively. This increase is largely attributable to approximately $1.8 million in adjustments for estimated collections from customers.

Previous wording

We had an income tax benefit of approximately $2.4 million during fiscal year 2024 and an income tax expense of approximately $1.1 million during fiscal year 2023. The income tax benefit/expense recognized during both fiscal years 2024 and 2023 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, and the impact of foreign exchange gains in fiscal year 2023.

Current wording

We had income tax benefits of approximately $3.6 million during fiscal year 2025 and $2.4 million during fiscal year 2024. The income tax benefit recognized during both fiscal years 2025 and 2024 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, and the change in deferred tax liability related to future distributions from China in fiscal year 2025.

Previous wording

To supplement our consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States (GAAP), we use certain non-GAAP financial measures, adjusted net income and adjusted net income per share, diluted. Beginning with the full year of fiscal year 2024, we provide these non-GAAP financial measures because we believe they provide greater transparency related to our core operations and represent supplemental information used by management in its financial and operational decision making. We exclude (or include) certain items in our non-GAAP financial measures as we believe the net result is a measure of our core business. We believe this facilitates operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain income and expense items that would not otherwise be apparent on a GAAP basis. Non-GAAP performance measures should be considered in addition to, and not as a substitute for, results prepared in accordance with GAAP. The non-GAAP financial measures disclosed below should be read in conjunction with the remainder of this Annual Report on Form 10-K, including the consolidated financial statements and footnotes thereto. Our non-GAAP financial measures may be different from those reported by other companies. See the table below for reconciliations of adjusted net income to the most directly comparable GAAP measure, which are GAAP net income and the computation of adjusted net income per share, diluted.

Current wording

To supplement our consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States (GAAP), we use certain non-GAAP financial measures, adjusted net loss and adjusted net loss per share, diluted. Beginning with the full year of fiscal year 2024, we provide these non-GAAP financial measures because we believe they provide greater transparency related to our core operations and represent supplemental information used by management in its financial and operational decision making. We exclude (or include) certain items in our non-GAAP financial measures as we believe the net result is a measure of our core business. We believe this facilitates operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain income and expense items that would not otherwise be apparent on a GAAP basis. Non-GAAP performance measures should be considered in addition to, and not as a substitute for, results prepared in accordance with GAAP. The non-GAAP financial measures disclosed below should be read in conjunction with the remainder of this Annual Report on Form 10-K, including the consolidated financial statements and footnotes thereto. Our non-GAAP financial measures may be different from those reported by other companies. See the table below for reconciliations of adjusted net loss to the most directly comparable GAAP measure, which are GAAP net loss and the computation of adjusted net loss per share, diluted.

Previous wording

Foreign sales (based on shipping instructions) from our worldwide operations, including domestic exports, were $127.6 million and $86.5 million in fiscal years 2024 and 2023, respectively. Products and manufacturing services provided by our subsidiary operations are often shipped to customers directly by the parent company.

Current wording

Foreign sales (based on shipping instructions) from our worldwide operations, including domestic exports, were $99.3 million and $127.6 million in fiscal years 2025 and 2024, respectively. Products and manufacturing services provided by our subsidiary operations are often shipped to customers directly by the parent company.

Previous wording

Net cash provided by operating activities for fiscal year 2024 was $13.8 million compared to net cash used in operating activities of $11.3 million in fiscal year 2023. The additional cash provided in fiscal year 2024 was due to a focus on collecting accounts receivable and working down inventory balances to be in line with current revenue levels.

Current wording

Net cash provided by operating activities for fiscal year 2025 was $18.9 million compared to net cash provided by operating activities of $13.8 million in fiscal year 2024. The additional cash provided in fiscal year 2025 was due to a focus on collecting accounts receivable faster and working down inventory balances to be in line with current revenue levels.

Previous wording

The $11.3 million of net cash used in operating activities during fiscal year 2023 was primarily related to $5.2 million of net income adjusted for $9.5 million of depreciation and amortization, $14.8 million increase in accounts receivable, a $16.0 million decrease in other liabilities, a $5.5 million decrease in accounts payable, a $8.0 million increase in contract assets partially offset by a $17.4 million decrease in inventory, and a $1.5 million increase in accrued compensation and vacation.

Current wording

The $18.9 million of net cash provided by operating activities during fiscal year 2025 is primarily related to $8.3 million of net loss adjusted for $9.6 million of depreciation and amortization, $32.4 million decrease in accounts receivable, a $7.7 million decrease in inventory, a $3.8 million decrease in contract assets, and a $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 million decrease in other liabilities.

Previous wording

The $13.8 million of net cash provided by operating activities during fiscal year 2024 is primarily related to $2.8 million of net loss adjusted for $11.0 million of depreciation and amortization, $15.8 million decrease in accounts receivable, a $32.5 million decrease in inventory, an $8.7 million decrease in contract assets partially offset by a $36.5 million decrease in accounts payable, a $2.9 million decrease in accrued compensation and vacation, $0.6 million increase in other assets and a $8.1 million decrease in other liabilities.

Current wording

The $13.8 million of net cash provided by operating activities during fiscal year 2024 was primarily related to $2.8 million of net loss adjusted for $11.0 million of depreciation and amortization, an $15.8 million decrease in accounts receivable, a $32.5 million decrease in inventory, an $8.7 million decrease in contract assets partially offset by a $36.5 million decrease in accounts payable, a $2.9 million decrease in accrued compensation and vacation, and an $8.1 million decrease in other liabilities.

Previous wording

Cash flows used in investing activities were $2.1 million for fiscal year 2024. Cash flows used in investing activities were $4.5 million in fiscal year 2023. Our primary use of cash in investing activities during fiscal years 2024 and 2023 was purchasing equipment to support increased production levels for new programs. During fiscal year 2024, the source of cash provided by investing activities came from insurance claims paid for replacing equipment and facility repairs in our Arkansas facility related to a lightning strike and water damage.

Current wording

Cash flows used in investing activities were $4.2 million for fiscal year 2025 and $2.1 million in fiscal year 2024. Our primary use of cash in investing activities during fiscal years 2025 and 2024 was purchasing equipment to support production for new programs. During fiscal year 2024, 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.

Previous wording

Cash flows used in financing activities were $10.5 million in fiscal year 2024 and cash flows provided by financing activities were $17.7 million in fiscal year 2023. Our primary financing activities during both fiscal year 2024 and fiscal year 2023 were borrowings and repayments under our revolving line of credit facility as well as repayments on our term loans and principal payments on finance leases. In fiscal year 2024, there was a significantly higher percentage of repayments against the borrowings on the revolving line of credit.

Current wording

Cash flows used in financing activities were $18.1 million in fiscal year 2025 and $10.5 million in fiscal year 2024. Our primary financing activities during both fiscal year 2025 and fiscal year 2024 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, there was a significantly higher percentage of repayments against the borrowings on the revolving line of credit.

Previous wording

Our cash requirements are affected by the level of current operations and new programs. We believe that projected cash from operations, funds available under the revolving credit facility and potential additional debt capacity will be sufficient to meet our working and fixed capital requirements for at least twelve months beyond issuance of our financial statements, and our current asset-based senior secured revolving credit facility does not mature until December 3, 2025. The Company further notes projected cash from operations is projected to improve in the coming quarters as supply chain availability will boost additional inventory turns and existing inventory is consumed by fulfilling customer backlog. As of June 29, 2024, we had approximately $4.7 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 June 29, 2024 would approximate $15,893.

Current wording

Our cash requirements are affected by the level of current operations and new programs. We believe that projected cash from operations, funds available under the revolving credit facility and potential additional debt capacity will be sufficient to meet our working and fixed capital requirements for at least twelve months beyond issuance of our financial statements, and our current asset-based senior secured revolving credit facility does not mature until December 3, 2025. The Company further notes projected cash from operations is projected to improve in the coming quarters as supply chain availability will boost additional inventory turns and existing inventory is consumed by fulfilling customer backlog. As of June 28, 2025, we had approximately $1.4 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 June 28, 2025 would approximate $14,000.

Previous wording

The Company also has approximately $38.5 million of foreign earnings that have not been repatriated to the U.S. of that amount, the Company estimates that $8.0 million is to be repatriated in the future, requiring foreign withholding taxes of $0.8 million that is currently accrued in our deferred tax liabilities. The remaining $30.5 million is considered to be permanently reinvested in Mexico, China and Vietnam. If these amounts were required to be repatriated, we estimate it would create an additional $0.8 million in foreign withholding taxes payable.

Current wording

The Company also has approximately $26.4 million of foreign earnings that have not been repatriated to the U.S. of that amount, the Company estimates that $2.9 million is to be repatriated in the future, requiring foreign withholding taxes of $0.3 million that is currently accrued in our deferred tax liabilities. The remaining $23.5 million is considered to be permanently reinvested in Mexico and Vietnam. If these amounts were required to be repatriated, it would result in no foreign withholding taxes payable.

Previous wording

We value our accounts receivable net of an allowance for credit losses. As of June 29, 2024, the allowance for credit losses was approximately $2.9 million. As of July 1, 2023, the allowance for credit losses was approximately $23,000. The increase during fiscal year 2024 relates to the adoption of ASC 326, which was adopted on a modified retrospective basis. This allowance is based on estimates of the portion of accounts receivable that may not be collected in the future. The estimates used are based 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.

Current wording

We value our accounts receivable net of an allowance for credit losses. 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 million. This allowance is based on estimates of the portion of accounts receivable that may not be collected in the future, and the increase during fiscal year 2025 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.