KEY TRONIC CORP

Previous wording

Our domestic and international production capability provides our customers with benefits of improved supply-chain management, reduced inventories, lower transportation costs, and reduced product fulfillment time. We continue to make investments in all of our operating facilities to give us the production capacity, capabilities and logistical advantages to continue to win new business. The following information should be read in conjunction with the consolidated financial statements included herein and with Part II Item 1A, Risk Factors included as part of this filing.

Current wording

Our domestic and international production capability provides our customers with benefits of improved supply-chain management, reduced inventories, lower transportation costs, and reduced product fulfillment time. We continue to make investments in our operating facilities to give us the production capacity, capabilities and logistical advantages to continue to win new business. The following information should be read in conjunction with the consolidated financial statements included herein and with Part II Item 1A, Risk Factors included as part of this filing.

Previous wording

The concentration of our top three customers’ net sales increased to 33.5 percent of total sales in the third quarter of fiscal year 2025 from 25.4 percent in the same period of the prior fiscal year. As new customer programs ramp, we expect that concentration to our top three customers will decrease.

Current wording

The concentration of our top three customers’ net sales decreased to 30.4 percent of total sales in the first quarter of fiscal year 2026 from 37.5 percent in the same period of the prior fiscal year. As new customer programs ramp, we expect that concentration to our top three customers will decrease.

Previous wording

Net loss for the third quarter of fiscal year 2025 was $0.6 million or $0.06 per diluted share, as compared to net loss of $2.2 million or $0.21 per diluted share for the third quarter of fiscal year 2024. The year-over-year increase in earnings was a result of the factors discussed above, primarily increases in margins attributed to benefits realized from reducing costs and strategic reductions in headcount over the past three quarters.

Current wording

Net loss for the first quarter of fiscal year 2026 was $(2.3) million or $(0.21) per diluted share, as compared to net income of $1.1 million or $0.10 per diluted share forthe first quarter of fiscal year 2025. The year-over-year decrease in earnings was a result of the factors discussed above, primarily reduced revenue and balance sheet write-offs due to a customer bankruptcy

Previous wording

Moving into the fourth quarter of fiscal year 2025, while we continue to see a favorable trend of contract manufacturing returning to North America, continued increases in Mexican wages, particularly along the US-Mexico border, and potential tariffs, have reduced the competitive advantage of Mexico-based manufacturing compared to U.S.-based manufacturing. In response to this sustained and ongoing trend, the Company is restructuring its Juarez facility to focus on higher volume manufacturing, while lower volume products with higher service level requirements will migrate to our other sites. This restructuring resulted in a significant headcount reduction starting in the third quarter of fiscal year 2024 with a follow on reduction in the third quarter of fiscal year 2025, and further reductions expected through the first quarter of fiscal year 2026. Additionally, global logistics problems, the wars in Europe, China-U.S. geopolitical tensions and related tariff increases may continue to drive Original Equipment Manufacturers (“OEMs”) to examine their traditional outsourcing strategies. We believe these customers increasingly realize they have become overly dependent on their China-based contract manufacturers not only for products, but also for design and logistics services. The decision to onshore or near shore production appears to be becoming more widely accepted as a smart long-term strategy. The Company's international and domestic manufacturing footprint provides flexibility to respond to market conditions. This is expected to help mitigate tariff implications and optimize pricing for customers. As previously announced, the Company is also planning to significantly increase its production capacity in its Arkansas and Vietnam facilities in order to continue to benefit from the growing customer demand for rebalancing their contract manufacturing. This expansion is also expected to help mitigate the adverse impact and uncertainties surrounding any current and potential tariffs on goods manufactured in China and Mexico. As a result, we see opportunities for growth moving forward.

Current wording

Moving into the second 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 is restructuring its Juarez facility to focus on higher volume manufacturing, while lower volume products with higher service level requirements will migrate to our other sites. This restructuring resulted in a significant headcount reduction starting in the third quarter of fiscal year 2024 with a follow on reduction in the third quarter of fiscal year 2025, and smaller further reductions expected throughout fiscal year 2026. 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.

Previous wording

We maintain a strong balance sheet with a current ratio of 2.7 and a debt-to-equity ratio of 0.9 as of March 29, 2025. Total cash provided by operating activities as defined on our cash flow statement was $10.1 million for the nine months ended March 29, 2025. We believe we maintain sufficient liquidity for our expected future operations and as of March 29, 2025, had $79.5 million in borrowings under our asset-based revolving credit facility with $20.4 million remaining available and $2.5 million of cash on hand.

Current wording

We maintain a strong balance sheet with a current ratio of 2.4 and a debt-to-equity ratio of 0.9 as of September 27, 2025. Total cash provided by operating activities as defined on our cash flow statement was $7.6 million for the three months ended September 27, 2025. We believe we maintain sufficient liquidity for our expected future operations and as of September 27, 2025, had $64.5 million in borrowings under our asset-based revolving credit facility with $20.9 million remaining available and $1.1 million of cash on hand.

Previous wording

Net sales of $112.0 million for the third quarter of fiscal year 2025 decreased by 21.4 percent as compared to net sales of $142.4 million for the third quarter of fiscal year 2024.

Current wording

Net sales of $98.8 million for the first quarter of fiscal year 2026 decreased by 24.9 percent as compared to net sales of $131.6 million for the first quarter of fiscal year 2025.

Previous wording

Included in gross profit are charges related to reductions in the carrying value of our inventory due to obsolescence. We did not record any significant impairment for obsolete inventory during the three months ended March 29, 2025 or March 30, 2024. 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.

Current wording

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 $1.2 million and $0.3 million for obsolete inventory during the three months ended September 27, 2025 and September 28, 2024, respectively. We adjust the carrying value for estimated obsolesc ence 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.

Previous wording

There were no significant changes to operating expenses during the third quarter of fiscal year 2025. Total research, development, and engineering (“RD&E”) expenses were $2.3 million during the three months ended March 29, 2025 and $2.2 million during the three months ended March 30, 2024, respectively. Total RD&E expenses as a percent of net sales were 2.1 percent during the three months ended March 29, 2025 and 1.6 percent during the three months ended March 30, 2024.

Current wording

There were no significant changes to operating expenses during the first quarter of fiscal year 2026. Total research, development, and engineering (“RD&E”) expenses were $2.1 million during the three months ended September 27, 2025 and $2.3 million during the three months ended September 28, 2024, respectively. Total RD&E expenses as a percent of net sales were 2.1 percent during the three months ended September 27, 2025 and 1.7 percent during the three months ended September 28, 2024.

Previous wording

Total selling, general and administrative (“SG&A”) expenses were $6.8 million during the three months ended March 29, 2025 compared to $6.4 million for the three months ended March 30, 2024. Total SG&A expenses as a percentage of net sales were 6.0 percent for the three months ended March 29, 2025 and 4.5 percent for the three months ended March 30, 2024. These increases are attributable to increases in the estimated provision for credit losses.

Current wording

Total selling, general and administrative (“SG&A”) expenses were $6.8 million during the three months ended September 27, 2025 compared to $6.6 million for the three months ended September 28, 2024. Total SG&A expenses as a percentage of net sales were 6.8 percent for the three months ended September 27, 2025 and 5.0 percent for the three months ended September 28, 2024. This increase in percentage is attributable to increases in the estimated provision for credit losses along with decreased revenues.

Previous wording

Interest expense was $2.6 million during the three months ended March 29, 2025 and $2.8 million during the three months ended March 30, 2024. This decrease is largely attributable to lower interest costs as a result of refinancing our debt with a new lender, as described in Note 4 of the “Notes to Consolidated Financial Statements.”

Current wording

Interest expense was $2.8 million during the three months ended September 27, 2025 and $3.3 million during the three months ended September 28, 2024. This decrease is largely attributable to lower interest costs as a result of refinancing our debt with a new lender, and a reduction in amounts borrowed, as described in Note 4 of the “Notes to Consolidated Financial Statements.”

Previous wording

The effective tax rate for the three months ended March 29, 2025 was 80.1 percent compared to 34.2 percent for the three months ended March 30, 2024. The increase was primarily due to federal research and development tax credits andpermanent book-to-tax differences relative to the respective pretax income (or loss) amounts of each period.

Current wording

The effective tax rate for the three months ended September 27, 2025 was 32.9 percent compared to 4.8 percent for the three months ended September 28, 2024. The increase was primarily due to federal research and development tax credits andpermanent book-to-tax differences, including new safe harbor transfer pricing adjustments in Mexico, relative to the respective pretax income (or loss) amounts of each period.

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 loss and adjusted net loss per share, diluted. 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 Quarterly Report on Form 10-Q, including the consolidated financial statements and footnotes thereto. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. 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 is GAAP net loss, and the computation of adjusted net loss 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 income (loss) and adjusted net income (loss) per share, diluted. 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 Quarterly Report on Form 10-Q, including the consolidated financial statements and footnotes thereto. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Our non-GAAP financial measures may be different from those reported by other companies. See the table below for reconciliations of adjusted net income (loss) to the most directly comparable GAAP measure, which is GAAP net income (loss), and the computation of adjusted net income (loss) per share, diluted.

Previous wording

On March 29, 2025, we had an order backlog of approximately $138.1 million. This compares with a backlog of approximately $275.8 million on March 30, 2024. The decrease in order backlog is related to softening of demand for a number of our Mexico-based programs, partially offset by an increase in demand for our U.S. based facilities. We expect backlog to increase in the coming periods due to recent sizeable 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.

Current wording

On September 27, 2025, we had an order backlog of approximately $139.9 million. This compares with a backlog of approximately $210.8 million on September 28, 2024. The decrease in order backlog is primarily related to softening 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.

Previous wording

Net cash provided by operating activities for the nine months ended March 29, 2025 was $10.1 million. Net cash provided by operating activities was $6.1 million for the nine months ended March 30, 2024.

Current wording

Net cash provided by operating activities for the three months ended September 27, 2025 was $7.6 million. Net cash provided by operating activities was $9.9 million for the three months ended September 28, 2024.

Previous wording

The $6.1 million of net cash provided by operating activities for the nine months ended March 30, 2024 was primarily related to $0.8 million in net loss for the period adjusted for $8.2 million of depreciation and amortization, a $22.8 million decrease in inventory, a $1.3 million decrease in contract assets, a $14.9 million decrease in accounts receivable partially offset by a $0.8 million decrease in other liabilities, a $1.5 million increase in other assets, a $33.7 million decrease in accounts payable, and a $2.4 million decrease in accrued compensation and vacation.

Current wording

The $7.6 million of net cash provided by operating activities for the three months ended September 27, 2025 was primarily related to $2.3 million in net loss for the period adjusted for $2.5 million of depreciation and amortization, a $14.7 million decrease in accounts receivable, and a $2.1 million increase in other liabilities partially offset by a $4.9 million increase in contract assets, a $2.7 million decrease in accounts payable, a $0.8 million increase in other assets, and a $1.3 million decrease in accrued compensation and vacation.

Previous wording

The $10.1 million of net cash provided by operating activities for the nine months ended March 29, 2025 was primarily related to $4.4 million in net loss for the period adjusted for $7.9 million of depreciation and amortization, a $5.8 million decrease in inventory, a $19.6 million decrease in accounts receivable, a $2.2 million decrease in contract assets partially offset by a $14.1 million decrease in accounts payable, a $7.3 million increase in other assets, a $0.4 million decrease in other liabilities, and a $0.7 million decrease in accrued compensation and vacation.

Current wording

The $9.9 million of net cash provided by operating activities for the three months ended September 28, 2024 was primarily related to $1.1 million in net income for the period adjusted for $3.0 million of depreciation and amortization, a $9.0 million decrease in inventory, a $2.2 million increase in other liabilities, a $4.4 million increase in accounts payable, and a $0.4 million increase in accrued compensation and vacation partially offset by a $6.7 million increase in other assets, a $1.6 million increase in accounts receivable, and a $2.4 million increase in contract assets.

Previous wording

Cash used in investing activities was $3.0 million during the nine months ended March 29, 2025 as compared to cash used in investing activities of $1.0 million during the nine months ended March 30, 2024. Our primary investing activities during the nine months ended March 29, 2025 and March 30, 2024, related to purchasing equipment to support increased production levels for new programs.

Current wording

Cash used in investing activities was $3.2 million during the three months ended September 27, 2025 as compared to cash used in investing activities of $0.4 million during the three months ended September 28, 2024. Our primary investing activities during the three months ended September 27, 2025 and September 28, 2024, related to purchasing equipment to support increased production levels for new programs.

Previous wording

Cash used in financing activities was $9.4 million during the nine months ended March 29, 2025 as compared to $3.4 million used in financing activities in the same period of the previous fiscal year. Our primary financing activities during the nine months ended March 29, 2025, and March 30, 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.

Current wording

Cash used in financing activities was $4.7 million during the three months ended September 27, 2025 as compared to $7.8 million used in financing activities in the same period of the previous fiscal year. Our primary financing activities during the three months ended September 27, 2025, and September 28, 2024, 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.

Previous wording

Our cash requirements are affected by the level of current operations and new programs. If we are unable to meet projected operating results, we may need to delay the purchase of raw materials or require our customers to fund inventory raw material costs ahead of production. The Company further notes projected cash from operations from increased demand from certain customers will be partially offset by an anticipated slowdown in collections from other customers and increasing inventory levels in efforts to mitigate supply chain constraint risks. Other options to increase our liquidity include factoring receivables or leveraging foreign owned assets for additional borrowing capacity. As discussed in Note 4 – “Long Term Debt” of the Notes to the Consolidated Financial Statements, 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 (the "Credit Facility") of up to $115 million, maturing on December 3, 2029. We also entered into a $28 million term loan (the "Term Loan") credit agreement with Callodine Commercial Finance, LLC.

Current wording

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 the Credit Facility, and also entered into a $28 million term loan (the "Term Loan") credit agreement with Callodine Commercial Finance, LLC.

Previous wording

We believe that projected cash from operations, funds available under the Credit Facility, Term Loan, Banorte line of credit, and leasing capabilities will be sufficient to meet our working and fixed capital requirements for at least the next 12 months.

Current wording

We believe that projected cash from operations, funds available under the Credit Facility, Term Loan, the line of credit with Banorte Financial Group, and leasing capabilities will be sufficient to meet our working and fixed capital requirements for at least the next 12 months.

Previous wording

As of March 29, 2025, we had approximately $2.8 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 March 29, 2025 would approximate $29,000. We have accrued withholding taxes for expected future repatriation of foreign earnings as discussed in Note 5 of the “Notes to Consolidated Financial Statements.”

Current wording

As of September 27, 2025, we had approximately $1.1 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 September 27, 2025 would approximate $26,000. We have accrued withholding taxes for expected future repatriation of foreign earnings as discussed in Note 5 of the “Notes to Consolidated Financial Statements.”

Previous wording

We have included a summary of our Contractual Obligations in our annual report on Form 10-K for the fiscal year ended June 29, 2024. There have been no material changes in contractual obligations outside the ordinary course of business since June 29, 2024 except as it relates to the refinancing of our line of credit with a new lender, which now matures on December 3, 2029. See Note 4 - “Long-Term Debt” of the Notes to Consolidated Financial Statements for additional information.

Current wording

We have included a summary of our Contractual Obligations in our Annual Report on Form 10-K for the fiscal year ended June 28, 2025. There have been no material changes in contractual obligations outside the ordinary course of business since June 28, 2025. See Note 4 - “Long-Term Debt” of the Notes to Consolidated Financial Statements for additional information.

Previous wording

•impact of potential tariffs assessed on countries in which we may manufacture product or from which we may buy components;

Current wording

•impact of tariffs assessed or threatened on countries in which we may manufacture product or from which we may buy components;

Previous wording

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 could affect future quarterly results. Additionally, our customers could be adversely impacted by illiquidity in the credit markets which could directly impact our operating results.

Current wording

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, our customers could be adversely impacted by illiquidity in the credit markets which could directly impact our operating results.

Previous wording

Component procurement, production schedules, personnel and other resource requirements are based on estimates of customer requirements. Occasionally, our customers may request accelerated production that can stress resources and reduce operating margins. Conversely, our customers may abruptly lower or cancel production which may lead to a sudden, unexpected increase in inventory or accounts receivable for which we may not be reimbursed even when under contract with customers. In addition, because many of our operating expenses are relatively fixed, a reduction in customer demand can harm our gross profit and operating results. The products which we manufacture for our customers have relatively short product lifecycles. Therefore, our business, operating results and financial condition are dependent in a significant way on our ability to obtain orders from new customers and new product programs from existing customers.

Current wording

Component procurement, production schedules, personnel and other resource requirements are based on estimates of customer requirements. Occasionally, our customers may request accelerated production that can stress resources and reduce operating margins. Conversely, our customers may abruptly lower, cancel, or delay production or new production launch which may lead to a sudden, unexpected increase in inventory or accounts receivable for which we may not be reimbursed even when under contract with customers. In addition, because many of our operating expenses are relatively fixed, a reduction in customer demand can harm our gross profit and operating results. The products which we manufacture for our customers have relatively short product lifecycles. Therefore, our business, operating results and financial condition are dependent in a significant way on our ability to obtain orders from new customers and new product programs from existing customers.

Previous wording

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. Unfavorable economic conditions could affect the demand for our customers’ products by triggering a reduction in 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.

Current wording

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. Unfavorable economic conditions could 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.

Previous wording

Adverse macroeconomic conditions have and may continue to affect our business. The conditions affect the Company’s ability to predict and plan for future supply chain disruptions, fluctuations in customer demand and costs, and the ability to operate as there is uncertainty over future temporary closures. Inflation has also risen globally to historically high levels. If inflation rate continues to increase, the costs of labor and other expenses may continue to increase. 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. Inflation may further exacerbate other risk factors discussed in this Quarterly Report on Form 10-Q, including disruptions to international operations.

Current wording

Adverse macroeconomic conditions have and may continue to affect our business. The conditions affect the Company’s ability to predict and plan for future supply chain disruptions and fluctuations in customer demand and costs. Inflation has also risen globally to historically high levels. Continuing high levels of inflation have increased the costs of labor and other expenses, and may continue to increase. 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. Inflation may further exacerbate other risk factors discussed in this Quarterly Report on Form 10-Q, including disruptions to international operations.

Previous wording

Although we maintain significant manufacturing capacity in the U.S., the majority of our manufacturing operations are currently located outside the U.S (in countries such as China and Mexico). We also source certain components and materials for our products from various countries. In the past, 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.

Current wording

Although we maintain significant manufacturing capacity in the U.S., the majority of our manufacturing operations are currently located outside the U.S (in countries such as Vietnam, China, and Mexico). We also source certain components and materials for our products from various countries. 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.

Previous wording

Changes in tariffs and other trade policies can be announced with little or no advance notice. The current U.S. presidential administration recently announced a broad increase in tariffs on imported products and components from certain countries, including higher tariff levels on those imported from China and Mexico. These actions have resulted, and are expected to further result, in retaliatory measures on U.S. goods by those countries and others. If maintained, these recently announced 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. 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. 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.

Current wording

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. 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.

Previous wording

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. 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.

Current wording

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 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.

Previous wording

We have manufacturing operations located in Mexico and China. A significant portion of our operations are denominated in the Mexican Peso and the Chinese currency, the renminbi ("RMB"). 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 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.

Current wording

We have manufacturing 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 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.

Previous wording

Global economic and political events or significant currency exchange fluctuations, can occur, and cause further unexpected losses. Future temporary closures of production facilities in Mexico could also cause significant changes in our ability to qualify for hedge accounting treatment of our forward contracts to hedge foreign currency fluctuations.

Current wording

Global economic and political events or significant currency exchange fluctuations, can occur, and cause further unexpected losses. Future headcount reductions or decrease in manufacturing capacity in Mexico could also cause significant changes in our ability to qualify for hedge accounting treatment of our forward contracts to hedge foreign currency fluctuations.

Previous wording

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.

Current wording

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, 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.

Previous wording

When our business is experiencing growth, such growth can place considerable additional demands upon our management team and our operational, financial and management information systems. Our ability to manage growth effectively requires us to continue to implement and improve these systems; avoid cost overruns; maintain customer, supplier and other favorable business relationships during possible transition periods; continue to develop the management skills of our managers and supervisors; and continue to train, motivate and manage our employees. Our failure to effectively manage growth could have a material adverse effect on our results of operations.

Current wording

When our business or manufacturing capacity is experiencing growth, such as the expansion currently occurring in our Arkansas and Vietnam facilities, such growth can place considerable additional demands upon our management team and our operational, financial and management information systems. Our ability to manage growth effectively requires us to continue to implement and improve these systems; avoid cost overruns; maintain customer, supplier and other favorable business relationships during possible transition periods; continue to develop the management skills of our managers and supervisors;

Previous wording

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.

Current wording

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. 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.

Previous wording

We have restrictive covenants with our financial institutions that impact how we manage our business. We have not always met these covenants in the past and have had to obtain waivers and amend the Loan Agreement under our Prior Credit Facility, including for events of default related to breaches of the fixed charge coverage ratio for fiscal quarter ended March 30, 2024 and the periods ended June 29, 2024 and July 27, 2024. We also breached a covenant in the Loan Agreement under our Prior Credit Facility requiring us to deliver audited financial statements to the lender within 90 days of the Company’s fiscal year-end, which required us to further amend the Loan Agreement on October 9, 2024.

Current wording

We have restrictive covenants with our financial institutions that impact how we manage our business. We have not always met these covenants in the past and have had to obtain waivers and amend the Loan Agreement under our Term Loan, including for an event of default related to a breach of non-compliance with minimum required earnings before interest, depreciation, amortization, and other adjustments for the period ending March 29, 2025. The amendment permanently 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.

Previous wording

Our new asset-based senior secured revolving credit facility (the “Credit Facility”), which replaced the Prior Credit Facility also includes minimum earnings before interest, taxes, depreciation, amortization and other adjustments, minimum availability and, if triggered, a minimum fixed charge coverage ratio, and other covenants. We 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 credit facility 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.

Current wording

Our 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 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 credit facility 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.

Previous wording

We have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of June 29, 2024 due to material weaknesses, which has adversely affected our ability to report our financial results in a timely and accurate manner and could have a material adverse impact our business and financial condition.

Current wording

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.

Previous wording

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, 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.

Current wording

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 for the fiscal year ended June 28, 2025, 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.

Previous wording

If we fail to remediate our material weaknesses, or in the future fail to maintain proper and effective internal controls, our business and financial condition could be materially adversely impacted.

Current wording

If we fail to maintain proper and effective internal controls, our business and financial condition could be materially adversely impacted.