KEY TRONIC CORPKTCC
KEY TRONIC CORP Stock Compensation Disclosure
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. The 2024 Incentive Plan replaced the previous 2010 Incentive Plan, which provided for similar awards, and expired on October 24, 2024. At June 28, 2025, 1,596,135 shares were available for grant from the 2024 Incentive Plan. New shares of common stock are issued upon the exercise of SARs or when vesting conditions on restricted stock units are fully satisfied. 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 sold, 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) | |||||||||||
| Balance, July 1, 2023 | 626,250 | $ | — | $ | 6.41 | 2.2 | ||||||||
| SARs forfeited | (137,500) | 6.9 | ||||||||||||
| SARs expired | (101,250) | 8.17 | ||||||||||||
| Balance, June 30, 2024 | 387,500 | $ | — | 5.78 | 1.8 | |||||||||
| SARs forfeited | (136,250) | 7.17 | ||||||||||||
| SARs expired | (115,000) | 4.93 | ||||||||||||
| Balance, June 28, 2025 | 136,250 | $ | — | $ | 5.10 | 2.1 | ||||||||
| Exercisable at June 28, 2025 | — | — | — | — | ||||||||||
The Black-Scholes option valuation model is used by the Company for estimating the fair value of SARs. Option valuation models require the input of highly subjective assumptions, particularly for the expected term and expected stock price volatility. Changes in these assumptions can materially affect the fair value estimates. There were no SARs granted during fiscal years ended June 28, 2025 and June 29, 2024.
Share-based compensation expense is recognized only for those awards that are expected to vest, with forfeitures estimated at the date of grant based on the Company’s historical experience and future expectations. This forfeiture rate will be revised, if necessary, in subsequent periods if actual forfeitures differ from the amount estimated. Total SARs expense recognized during fiscal years ended June 28, 2025 and June 29, 2024 was approximately $(141,000) and $(400,000), respectively
There were no SARs exercised during fiscal years ended June 28, 2025 or June 29, 2024.
As of June 28, 2025, there is no unrecognized compensation expense for SARs awards due to unachieved performance.
Restricted Stock Units
The Company grants restricted stock units that have a performance condition and/or a service condition. Restricted stock units with only a service condition generally vest in equal annual installments over a maximum of three years. Certain restricted stock units are granted with a performance condition. The final number of shares issued will be determined annually based on the achievement of annual financial targets. Forfeitures for restricted stock units are accounted for prospectively as they occur. The fair value of restricted stock units is the market close price on the date of grant.
The Company granted 329,457 restricted stock units at a weighted average grant date fair value of $4.52 per share during the fiscal year ended June 28, 2025. During the same period, 47,880 restricted stock units with a weighted average grant date fair value of $4.52 per share were forfeited due to not meeting the minimum performance threshold as of June 28, 2025. Total restricted stock unit expense recognized during the fiscal year ended June 28, 2025 was approximately $359,000.
As of June 28, 2025, total unrecognized compensation expense on restricted stock units was $0.9 million, which is expected to be recognized over a weighted average period of approximately 2.09 years.
The company has defined contribution plans available to U.S. employees who have attained age 21. Company contributions to the plans were approximately $1.4 million during fiscal years ended June 28, 2025 and $1.3 million during June 29, 2024, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Sep 17, 2025 | Showing above |
| 2024 | Oct 15, 2024 | |
| 2023 | Sep 26, 2023 | |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.