EMS AD

Key Tronic Corporation Announces Completion of Audit Committee Investigation

SPOKANE VALLEY, Wash.– Key Tronic Corporation , a provider of electronic manufacturing services (EMS), today announced that the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) has completed its internal investigation, which was originally announced in February 2021. The Audit Committee, assisted by independent legal counsel and a forensic accounting firm, conducted an investigation related to a notification from an employee regarding potential irregularities of the classification of inventory at a production facility.

The Audit Committee concluded that inventory and cost of goods sold was improperly recorded at its Oakdale, MN production facility during the fourth quarter of fiscal year 2020 and during the first six months of fiscal year 2021. The investigation identified accounting errors resulting in an understatement of cost of goods sold and an overstatement of inventory. Additional inventory accounting errors unrelated to the investigation were also identified by management. These errors were a result of deficiencies in the Company’s internal control over financial reporting. The financial impact of the improper recording of inventory and cost of goods sold and the other accounting errors unrelated to the investigation did not result in a restatement of any audited or unaudited financial statements.

Additionally, the Audit Committee found that certain employee actions regarding the improper recording of inventory and cost of goods sold at the Oakdale facility were inconsistent with the Company’s Code of Conduct and related policies. The Audit Committee referred these findings to the Company, which has taken and is reviewing appropriate actions.

The Audit Committee, the Board of Directors and Company management have proposed certain remedial actions which the Company has adopted or will adopt, including: control design enhancements related to existing controls; the design, implementation, and maintenance of additional controls; systems upgrades; changes in reporting structures; additional training; and enhanced financial and operational oversight at the production facilities in Arkansas, Minnesota and Mississippi.

As previously disclosed, the Company has not filed its Quarterly Reports on Form 10-Q for the quarters ended December 26, 2020 and April 3, 2021 (the “Quarterly Reports”) on a timely basis pending the completion of the internal investigation. As the internal investigation and subsequent accounting review have now concluded, the Company is filing both Quarterly Reports today. These reports will be available on the SEC website at market open tomorrow.

Also as previously announced, the Company continues to cooperate with the Securities and Exchange Commission (the “SEC”) regarding this matter.

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