PART I [ITEM I. BUSINESS](index=2&type=section&id=ITEM%20I.%20BUSINESS) Village Super Market operates 37 stores across four states, leveraging its Wakefern membership for scale in a competitive market, focusing on customer service, pricing, and store upgrades - Village Super Market, Inc. operates 34 supermarkets (ShopRite, Fairway) and 3 Gourmet Garage specialty markets across New Jersey (26), New York (6), Maryland (1), and Pennsylvania (1)[9](index=9&type=chunk) - The company is the second-largest member of Wakefern Food Corporation, benefiting from volume purchasing, distribution, retail technology, marketing, and advertising[9](index=9&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) - The supermarket industry is highly competitive with narrow profit margins, competing with various retail formats including national chains, warehouse clubs, and online providers. Village competes through superior customer service, competitive pricing, and a broad range of quality products, supported by loyalty programs and online ordering[10](index=10&type=chunk)[11](index=11&type=chunk)[39](index=39&type=chunk) Store Count and Sales Performance (Fiscal 2025) | Metric | Value | | :----- | :---- | | Total Stores | 37 | | Sales per store | $60,591 | | Sales per average square foot of selling space | $1,524 | Sales by Product Category (Fiscal 2025 vs. 2024) | Product Categories | 2025 (%) | 2024 (%) | | :----------------- | :------- | :------- | | Groceries | 34.9 | 35.0 | | Dairy and Frozen | 17.4 | 17.0 | | Produce | 13.1 | 13.3 | | Meats | 9.8 | 9.3 | | Non-Foods | 6.7 | 6.9 | | Deli and Prepared Food | 7.7 | 8.0 | | Pharmacy | 4.0 | 3.7 | | Seafood | 2.6 | 2.7 | | Bakery | 2.7 | 2.8 | | Liquor | 0.7 | 0.8 | | Other | 0.4 | 0.5 | [General Business Overview](index=2&type=section&id=GENERAL) Village Super Market operates 37 stores across four states, leveraging its Wakefern membership for scale in a competitive market, focusing on customer service, pricing, and store upgrades - Village Super Market, Inc. operates 34 supermarkets and 3 specialty markets across New Jersey, New York, Maryland, and Pennsylvania under the ShopRite, Fairway, and Gourmet Garage banners[9](index=9&type=chunk) - The company is the second-largest member of Wakefern Food Corporation, a retailer-owned food cooperative, which provides economies of scale in purchasing, distribution, technology, marketing, and advertising[9](index=9&type=chunk) - The supermarket industry is highly competitive, with Village competing on customer service, competitive pricing, and a broad range of quality products, including online ordering and loyalty programs[10](index=10&type=chunk)[11](index=11&type=chunk) Store Size Distribution (July 26, 2025) | Total Square Feet | Number of Stores | | :---------------- | :--------------- | | Greater than 60,000 | 18 | | 50,001 to 60,000 | 9 | | 40,001 to 50,000 | 4 | | 20,000 to 40,000 | 3 | | Less than 20,000 | 3 | | **Total** | **37** | [Acquisitions, Development and Expansion](index=3&type=section&id=ACQUISITIONS%2C%20DEVELOPMENT%20AND%20EXPANSION) The company actively upgrades and expands its supermarket chain through remodels, new store openings, and acquisitions, with significant capital expenditures planned for new and replacement stores - The Company has an ongoing program to upgrade and expand its supermarket chain through remodels, new store openings, and acquisitions, aiming to increase selling space[17](index=17&type=chunk) - Capital expenditures for fiscal 2026 are budgeted at **$75,000 thousand**, primarily for new replacement stores in East Orange, NJ (2026) and another in fiscal 2027, along with smaller remodels and technology upgrades[18](index=18&type=chunk)[116](index=116&type=chunk) - Village invested **$17,694 thousand** in a real estate partnership for a retail center in Old Bridge, NJ, which includes a replacement store, accounted for as an equity method investment[19](index=19&type=chunk) Recent Store Openings and Closures | Date | Event | Details | | :--- | :---- | :------ | | April 9, 2025 | Opened replacement ShopRite | 72,000 sq. ft. in Watchung, NJ, replacing a 44,000 sq. ft. store | | March 17, 2024 | Opened replacement ShopRite | 83,000 sq. ft. in Old Bridge, NJ, replacing a 32,000 sq. ft. store | | September 1, 2024 | Closed automated micro-fulfillment center | Facilitated online order fulfillment for south New Jersey stores | | November 1, 2023 | Closed Gourmet Garage store | 8,400 sq. ft. in New York City; impact not material | [Wakefern Food Corporation Relationship](index=4&type=section&id=WAKEFERN%20FOOD%20CORPORATION) Village is the second-largest member of Wakefern Food Corporation, benefiting from its cooperative structure, branded names, volume purchasing, and patronage dividends - Village is the second-largest member of Wakefern, owning **12.9%** of its outstanding stock as of July 26, 2025. Wakefern is the nation's largest retailer-owned food cooperative[23](index=23&type=chunk) - Benefits from Wakefern include use of branded names (ShopRite, Fairway, Gourmet Garage), volume purchasing, store and own-branded products (**18% of sales in fiscal 2025**), distribution, advertising, and advanced retail technology[24](index=24&type=chunk) - Wakefern distributes patronage dividends to stockholders based on purchase volume, which are recorded as a reduction of cost of sales for Village[25](index=25&type=chunk)[98](index=98&type=chunk) - Village is obligated to purchase a minimum of **85%** of its product requirements from Wakefern and fulfilled this obligation in fiscal 2025 and 2024[29](index=29&type=chunk) - The Company's investment in Wakefern and affiliates was **$32,207 thousand** at July 26, 2025, with a total debt outstanding from capital pledges of **$946 thousand**[33](index=33&type=chunk) [Labor](index=5&type=section&id=LABOR) As of July 26, 2025, Village Super Market employed approximately 7,200 persons, with a significant portion covered by collective bargaining agreements - As of July 26, 2025, the Company employed approximately **7,200 persons**, with about **70%** working part-time[35](index=35&type=chunk) - Approximately **91%** of employees are covered by collective bargaining agreements, with contracts expiring between March 2025 and June 2028. About **28%** of associates are represented by unions with contracts expiring within one year[35](index=35&type=chunk)[36](index=36&type=chunk) [Seasonality](index=6&type=section&id=SEASONALITY) The majority of the Company's revenues are not seasonal, but tend to be higher during major holidays throughout the year - The majority of the Company's revenues are not seasonal, but tend to be higher during major holidays throughout the year[37](index=37&type=chunk) [Regulatory Environment](index=6&type=section&id=REGULATORY%20ENVIRONMENT) The Company's business requires various state and federal licenses and registrations, which obligate adherence to rules and regulations - The Company's business requires various state and federal licenses and registrations, which obligate adherence to rules and regulations. The Company has not experienced material difficulties in obtaining or retaining these[38](index=38&type=chunk) [Competition](index=6&type=section&id=COMPETITION) The supermarket business is highly competitive with narrow profit margins, facing competition from various retail formats - The supermarket business is highly competitive with narrow profit margins, facing competition from national, regional, and local supermarket chains, as well as warehouse clubs, supercenters, drug stores, and online retailers[39](index=39&type=chunk) - Competition is based on price, store location, convenience, promotion, product assortment, quality, and service. Some competitors possess greater financial resources, lower merchandise acquisition costs, and lower operating expenses[39](index=39&type=chunk) [Available Information](index=6&type=section&id=AVAILABLE%20INFORMATION) Village Super Market provides access to its SEC filings and uses Wakefern's customer-focused websites for public interaction - As a Wakefern cooperative member, Village uses Wakefern's customer-focused websites (shoprite.com, gourmetgarage.com, fairwaymarket.com) for customer and prospective employee interaction, which do not contain company-specific financial information[40](index=40&type=chunk) - Paper copies of SEC filings (10-K, 10-Q, 8-K, press releases) are available free upon shareholder request, and electronic copies can be found at sec.gov[41](index=41&type=chunk) [ITEM 1A. RISK FACTORS](index=6&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section is marked as 'Not applicable' in the report, indicating that the company does not have specific risk factors to disclose under this item - The company states that Item 1A, Risk Factors, is not applicable[42](index=42&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=6&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) This section is marked as 'Not applicable' in the report, indicating no unresolved comments from the SEC staff - The company states that Item 1B, Unresolved Staff Comments, is not applicable[43](index=43&type=chunk) [ITEM 2. PROPERTIES](index=6&type=section&id=ITEM%2

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides unaudited condensed interim consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents Tilray Brands, Inc.'s unaudited condensed interim consolidated financial statements and notes for Q1 2025 [Consolidated Statements of Financial Position (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Financial%20Position%20%28Unaudited%29) This section presents the company's unaudited consolidated financial position for Q1 2025 Consolidated Statements of Financial Position (in thousands of USD) | Metric | August 31, 2025 | May 31, 2025 | | :-------------------------------- | :-------------- | :----------- | | Total current assets | $701,140 | $688,626 | | Total assets | $2,082,646 | $2,074,327 | | Total current liabilities | $267,632 | $280,303 | | Total liabilities | $561,988 | $584,752 | | Total stockholders' equity | $1,520,658 | $1,489,575 | - Total assets increased by **$8.3 million** from May 31, 2025, to August 31, 2025, reaching **$2.08 billion**[11](index=11&type=chunk) - Total liabilities decreased by **$22.8 million**, from **$584.8 million** to **$562.0 million**, over the three-month period[11](index=11&type=chunk) - Total stockholders' equity increased by **$31.1 million**, from **$1.49 billion** to **$1.52 billion**[11](index=11&type=chunk) [Consolidated Statements of Loss and Comprehensive Loss (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Loss%20and%20Comprehensive%20Loss%20%28Unaudited%29) This section details the company's unaudited consolidated loss and comprehensive loss for Q1 2025 Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (in thousands of USD) | Metric | Three months ended August 31, 2025 | Three months ended August 31, 2024 | | :-------------------------------- | :--------------------------------- | :--------------------------------- | | Net revenue | $209,501 | $200,044 | | Cost of goods sold | $152,032 | $140,338 | | Gross profit | $57,469 | $59,706 | | Operating income (loss) | $2,092 | $(36,570) | | Net income (loss) | $1,513 | $(34,652) | | Net loss per share - basic | $(0.00) | $(0.04) | | Net loss per share - diluted | $(0.00) | $(0.04) | - Net revenue increased by **4.7%** to **$209.5 million** for the three months ended August 31, 2025, compared to **$200.0 million** in the prior year period[13](index=13&type=chunk) - The company reported a net income of **$1.5 million** for the three months ended August 31, 2025, a significant improvement from a net loss of **$34.7 million** in the prior year period[13](index=13&type=chunk) - Operating income improved substantially, moving from a loss of **$36.6 million** in Q1 2024 to an income of **$2.1 million** in Q1 2025[13](index=13&type=chunk) [Consolidated Statements of Stockholders' Equity (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Unaudited%29) This section outlines changes in the company's unaudited consolidated stockholders' equity for Q1 2025 - Total stockholders' equity increased from **$1.49 billion** at May 31, 2025, to **$1.52 billion** at August 31, 2025[16](index=16&type=chunk) - Share issuance through the At-the-Market (ATM) program generated **$22.5 million** in additional paid-in capital during the three months ended August 31, 2025[16](index=16&type=chunk) - The company repurchased **$5.0 million** of TLRY 27 convertible notes by issuing **12,591,816 shares** of Common Stock, resulting in a **$4.8 million** increase in additional paid-in capital and a **$1.2 million** reduction in additional paid-in capital for the equity component settlement[16](index=16&type=chunk)[54](index=54&type=chunk)[65](index=65&type=chunk) - Stock-based compensation contributed **$5.1 million** to additional paid-in capital for the three months ended August 31, 2025[16](index=16&type=chunk)[64](index=64&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) This section presents the company's unaudited consolidated cash flow activities for Q1 2025 Consolidated Statements of Cash Flows (in thousands of USD) | Cash Flow Activity | Three months ended August 31, 2025 | Three months ended August 31, 2024 | | :-------------------------------- | :--------------------------------- | :--------------------------------- | | Net cash provided by (used in) operating activities | $(1,341) | $(35,307) | | Net cash provided by (used in) investing activities | $24,467 | $(49,395) | | Net cash provided by (used in) financing activities | $19,848 | $60,590 | | Net increase (decrease) in cash and cash equivalents | $43,162 | $(23,154) | | Cash and cash equivalents, end of period | $264,828 | $205,186 | - Net cash used in operating activities significantly decreased from **$(35.3) million** in Q1 2024 to **$(1.3) million** in Q1 2025, indicating improved operational cash management[18](index=18&type=chunk)[187](index=187&type=chunk) - Investing activities shifted from using **$49.4 million** in Q1 2024 to providing **$24.5 million** in Q1 2025, primarily due to the sale of marketable securities in the current period[18](index=18&type=chunk)[188](index=188&type=chunk) - Cash provided by financing activities decreased from **$60.6 million** in Q1 2024 to **$19.8 million** in Q1 2025, mainly due to variability in funds from the ATM Program[18](index=18&type=chunk)[189](index=189&type=chunk) [Notes to Condensed Interim Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Interim%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section provides detailed notes supporting the unaudited condensed interim consolidated financial statements [Note 1. Basis of presentation and summary of significant accounting policies](index=9&type=section&id=Note%201.%20Basis%20of%20presentation%20and%20summary%20of%20significant%20accounting%20policies) This note outlines the basis of financial statement presentation and significant accounting policies - The interim financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC rules, and should be read with the Annual Report on Form 10-K[20](index=20&type=chunk) - The financial statements are prepared on a going concern basis, assuming continued operations and realization of assets/discharge of liabilities in the normal course[21](index=21&type=chunk) - The company adopted ASU 2023-08 (Accounting for and Disclosure of Crypto Assets) in conjunction with digital asset acquisition during Q1 2025, requiring fair value measurement with gains/losses reported as **unrealized**[32](index=32&type=chunk) - New accounting pronouncements not yet adopted include ASU 2023-05 (Joint Venture Formations), ASU 2023-06 (Disclosure Improvements), ASU 2023-09 (Income Tax Disclosures), and ASU 2024-03 (Expense Disaggregation Disclosures), with effective dates ranging from June 2026 to May 2026[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) [Note 2. Inventory](index=12&type=section&id=Note%202.%20Inventory) This note details the composition and changes in the company's inventory balances Inventory Breakdown (in thousands of USD) | Inventory Type | August 31, 2025 | May 31, 2025 | | :--------------------- | :-------------- | :----------- | | Beverage inventory | $70,622 | $63,965 | | Cannabis plants | $27,033 | $24,045 | | Dried cannabis | $106,653 | $103,507 | | Cannabis derivatives | $4,481 | $7,877 | | Cannabis vapes | $1,892 | $1,860 | | Packaging and other | $14,508 | $15,366 | | Distribution inventory | $44,450 | $38,735 | | Wellness inventory | $13,148 | $15,527 | | Total | $282,787 | $270,882 | - Total inventory increased by **$11.9 million**, from **$270.9 million** to **$282.8 million**, between May 31, 2025, and August 31, 2025[34](index=34&type=chunk) - Beverage inventory saw the largest increase, rising by **$6.6 million**, while cannabis derivatives inventory decreased by **$3.4 million**[34](index=34&type=chunk) [Note 3. Capital assets](index=12&type=section&id=Note%203.%20Capital%20assets) This note provides a breakdown of the company's capital assets and related changes Capital Assets Breakdown (in thousands of USD) | Capital Asset Type | August 31, 2025 | May 31, 2025 | | :------------------------- | :-------------- | :----------- | | Land | $45,122 | $44,529 | | Production facilities | $416,605 | $407,650 | | Equipment | $278,584 | $280,585 | | Leasehold improvements | $20,415 | $20,415 | | Finance lease, ROU assets | $40,019 | $40,308 | | Construction in progress | $11,190 | $11,241 | | Less: accumulated amortization | $(251,778) | $(236,295) | | Total | $560,157 | $568,433 | - Total capital assets decreased by **$8.3 million** to **$560.2 million** as of August 31, 2025, primarily due to increased accumulated amortization[35](index=35&type=chunk) - The company classified a Fort Collins, CO warehouse facility from its Cannabis segment as held for sale, valued at **$5.8 million**, with the sale expected to complete by May 31, 2026[35](index=35&type=chunk) [Note 4. Leases](index=13&type=section&id=Note%204.%20Leases) This note describes the company's lease arrangements, including right-of-use assets and liabilities Lease-Related Assets and Liabilities (in thousands of USD) | Metric | August 31, 2025 | May 31, 2025 | | :-------------------------------- | :-------------- | :----------- | | Total right-of-use assets | $61,022 | $62,587 | | Total lease liabilities | $70,822 | $71,866 | Future Undiscounted Lease Payments (in thousands of USD) | Fiscal Year | Operating Leases | Finance Leases | | :-------------------- | :--------------- | :------------- | | 2026 (remaining 9 mos) | $5,902 | $3,388 | | 2027 | $6,931 | $4,518 | | 2028 | $5,916 | $4,518 | | 2029 | $2,941 | $4,370 | | Thereafter | $10,647 | $66,694 | | Total minimum lease payments | $32,337 | $83,488 | [Note 5. Intangible Assets](index=13&type=section&id=Note%205.%20Intangible%20Assets) This note details the company's intangible assets and their expected future amortization expense Intangible Assets Breakdown (in thousands of USD) | Intangible Asset Type | August 31, 2025 | May 31, 2025 | | :-------------------------------- | :-------------- | :----------- | | Customer relationships & distribution channel | $2,368 | $0 | | Licenses, permits & applications | $9,503 | $10,523 | | Intellectual property, trademarks, knowhow & brands | $13,302 | $10,900 | | Total | $25,173 | $21,423 | - Total intangible assets increased by **$3.75 million** to **$25.2 million** as of August 31, 2025, primarily driven by an increase in customer relationships & distribution channel assets[39](index=39&type=chunk) Expected Future Amortization Expense for Intangible Assets (in thousands of USD) | Fiscal Year | Amortization | | :-------------------- | :------------- | | 2026 (remaining 9 mos) | $5,737 | | 2027 | $7,649 | | 2028 | $4,085 | | 2029 | $2,897 | | 2030 | $2,897 | | Thereafter | $1,908 | | Total | $25,173 | [Note 6. Goodwill](index=15&type=section&id=Note%206.%20Goodwill) This note presents the company's goodwill by reporting unit, primarily within the Cannabis segment Goodwill by Reporting Unit (in thousands of USD) | Reporting Unit | August 31, 2025 | May 31, 2025 | | :--------------------- | :-------------- | :----------- | | Cannabis Goodwill | $752,350 | $752,350 | | Beverage Goodwill | $0 | $0 | | Wellness Goodwill | $0 | $0 | | Distribution Goodwill | $0 | $0 | | Total | $752,350 | $752,350 | - Goodwill remained constant at **$752.4 million** for the Cannabis segment, with no goodwill reported for Beverage, Wellness, or Distribution segments as of August 31, 2025[42](index=42&type=chunk) [Note 7. Business acquisitions](index=16&type=section&id=Note%207.%20Business%20acquisitions) This note provides details on recent business acquisitions, including the Craft Acquisition II - Effective September 1, 2024, Tilray acquired four craft beer brands and breweries (Atwater Brewery, Hop Valley Brewing Company, Terrapin Beer Co., and Revolver Brewing) from Molson Coors Beverage Company for **$23.0 million** in cash (Craft Acquisition II)[43](index=43&type=chunk) - The Craft Acquisition II would have generated approximately **$13.7 million** in additional net revenue and **$4.0 million** in net income for the three months ended August 31, 2024, on a proforma basis[44](index=44&type=chunk) [Note 8. Long term investments](index=17&type=section&id=Note%208.%20Long%20term%20investments) This note outlines the company's long-term investments, including equity investments Long-Term Investments (in thousands of USD) | Investment Type | August 31, 2025 | May 31, 2025 | | :-------------------------------- | :-------------- | :----------- | | Equity investments measured at fair value | $2,012 | $1,972 | | Equity investments under measurement alternative | $8,160 | $8,160 | | Total | $10,172 | $10,132 | - Long-term investments remained stable at **$10.2 million**, with an option to acquire a **68%** membership interest in SH Acquisition for **$1.00** upon U.S. federal cannabis legalization valued at **$8.2 million**[45](index=45&type=chunk) [Note 9. Bank indebtedness](index=18&type=section&id=Note%209.%20Bank%20indebtedness) This note details the company's bank indebtedness, including operating lines of credit - Aphria Inc. has an operating line of credit of **C$1.0 million**, undrawn as of August 31, 2025[47](index=47&type=chunk) - CC Pharma GmbH has two operating lines of credit totaling **€7.5 million**, with **€7.46 million** (**$8.2 million**) drawn as of August 31, 2025[48](index=48&type=chunk) - American Beverage Crafts Group Inc. (ABC Group) has a **$25.0 million** revolving credit facility, undrawn as of August 31, 2025, with new financial covenants for minimum consolidated EBITDA and liquidity[49](index=49&type=chunk) [Note 10. Accounts payable and accrued liabilities](index=18&type=section&id=Note%2010.%20Accounts%20payable%20and%20accrued%20liabilities) This note provides a breakdown of the company's accounts payable and accrued liabilities Accounts Payable and Accrued Liabilities (in thousands of USD) | Category | August 31, 2025 | May 31, 2025 | | :-------------------------------- | :-------------- | :----------- | | Trade payables | $110,802 | $107,348 | | Accrued liabilities | $91,993 | $103,260 | | Litigation accruals | $12,021 | $12,431 | | Accrued payroll and employment related taxes | $2,796 | $1,436 | | Income taxes payable | $1,038 | $58 | | Accrued interest | $2,677 | $4,193 | | Sales taxes payable | $9,586 | $6,596 | | Total | $230,913 | $235,322 | - Total accounts payable and accrued liabilities decreased by **$4.4 million** to **$230.9 million** as of August 31, 2025[50](index=50&type=chunk) - Accrued liabilities decreased by **$11.3 million**, while trade payables increased by **$3.4 million**[50](index=50&type=chunk) [Note 11. Long-term debt](index=19&type=section&id=Note%2011.%20Long-term%20debt) This note details the company's long-term debt instruments and their carrying amounts Long-Term Debt Instruments (in thousands of USD) | Debt Instrument | August 31, 2025 | May 31, 2025 | | :-------------------------------- | :-------------- | :----------- | | Term loan - C$53,000 | $38,690 | $38,690 | | Term loan - C$25,000 (1) | $11,222 | $11,501 | | Term loan - C$25,000 (2) | $9,127 | $9,354 | | Term loan - C$1,250 | $125 | $157 | | Mortgage payable - C$3,750 | $1,988 | $2,020 | | Term loan - €3,500 | $2,437 | $2,546 | | Mortgage payable - $22,635 | $19,233 | $19,418 | | Term loan - $90,000 | $78,750 | $80,438 | | Carrying amount of long-term debt | $161,572 | $164,124 | | Net carrying amount | $160,470 | $163,260 | | Total non-current portion | $144,175 | $148,493 | - The total non-current portion of long-term debt decreased by **$4.3 million** to **$144.2 million** as of August 31, 2025[51](index=51&type=chunk) [Note 12. Convertible debentures payable](index=20&type=section&id=Note%2012.%20Convertible%20debentures%20payable) This note describes the company's convertible debentures, including the TLRY 27 Notes Convertible Debentures Payable (in thousands of USD) | Metric | August 31, 2025 | May 31, 2025 | | :-------------------------------- | :-------------- | :----------- | | 5.20% Convertible Notes ("TLRY 27") | $84,267 | $86,428 | | Total convertible debentures payable, non current portion | $84,267 | $86,428 | - The net carrying amount of TLRY 27 Notes decreased by **$2.16 million** to **$84.3 million** as of August 31, 2025[52](index=52&type=chunk) - During Q1 2025, the company exchanged **$5.0 million** of TLRY 27 Notes for cancellation by issuing **12,591,816 shares** of Common Stock and paying **$6 thousand** in cash, resulting in a **$495 thousand** gain[54](index=54&type=chunk) - Interest expense recognized for TLRY 27 Notes was **$1.4 million**, and accretion of amortized discount interest was **$2.0 million** for the three months ended August 31, 2025[55](index=55&type=chunk) [Note 13. Warrant liability](index=22&type=section&id=Note%2013.%20Warrant%20liability) This note details the company's warrant liability, including outstanding warrants and fair value - As of August 31, 2025, there were **6,209,000 warrants** outstanding, expiring September 17, 2025[57](index=57&type=chunk) - The exercise price of each warrant was adjusted to **$0.38** due to anti-dilution price protection features triggered by recent Common Stock issuances[58](index=58&type=chunk) - The fair value of outstanding warrants was estimated at **$1.00 per warrant** as of August 31, 2025, using the Black Scholes pricing model[59](index=59&type=chunk) [Note 14. Stockholders' equity](index=22&type=section&id=Note%2014.%20Stockholders%27%20equity) This note provides information on the company's stockholders' equity, including common stock and compensation - As of August 31, 2025, the company had **1,118,291,159 shares** of Common Stock issued and outstanding[61](index=61&type=chunk) - During Q1 2025, **34,443,799 shares** of Common Stock were issued under the ATM program, generating **$22.5 million** in net proceeds[65](index=65&type=chunk) - Stock-based compensation expense for Q1 2025 was **$5.1 million**, a decrease from **$6.9 million** in the prior year period[64](index=64&type=chunk) [Note 15. Accumulated other comprehensive income (loss)](index=24&type=section&id=Note%2015.%20Accumulated%20other%20comprehensive%20income%20%28loss%29) This note details the components of accumulated other comprehensive income (loss) Accumulated Other Comprehensive Income (Loss) (in thousands of USD) | Metric | August 31, 2025 | August 31, 2024 | | :-------------------------------- | :-------------- | :-------------- | | Balance May 31 | $(43,063) | $(43,499) | | Other comprehensive income (loss) | $(167) | $3,622 | | Balance August 31 | $(43,230) | $(39,877) | - Accumulated other comprehensive loss increased to **$(43.2) million** as of August 31, 2025, primarily due to a foreign currency translation loss of **$(167) thousand** in the current period[66](index=66&type=chunk) [Note 16. Non-controlling interests](index=24&type=section&id=Note%2016.%20Non-controlling%20interests) This note describes non-controlling interests in majority-owned subsidiaries and their attributable income - Majority-owned subsidiaries with non-controlling interests include Aphria Diamond (**51%** owned) and Colcanna S.A.S. (**90%** owned)[67](index=67&type=chunk) Net Comprehensive Income (Loss) Attributable to NCI (in thousands of USD) | Subsidiary | August 31, 2025 | August 31, 2024 | | :-------------------------------- | :-------------- | :-------------- | | Aphria Diamond | $1,810 | $5,088 | | ColCanna S.A.S. | $4 | $(35) | | Total | $1,814 | $5,051 | - Net comprehensive income attributable to non-controlling interests decreased from **$5.1 million** in Q1 2024 to **$1.8 million** in Q1 2025[68](index=68&type=chunk) [Note 17. Income taxes](index=25&type=section&id=Note%2017.%20Income%20taxes) This note explains the company's income tax recovery or expense and related factors - The company reported an income tax recovery of **$2.3 million** for the three months ended August 31, 2025, compared to an income tax expense of **$886 thousand** in the prior year period[70](index=70&type=chunk) - The change in income tax is primarily due to the geographical mix of earnings and losses, with no tax benefit from valuation allowances in certain jurisdictions[70](index=70&type=chunk) [Note 18. Commitments and contingencies](index=26&type=section&id=Note%2018.%20Commitments%20and%20contingencies) This note outlines the company's financial commitments and potential litigation contingencies Financial Commitments (in thousands of USD) | Commitment Type | Total | 2026 | 2027 | 2028 | 2029 | Thereafter | | :---------------------- | :---------- | :---------- | :---------- | :---------- | :-------- | :--------- | | Long-term debt repayment | $161,572 | $16,295 | $16,241 | $96,436 | $3,531 | $29,069 | | Convertible debentures payable | $100,000 | $0 | $0 | $100,000 | $0 | $0 | | Material purchase obligations | $73,691 | $41,073 | $26,580 | $6,038 | $0 | $0 | | Construction commitments | $888 | $888 | $0 | $0 | $0 | $0 | | Total | $336,151 | $58,256 | $42,821 | $202,474 | $3,531 | $29,069 | - Total financial commitments amount to **$336.2 million**, with the largest portion (**$202.5 million**) due in 2028, primarily from convertible debentures[71](index=71&type=chunk) - Litigation accruals totaled **$12.0 million** as of August 31, 2025, a slight decrease from **$12.4 million** at May 31, 2025[74](index=74&type=chunk) [Note 19. Net revenue](index=27&type=section&id=Note%2019.%20Net%20revenue) This note provides a breakdown of the company's net revenue by operating segment Net Revenue by Segment (in thousands of USD) | Segment | Three months ended August 31, 2025 | Three months ended August 31, 2024 | | :---------------- | :--------------------------------- | :--------------------------------- | | Net beverage revenue | $55,739 | $55,972 | | Net cannabis revenue | $64,511 | $61,249 | | Distribution revenue | $74,007 | $68,071 | | Wellness revenue | $15,244 | $14,752 | | Total | $209,501 | $200,044 | - Total net revenue increased by **4.7%** to **$209.5 million** for the three months ended August 31, 2025, compared to the prior year[76](index=76&type=chunk) - Distribution revenue showed the strongest growth, increasing by **$5.9 million** (**9%**), followed by net cannabis revenue, which grew by **$3.3 million** (**5%**)[76](index=76&type=chunk) [Note 20. Cost of goods sold](index=27&type=section&id=Note%2020.%20Cost%20of%20goods%20sold) This note details the company's cost of goods sold by operating segment Cost of Goods Sold by Segment (in thousands of USD) | Segment | Three months ended August 31, 2025 | Three months ended August 31, 2024 | | :---------------- | :--------------------------------- | :--------------------------------- | | Beverage costs | $34,413 | $33,050 | | Cannabis costs | $41,241 | $37,054 | | Distribution costs | $66,008 | $60,138 | | Wellness costs | $10,370 | $10,096 | | Total | $152,032 | $140,338 | - Total cost of goods sold increased by **$11.7 million** (**8%**) to **$152.0 million** for the three months ended August 31, 2025[77](index=77&type=chunk) - Distribution costs and Cannabis costs experienced the largest absolute increases, rising by **$5.9 million** and **$4.2 million**, respectively[77](index=77&type=chunk) [Note 21. General and administrative expenses](index=27&type=section&id=Note%2021.%20General%20and%20administrative%20expenses) This note presents a breakdown of the company's general and administrative expenses General and Administrative Expenses (in thousands of USD) | Category | Three months ended August 31, 2025 | Three months ended August 31, 2024 | | :-------------------------------- | :--------------------------------- | :--------------------------------- | | Salaries and wages | $21,736 | $21,567 | | Office and general | $8,697 | $9,260 | | Stock-based compensation | $5,052 | $6,917 | | Insurance | $2,393 | $2,455 | | Professional fees | $1,218 | $1,178 | | Gain on sale of capital assets | $(241) | $(26) | | Travel and accommodation | $1,312 | $1,493 | | Rent | $886 | $1,269 | | Total | $41,053 | $44,113 | - Total general and administrative expenses decreased by **$3.1 million** (**7%**) to **$41.1 million** for the three months ended August 31, 2025[78](index=78&type=chunk) - The decrease was primarily driven by a **$1.9 million** reduction in stock-based compensation and a **$0.6 million** decrease in office and general expenses[78](index=78&type=chunk) [Note 22. Restructuring charges](index=28&type=section&id=Note%2022.%20Restructuring%20charges) This note details the company's restructuring and exit costs by segment - Restructuring and exit costs decreased significantly to **$869 thousand** for the three months ended August 31, 2025, from **$4.2 million** in the prior year period[79](index=79&type=chunk) - Within the Cannabis segment, **$692 thousand** was recognized for employee termination severance and benefits due to reorganization of the Canadian cannabis commercial function[80](index=80&type=chunk) - An additional **$177 thousand** in restructuring charges related to exiting the New Zealand medical cannabis market[80](index=80&type=chunk) [Note 23. Non-operating income (expense), net](index=28&type=section&id=Note%2023.%20Non-operating%20income%20%28expense%29%2C%20net) This note outlines the company's non-operating income and expenses, including fair value changes Non-Operating Income (Expense), Net (in thousands of USD) | Category | Three months ended August 31, 2025 | Three months ended August 31, 2024 | | :-------------------------------- | :--------------------------------- | :--------------------------------- | | Change in fair value of warrant liability | $(3,670) | $696 | | Foreign exchange gain (loss) | $6,928 | $11,881 | | (Loss) gain on long-term investments | $39 | $(39) | | Unrealized loss on digital assets | $(8) | $0 | | Other non-operating (losses) gains, net | $543 | $108 | | Total | $3,832 | $12,646 | - Total non-operating income (expense), net decreased by **$8.8 million** to **$3.8 million** for the three months ended August 31, 2025[82](index=82&type=chunk) - This decrease was primarily driven by a **$4.4 million** negative change in the fair value of warrant liability and a **$4.9 million** decrease in foreign exchange gain[82](index=82&type=chunk) [Note 24. Financial risk management and financial instruments](index=28&type=section&id=Note%2024.%20Financial%20risk%20management%20and%20financial%20instruments) This note discusses the company's financial risk management and fair value measurements of instruments Fair Value Measurements (in thousands of USD) | Category | Level 1 | Level 2 | Level 3 | Total (August 31, 2025) | | :-------------------------------- | :------ | :------ | :------ | :---------------------- | | Cash and cash equivalents | $264,828 | $0 | $0 | $264,828 | | Equity investments measured at fair value | $995 | $1,017 | $8,160 | $10,172 | | Digital assets | $992 | $0 | $0 | $992 | | Warrant liability | $0 | $0 | $(4,762) | $(4,762) | | Contingent consideration | $0 | $0 | $0 | $0 | | Total recurring fair value measurements | $266,815 | $1,017 | $3,398 | $271,230 | - The company's digital assets, consisting of **9.16 units of Bitcoin**, are measured at fair value (Level 1) with a cumulative unrealized loss of **$8 thousand** as of August 31, 2025[86](index=86&type=chunk) - The warrant liability is classified as a Level 3 derivative, with its fair value determined using the Black-Scholes pricing model, and a change in fair value of **$(3.7) million** recognized in Q1 2025[87](index=87&type=chunk)[91](index=91&type=chunk) - Contingent consideration related to the Montauk Brewing acquisition was reduced to **$0 thousand** as of August 31, 2025, due to a **0%** probability of achievement of financial measures, resulting in a **$15.0 million** change in fair value[88](index=88&type=chunk)[91](index=91&type=chunk) [Note 25. Segment reporting](index=31&type=section&id=Note%2025.%20Segment%20reporting) This note provides financial information by operating segment, including gross profit and revenue by channel - The company operates in four segments: Cannabis, Beverage, Distribution, and Wellness, with the Chief Operating Decision Maker (CODM) using segment gross profit for resource allocation and performance assessment[94](index=94&type=chunk) Segment Gross Profit (in thousands of USD) | Segment | Three months ended August 31, 2025 | Three months ended August 31, 2024 | | :---------------- | :--------------------------------- | :--------------------------------- | | Beverage gross profit | $21,326 | $22,922 | | Cannabis gross profit | $23,270 | $24,195 | | Distribution gross profit | $7,999 | $7,933 | | Wellness gross profit | $4,874 | $4,656 | | Total gross profit | $57,469 | $59,706 | Cannabis Revenue by Channel (in thousands of USD) | Channel | Three months ended August 31, 2025 | Three months ended August 31, 2024 | | :-------------------------------- | :--------------------------------- | :--------------------------------- | | Canadian medical cannabis | $6,146 | $6,261 | | Canadian adult-use cannabis | $64,067 | $57,235 | | Wholesale cannabis | $4,155 | $5,507 | | International cannabis | $13,367 | $12,191 | | Total cannabis revenue | $87,735 | $81,194 | | Excise taxes | $(23,224) | $(19,945) | | Total cannabis net revenue | $64,511 | $61,249 | Geographic Net Revenue (in thousands of USD) | Region | Three months ended August 31, 2025 | Three months ended August 31, 2024 | | :---------------- | :--------------------------------- | :--------------------------------- | | USA | $63,961 | $63,880 | | Canada | $58,167 | $55,905 | | EMEA | $85,253 | $77,672 | | Rest of World | $2,120 | $2,587 | | Total | $209,501 | $200,044 | [Note 26. Subsequent Events](index=34&type=section&id=Note%2026.%20Subsequent%20Events) This note discloses significant events occurring after the reporting period, such as warrant exercises - Between September 5 and 15, 2025, **6,209,000 warrants** were exercised, generating **$2.1 million** in cash and issuing **6,209,000 shares** of common stock[101](index=101&type=chunk) - On October 9, 2025, Tilray acquired a **$14.8 million** promissory note from Double Diamond Holdings Ltd. (DDH) payable by Aphria Diamond Inc., in exchange for **8,617,068 shares** of Tilray's Common Stock[102](index=102&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses Tilray's business, strategy, market trends, and financial performance for Q1 2025 [Company Overview](index=35&type=section&id=Company%20Overview) This section provides an overview of Tilray Brands, Inc.'s global lifestyle consumer products business and strategy - Tilray Brands, Inc. is a global lifestyle consumer products company focused on cannabis, beverage, wellness, and entertainment, aiming to be a leading premium lifestyle company[105](index=105&type=chunk) - The company's strategy involves leveraging brands, infrastructure, and expertise to drive revenue growth, achieve industry-leading profitability, and build long-term shareholder value[106](index=106&type=chunk) - Key strategic focuses include data analytics, consumer insights, category management leadership, new product/geography expansion, and cost structure management[106](index=106&type=chunk) [Trends and Other Factors Affecting Our Business](index=36&type=section&id=Trends%20and%20Other%20Factors%20Affecting%20Our%20Business) This section discusses market trends and external factors impacting Tilray's Beverage, Cannabis, and Wellness segments - Beverage market trends: Focus on expanding Breckenridge Distillery's market share in spirits, optimizing craft beer portfolio and distribution (Project 420), and diversifying with HD-D9, non-alcoholic, and clean label energy drinks[108](index=108&type=chunk)[110](index=110&type=chunk) - Canadian cannabis market trends: Tilray leads the Canadian market in cannabis revenue, with a marginal market share increase to **9.4%**, driven by strength in flower and non-infused pre-roll categories. Price compression is expected to persist[111](index=111&type=chunk) - International cannabis trends: Europe's medical cannabis market is developing, with Germany being the largest. Tilray is well-positioned with EU-GMP facilities and a broad product portfolio, pioneering research into therapeutic value[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - Wellness market trends: Continued growth in brick-and-mortar and e-commerce, with a focus on value-added innovation in natural and organic food and beverages, including super-seeds, breakfast, snacking, and natural energy drinks[122](index=122&type=chunk) [Acquisitions, Strategic Transactions and Synergies](index=39&type=section&id=Acquisitions%2C%20Strategic%20Transactions%20and%20Synergies) This section details Tilray's strategic acquisitions and Project 420 initiatives for synergy optimization - Tilray continues to expand through organic growth and strategic acquisitions, evaluating businesses that complement its portfolio or offer new market/product opportunities[123](index=123&type=chunk) - The company has made multiple beverage acquisitions (SweetWater, Alpine, Green Flash, Breckenridge Distillery, Montauk, Craft Acquisition I & II) to scale its beverage business[124](index=124&type=chunk)[125](index=125&type=chunk) - Project 420 initiatives (SKU, Geographic, Distributor rationalization, and synergy optimization) aim to improve profitability and accelerate revenue growth in the beverage segment. **$25.1 million** in savings achieved to date out of a **$33 million** synergy plan[126](index=126&type=chunk)[127](index=127&type=chunk) [Political and Economic Environment](index=41&type=section&id=Political%20and%20Economic%20Environment) This section addresses how economic, political, and regulatory factors may affect Tilray's operations - Operations may be affected by economic, political, legislative, and regulatory factors, including geopolitical tensions (Russia-Ukraine, Middle East), recessionary trends, inflation, and supply chain disruptions[129](index=129&type=chunk) - U.S. tariffs and foreign retaliatory tariffs could impact input materials like aluminum, hops, barley, malt, and vape componentry, though the company intends to mitigate these impacts[129](index=129&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) This section analyzes Tilray's consolidated and segment-specific financial results for Q1 2025 Consolidated Results of Operations (in thousands of U.S. dollars) | Metric | August 31, 2025 | August 31, 2024 | Change (2025 vs. 2024) | % Change | | :-------------------------------- | :-------------- | :-------------- | :--------------------- | :------- | | Net revenue | $209,501 | $200,044 | $9,457 | 5% | | Cost of goods sold | $152,032 | $140,338 | $11,694 | 8% | | Gross profit | $57,469 | $59,706 | $(2,237) | (4)% | | Operating income (loss) | $2,092 | $(36,570) | $38,662 | (106)% | | Net income (loss) | $1,513 | $(34,652) | $36,165 | (104)% | - Total operating expenses decreased by **$40.9 million** (**42%**) to **$55.4 million**, primarily due to lower amortization expense, a gain from contingent consideration fair value change, and reduced non-recurring costs[155](index=155&type=chunk) Segment Net Revenue (in thousands of U.S. dollars) | Segment | August 31, 2025 | August 31, 2024 | Change (2025 vs. 2024) | % Change | | :---------------- | :-------------- | :-------------- | :--------------------- | :------- | | Beverage business | $55,739 | $55,972 | $(233) | (0)% | | Cannabis business | $64,511 | $61,249 | $3,262 | 5% | | Distribution business | $74,007 | $68,071 | $5,936 | 9% | | Wellness business | $15,244 | $14,752 | $492 | 3% | | Total net revenue | $209,501 | $200,044 | $9,457 | 5% | Adjusted EBITDA Reconciliation (in thousands of U.S. dollars) | Metric | August 31, 2025 | August 31, 2024 | Change (2025 vs. 2024) | % Change | | :-------------------------------- | :-------------- | :-------------- | :--------------------- | :------- | | Net income (loss) | $1,513 | $(34,652) | $36,165 | (104)% | | Income tax expense (recovery), net | $(2,285) | $886 | $(3,171) | (358)% | | Interest expense, net | $6,696 | $9,842 | $(3,146) | (32)% | | Non-operating income (expense), net | $(3,832) | $(12,646) | $8,814 | (70)% | | Amortization | $15,561 | $31,814 | $(16,253) | (51)% | | Stock-based compensation | $5,052 | $6,917 | $(1,865) | (27)% | | Change in fair value of contingent consideration | $(15,000) | $0 | $(15,000) | NM | | Project 420 business optimization | $200 | $0 | $200 | NM | | Purchase price accounting step-up | $0 | $175 | $(175) | (100)% | | Litigation costs, net of recoveries | $1,007 | $1,595 | $(588) | (37)% | | Restructuring costs | $869 | $4,247 | $(3,378) | (80)% | | Transaction costs (income), net | $400 | $1,156 | $(756) | (65)% | | Adjusted EBITDA | $10,181 | $9,334 | $847 | 9% | [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Tilray's management of cash, investments, and capital to fund operations and growth - The company actively manages cash and investments to fund operations, debt payments, and acquisitions, believing existing cash, marketable securities, and operational cash flow, along with external funds, will meet short and long-term capital needs[181](index=181&type=chunk) - For short-term liquidity, the focus is on generating positive cash flow from operations and optimizing working capital, including investing excess cash in short-term marketable securities and digital assets[182](index=182&type=chunk) - For long-term liquidity, the company aims to fund operations through profitable organic growth and accretive acquisitions, potentially seeking additional debt or equity financing[183](index=183&type=chunk) - During Q1 2025, the ATM Program issued **34,443,799 shares**, generating **$22.5 million** in net proceeds, intended for strategic acquisitions and capital expenditures[184](index=184&type=chunk) [Critical Accounting Estimates](index=58&type=section&id=Critical%20Accounting%20Estimates) This section identifies key accounting estimates that require significant judgment and assumptions - Critical accounting estimates include revenue recognition, valuation of inventory, long-lived assets, goodwill and intangible assets, stock-based compensation, and valuation allowances for deferred tax assets[192](index=192&type=chunk) [Recently Issued Accounting Pronouncements](index=58&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to disclosures regarding recently issued accounting pronouncements in Note 1 - A description of recently issued accounting pronouncements is disclosed in Note 1 – Basis of presentation and summary of significant accounting policies[193](index=193&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=59&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section confirms no material changes in market risk for Q1 2025 compared to the prior fiscal year - No material changes in market risk were identified for the three months ended August 31, 2025, compared to the prior fiscal year's Annual Report on Form 10-K[194](index=194&type=chunk) [Item 4. Controls and Procedures](index=59&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the effectiveness of disclosure controls and changes in internal control over financial reporting [Disclosure Controls and Procedures](index=59&type=section&id=Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of August 31, 2025 - As of August 31, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective[196](index=196&type=chunk) - The assessment of disclosure controls did not include the internal controls over financial reporting of the recently acquired Craft Acquisition II businesses, which represented **1.3%** of consolidated assets and **4.2%** of consolidated net revenues[197](index=197&type=chunk) [Changes in Internal Control over Financial Reporting](index=59&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports no material changes in internal control over financial reporting during the period - There have been no material changes in internal control over financial reporting during the period covered by this report[198](index=198&type=chunk) - The company is reviewing and integrating the internal control structure of the Craft Acquisition II brands and businesses into its overall internal control over financial reporting process[198](index=198&type=chunk) [PART II. OTHER INFORMATION](index=60&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and other significant corporate information [Item 1. Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) This section confirms no material changes in legal proceedings and assesses related liabilities - No material changes in legal proceedings have occurred since the Annual Report on Form 10-K for the fiscal year ended May 31, 2025[201](index=201&type=chunk) - Management believes established legal reserves are appropriate and that incremental liabilities from pending legal proceedings are not expected to have a material adverse effect on the company's financial position, results of operations, or cash flows[200](index=200&type=chunk) [Item 1A. Risk Factors](index=61&type=section&id=Item%201A.%20Risk%20Factors) This section outlines key risk factors, including acquisition integration, regulatory, and competitive challenges - No material changes from the risk factors described in the Form 10-K, except for specific updates[203](index=203&type=chunk) - Key risks include potential failure to achieve expected benefits from craft beer acquisitions, difficulties integrating recent acquisitions, and dependence on regulatory approvals and compliance for the cannabis business[203](index=203&type=chunk) - Evolving government regulations for cannabis (e.g., rescheduling in the U.S., international legalization delays) and intense competition, including from the illicit market, pose significant risks[203](index=203&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=63&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports the issuance of common stock in exchange for convertible notes, relying on a Section 3(a)(9) exemption - On June 16, 2025, Tilray issued **12,591,816 shares** of Common Stock in exchange for **$5.0 million** principal amount of its 5.20% Convertible Senior Notes due June 1, 2027[205](index=205&type=chunk) - The shares were issued without registration under the Securities Act of 1933, relying on the exemption provided by Section 3(a)(9)[206](index=206&type=chunk) [Item 3. Defaults Upon Senior Securities](index=63&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there are no applicable defaults upon senior securities - Not applicable[207](index=207&type=chunk) [Item 4. Mine Safety Disclosures](index=63&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that there are no applicable mine safety disclosures - Not applicable[208](index=208&type=chunk) [Item 5. Other Information](index=63&type=section&id=Item%205.%20Other%20Information) This section details an amendment to the CEO's employment agreement and a promissory note acquisition - On October 7, 2025, an amendment to CEO Irwin D. Simon's employment agreement was made, modifying compensation benefits to include a **$5,000 monthly after-tax amount** for retirement/welfare plans and a **$500 monthly car allowance**, effective Fiscal Year 2026[209](index=209&type=chunk) - On October 9, 2025, Tilray acquired a **$14.8 million** promissory note from Double Diamond Holdings Ltd. (DDH), payable by Aphria Diamond Inc., in exchange for **8,617,068 shares** of Tilray's Common Stock[210](index=210&type=chunk) - DDH's management team will provide additional services, including expert advice on maximizing vegetable cultivation, cannabis yields for Quebec and Cayuga facilities, and cannabis cultivation insights for the Portugal facility, at no incremental cost[210](index=210&type=chunk) [Item 6. Exhibits](index=64&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including amendments to credit agreements and employment agreements, promissory notes, certifications from executive officers, and financial statements formatted in Inline XBRL - Exhibits include the Fifth Amendment to Credit Agreement, Amendment No. 1 to Employment Agreement for Irwin D. Simon, and a Promissory Note from Aphria Diamond Inc. to Double Diamond Holdings Ltd[212](index=212&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer (pursuant to Sarbanes-Oxley Act Sections 302 and 906) are filed[212](index=212&type=chunk)[214](index=214&type=chunk) - Financial statements (Consolidated Statements of Financial Position, Loss and Comprehensive Loss, Stockholders' Equity, Cash Flows, and Notes) are provided in Inline XBRL format[214](index=214&type=chunk) [Signatures](index=66&type=section&id=Signatures) This section contains the duly authorized signatures of the company's executive officers for the report - The report is signed by Irwin D. Simon, Chairman and Chief Executive Officer, and Carl Merton, Chief Financial Officer, on October 9, 2025[217](index=217&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents unaudited condensed financial statements, detailing financial performance and addressing going concern risks through planned real estate sales [Condensed Balance Sheets (Unaudited)](index=5&type=section&id=EDUCATIONAL%20DEVELOPMENT%20CORPORATION%20CONDENSED%20BALANCE%20SHEETS%20(UNAUDITED)) This section presents unaudited condensed balance sheets, detailing changes in assets, liabilities, and shareholders' equity | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | **Assets** | | | | Total current assets | $46,724,300 | $52,247,200 | | Total assets | $74,235,800 | $78,314,300 | | **Liabilities and Shareholders' Equity** | | | | Total current liabilities | $35,816,500 | $37,222,700 | | Total liabilities | $36,022,700 | $37,746,700 | | Total shareholders' equity | $38,213,100 | $40,567,600 | - Total assets **decreased by $4,078,500** from $78,314,300 at February 28, 2025, to $74,235,800 at August 31, 2025[11](index=11&type=chunk) - Total liabilities **decreased by $1,724,000** from $37,746,700 at February 28, 2025, to $36,022,700 at August 31, 2025[11](index=11&type=chunk) - Total shareholders' equity **decreased by $2,354,500** from $40,567,600 at February 28, 2025, to $38,213,100 at August 31, 2025[11](index=11&type=chunk) [Condensed Statements of Operations (Unaudited)](index=6&type=section&id=EDUCATIONAL%20DEVELOPMENT%20CORPORATION%20CONDENSED%20STATEMENTS%20OF%20OPERATIONS%20(UNAUDITED)) This section presents unaudited condensed statements of operations, detailing net revenues, gross margin, operating expenses, and net loss | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Revenues | $4,621,100 | $6,509,200 | $11,727,500 | $16,502,600 | | Gross Margin | $2,688,100 | $3,646,700 | $6,825,200 | $10,106,100 | | Total Operating Expenses | $4,511,600 | $6,142,200 | $10,213,200 | $14,280,600 | | Net Loss | $(1,294,700) | $(1,803,400) | $(2,369,900) | $(3,082,400) | | Basic and Diluted Loss Per Share | $(0.15) | $(0.22) | $(0.28) | $(0.37) | - Net revenues **decreased by 29.0%** for the three months ended August 31, 2025, and by **28.9%** for the six months ended August 31, 2025, compared to the prior year periods[12](index=12&type=chunk) - Net loss **improved (decreased) by 28.2%** for the three months ended August 31, 2025, and by **23.1%** for the six months ended August 31, 2025, compared to the prior year periods[12](index=12&type=chunk) [Condensed Statements of Comprehensive Loss (Unaudited)](index=7&type=section&id=EDUCATIONAL%20DEVELOPMENT%20CORPORATION%20CONDENSED%20STATEMENTS%20OF%20COMPREHENSIVE%20LOSS%20(UNAUDITED)) This section presents unaudited condensed statements of comprehensive loss, including net loss and other comprehensive income components | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net loss | $(1,294,700) | $(1,803,400) | $(2,369,900) | $(3,082,400) | | Unrealized loss on interest rate exchange agreement | - | $(67,700) | - | $(44,800) | | Comprehensive loss | $(1,294,700) | $(1,871,100) | $(2,369,900) | $(3,127,200) | - Comprehensive loss **decreased by 30.8%** for the three months ended August 31, 2025, and by **24.3%** for the six months ended August 31, 2025, compared to the prior year periods[13](index=13&type=chunk) [Condensed Statements of Changes in Shareholders' Equity (Unaudited)](index=8&type=section&id=EDUCATIONAL%20DEVELOPMENT%20CORPORATION%20CONDENSED%20STATEMENTS%20OF%20CHANGES%20IN%20SHAREHOLDERS'%20EQUITY%20(UNAUDITED)) This section presents unaudited condensed statements of changes in shareholders' equity, detailing movements in common stock and retained earnings | Metric | February 28, 2025 | August 31, 2025 | | :----------------------------------- | :---------------- | :-------------- | | Common Stock (Amount) | $2,540,400 | $2,540,400 | | Capital in Excess of Par Value | $13,800,000 | $13,800,000 | | Retained Earnings | $37,303,000 | $34,933,100 | | Accumulated Other Comprehensive Loss | $(15,400) | $0 | | Treasury Stock (Amount) | $(13,060,400) | $(13,060,400) | | Total Shareholders' Equity | $40,567,600 | $38,213,100 | - Retained earnings **decreased by $2,369,900** from February 28, 2025, to August 31, 2025, primarily due to net losses[14](index=14&type=chunk) - Accumulated other comprehensive loss **improved from $(15,400) to $0**, reflecting a change in the fair value of the interest rate exchange agreement[14](index=14&type=chunk) [Condensed Statements of Cash Flows (Unaudited)](index=10&type=section&id=EDUCATIONAL%20DEVELOPMENT%20CORPORATION%20CONDENSED%20STATEMENTS%20OF%20CASH%20FLOWS%20(UNAUDITED)) This section presents unaudited condensed statements of cash flows, categorizing cash movements from operating, investing, and financing activities | Metric | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $1,459,700 | $335,500 | | Net cash used in investing activities | $(263,900) | $(196,000) | | Net cash used in financing activities | $(900,000) | $(286,500) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $295,800 | $(147,000) | | Cash, cash equivalents and restricted cash - End of Period | $1,272,300 | $1,130,400 | - Net cash provided by operating activities **significantly increased to $1,459,700** for the six months ended August 31, 2025, from $335,500 in the prior year, primarily driven by a decrease in inventories[17](index=17&type=chunk)[141](index=141&type=chunk) - Cash used in investing activities **increased to $263,900**, mainly due to purchases of property, plant, and equipment, including software upgrades and building improvements[17](index=17&type=chunk)[136](index=136&type=chunk) - Cash used in financing activities **increased to $900,000**, primarily for payments on term debt[17](index=17&type=chunk)[137](index=137&type=chunk) [Notes to Condensed Financial Statements (Unaudited)](index=11&type=section&id=NOTES%20TO%20CONDENSED%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) This section provides detailed notes to the unaudited condensed financial statements, offering additional context and disclosures [Note 1 – Basis of Presentation and Summary of Significant Accounting Policies](index=11&type=section&id=Note%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the basis of presentation for the unaudited condensed financial statements, emphasizing GAAP compliance for interim reporting and the use of estimates - The Company's default status on its credit agreement and recurring operating losses raise **substantial doubt about its ability to continue as a going concern**[24](index=24&type=chunk)[144](index=144&type=chunk) - Management plans to alleviate going concern doubt by selling the Hilti Complex for **$32,200,000** to pay off bank debts, reducing inventory to generate cash flow, and rebuilding the number of active PaperPie Brand Partners[26](index=26&type=chunk)[27](index=27&type=chunk)[144](index=144&type=chunk) - New accounting standards (ASU 2025-05, ASU 2023-09, ASU 2024-03) related to credit losses, income tax disclosures, and expense disaggregation are being evaluated for their impact on future financial statements, with effective dates in fiscal 2026 and 2027[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) [Note 2 – Cash](index=13&type=section&id=Note%202%20%E2%80%93%20CASH) This note provides a reconciliation of cash, cash equivalents, and restricted cash, detailing the nature of restricted cash held by third-party merchant service processors | Metric | August 31, 2025 | August 31, 2024 | | :----------------------------------- | :-------------- | :-------------- | | Cash and cash equivalents | $754,200 | $753,800 | | Restricted cash | $518,100 | $376,600 | | Total cash, cash equivalents and restricted cash | $1,272,300 | $1,130,400 | - Restricted cash **increased by $141,500** from August 31, 2024, to August 31, 2025, primarily due to funds held in reserve by merchant service processors and a certificate of deposit for credit card collateral[31](index=31&type=chunk) [Note 3 – Assets Held for Sale](index=13&type=section&id=Note%203%20%E2%80%93%20ASSETS%20HELD%20FOR%20SALE) The company has classified its Hilti Complex property and certain equipment as assets held for sale, with a purchase agreement for $32,200,000 - The Hilti Complex, appraised at $47,410,000 in November 2024, is under contract for sale at **$32,200,000**, with closing expected by November 25, 2025[32](index=32&type=chunk)[36](index=36&type=chunk) - Upon sale, the Company will assign existing tenant leases to the buyer and enter a new 10-year lease for its occupied space at an initial rate of **$8.00 per square foot** with annual escalations[33](index=33&type=chunk)[37](index=37&type=chunk)[39](index=39&type=chunk) | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Total carrying value of assets held for sale | $19,309,600 | $19,277,000 | [Note 4 – Inventories](index=14&type=section&id=Note%204%20%E2%80%93%20INVENTORIES) This note details the composition of inventories, distinguishing between current and noncurrent portions, and the overall inventory valuation allowance | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Current Product inventory | $24,086,100 | $29,530,100 | | Current Inventory valuation allowance | $(462,200) | $(430,500) | | Noncurrent Product inventory | $17,827,100 | $16,326,500 | | Noncurrent Inventory valuation allowance | $(789,400) | $(734,000) | | Total Inventories net | $40,661,600 | $44,692,100 | - Current product inventory **decreased by $5,444,000**, while noncurrent product inventory **increased by $1,500,600**[41](index=41&type=chunk) - The total inventory valuation allowance **increased from $1,164,500** at February 28, 2025, to **$1,251,600** at August 31, 2025[41](index=41&type=chunk) [Note 5 – Leases](index=15&type=section&id=Note%205%20%E2%80%93%20LEASES) The company engages in both lessee and lessor operating lease arrangements, detailing right-of-use assets, lease liabilities, and future minimum rental payments | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Right-of-use assets | $768,200 | $1,108,100 | | Current lease liabilities | $675,000 | $697,000 | | Long-term lease liabilities | $93,200 | $411,100 | | Weighted-average remaining lease term (months) | 13.8 | 18.4 | | Weighted-average discount rate | 5.46% | 4.89% | - Future minimum rental payments under operating leases (lessee) total **$794,900**, with **$346,300** due in fiscal year 2026 and **$448,600** in fiscal year 2027[48](index=48&type=chunk) - Future minimum payments receivable under operating leases (lessor) total **$19,341,600**, with significant amounts extending through 2030 and thereafter[52](index=52&type=chunk) [Note 6 – Debt](index=17&type=section&id=Note%206%20%E2%80%93%20DEBT) This note provides a comprehensive overview of the company's debt structure, including a line of credit and two term loans, and details the recent credit agreement default | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Line of credit | $4,198,100 | $4,198,100 | | Floating rate Term Loan | $15,725,000 | $16,250,000 | | Fixed rate Term Loan | $10,175,900 | $10,550,900 | | Total term debt | $25,900,900 | $26,800,900 | | Current maturities of long-term debt | $25,807,900 | $26,685,500 | | Long-term debt, net | $0 | $0 | - The credit agreement with BOKF, NA **expired on September 19, 2025**, with unpaid balances on Term Loans and Revolving Loan, resulting in a Notice of Default on September 30, 2025[65](index=65&type=chunk)[66](index=66&type=chunk) - The default triggers an **additional 2% default interest rate** on existing interest rates, and the lender reserves rights to demand payment or liquidate collateral[66](index=66&type=chunk) - The Revolving Loan interest rate increased to Term SOFR Rate + 8.00% (effective rate **12.36%** at August 31, 2025) as per the Ninth Amendment[63](index=63&type=chunk)[64](index=64&type=chunk) [Note 7 – Business Concentration](index=19&type=section&id=Note%207%20%E2%80%93%20BUSINESS%20CONCENTRATION) The company has a significant business concentration with Usborne Publishing Limited, facing risks due to non-compliance with the distribution agreement and a disputed rebate - The Company did not meet minimum purchase requirements and failed to supply a required letter of credit under its distribution agreement with Usborne, giving Usborne the right to terminate[67](index=67&type=chunk) - Usborne has refused to pay a **$1.0 million volume rebate** owed to the Company from fiscal 2022 purchases[67](index=67&type=chunk) | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | PaperPie division Usborne product revenues | $1,692,200 | $1,848,000 | $4,231,300 | $5,561,600 | | % of total PaperPie Product revenues | 48.2% | 36.6% | 45.8% | 40.4% | | Total Usborne inventory owned | $21,838,800 (Aug 31, 2025) | $23,696,800 (Feb 28, 2025) | | | [Note 8 – Loss Per Share](index=19&type=section&id=Note%208%20%E2%80%93%20LOSS%20PER%20SHARE) This note details the calculation of basic and diluted loss per share, which were identical due to the anti-dilutive effect of potential common shares | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net loss applicable to common shareholders | $(1,294,700) | $(1,803,400) | $(2,369,900) | $(3,082,400) | | Basic Weighted average shares outstanding | 8,583,201 | 8,272,217 | 8,583,201 | 8,269,494 | | Diluted Weighted average shares outstanding | 8,583,201 | 8,272,217 | 8,583,201 | 8,269,494 | | Basic Loss per share | $(0.15) | $(0.22) | $(0.28) | $(0.37) | | Diluted Loss per share | $(0.15) | $(0.22) | $(0.28) | $(0.37) | - Loss per share **improved (less negative) from $(0.22) to $(0.15)** for the three months and from **$(0.37) to $(0.28)** for the six months ended August 31, 2025, compared to the prior year[70](index=70&type=chunk) [Note 9 – Share-Based Compensation](index=20&type=section&id=Note%209%20%E2%80%93%20SHARE-BASED%20COMPENSATION) This note outlines the company's accounting policy for share-based compensation, noting no expense was recognized for the current periods due to vested plans - All remaining shares under the 2019 LTI Plan vested on February 28, 2025, and no shares were issued under the 2022 LTI Plan due to unmet financial targets[73](index=73&type=chunk)[74](index=74&type=chunk) | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Share-based compensation expense - net of forfeitures | $0 | $100,800 | $0 | $201,600 | - No share-based compensation expense was recognized for the three and six months ended August 31, 2025, compared to **$100,800** and **$201,600** in the prior year periods, respectively[75](index=75&type=chunk) [Note 10 – Shipping and Handling Costs](index=21&type=section&id=Note%2010%20%E2%80%93%20SHIPPING%20AND%20HANDLING%20COSTS) This note details shipping and handling costs, classified as operating and selling expenses, which decreased significantly due to reduced order volume | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Shipping and handling costs | $571,800 | $968,500 | $1,377,000 | $2,515,100 | - Shipping and handling costs **decreased by 41.0%** for the three months and **45.2%** for the six months ended August 31, 2025, compared to the prior year, primarily due to lower order volume[76](index=76&type=chunk) [Note 11 – Business Segments](index=21&type=section&id=Note%2011%20%E2%80%93%20BUSINESS%20SEGMENTS) The company operates through two reportable segments, PaperPie and Publishing, both experiencing decreased net revenues, with PaperPie's operating loss improving | Segment | Three Months Ended Aug 31, 2025 (Net Revenues) | Three Months Ended Aug 31, 2024 (Net Revenues) | Six Months Ended Aug 31, 2025 (Net Revenues) | Six Months Ended Aug 31, 2024 (Net Revenues) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | PaperPie | $3,731,200 | $5,440,300 | $9,791,500 | $14,340,600 | | Publishing | $889,900 | $1,068,900 | $1,936,000 | $2,162,000 | | Total | $4,621,100 | $6,509,200 | $11,727,500 | $16,502,600 | | Segment | Three Months Ended Aug 31, 2025 (Earnings (Loss) Before Income Taxes) | Three Months Ended Aug 31, 2024 (Earnings (Loss) Before Income Taxes) | Six Months Ended Aug 31, 2025 (Earnings (Loss) Before Income Taxes) | Six Months Ended Aug 31, 2024 (Earnings (Loss) Before Income Taxes) | | :----------------------------------- | :-------------------------------------------------------------------- | :-------------------------------------------------------------------- | :------------------------------------------------------------------- | :------------------------------------------------------------------- | | PaperPie | $(14,700) | $(470,700) | $447,000 | $300,400 | | Publishing | $205,700 | $255,200 | $413,500 | $486,800 | | Other | $(1,941,200) | $(2,250,600) | $(4,060,000) | $(5,000,300) | | Total | $(1,750,200) | $(2,466,100) | $(3,199,500) | $(4,213,100) | - PaperPie net revenues **decreased by 31.5%** for both the three and six months ended August 31, 2025, while its operating loss improved significantly for the three-month period and operating income increased for the six-month period[84](index=84&type=chunk) - Publishing net revenues **decreased by 18.2%** for the three months and **13.6%** for the six months ended August 31, 2025, with corresponding decreases in operating income[86](index=86&type=chunk) [Note 12 – Interest Rate Exchange Agreement](index=23&type=section&id=Note%2012%20%E2%80%93%20INTEREST%20RATE%20EXCHANGE%20AGREEMENT) The company's interest rate swap agreement, which fixed the interest rate on a portion of its Floating Rate Term Loan, terminated on May 30, 2025 - The interest rate swap agreement, which fixed the interest rate on a portion of the Floating Rate Term Loan at **6.48%**, terminated on May 30, 2025[90](index=90&type=chunk) | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Fair value of interest rate swap (Other current liabilities) | $0 | $15,400 | [Note 13 – Financial Instruments](index=25&type=section&id=Note%2013%20%E2%80%93%20FINANCIAL%20INSTRUMENTS) This note provides fair value estimates for certain financial instruments, including assets held for sale and term notes payable - The estimated fair value of assets held for sale was **$35,550,000** as of August 31, 2025, based on the Hilti Complex sale agreement, estimated value of excess land, and equipment held for sale[99](index=99&type=chunk) - The estimated fair value of term notes payable was approximately **$25,671,300** as of August 31, 2025, based on loan characteristics[99](index=99&type=chunk) [Note 14 – Deferred Revenues](index=25&type=section&id=Note%2014%20%E2%80%93%20DEFERRED%20REVENUES) Deferred revenues represent payments received from PaperPie division customers for orders not yet shipped, with the balance increasing as of August 31, 2025 | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Deferred revenues | $547,000 | $491,800 | - Deferred revenues **increased by $55,200** from February 28, 2025, to August 31, 2025, indicating more payments received in advance of shipment[94](index=94&type=chunk) [Note 15 – Subsequent Events](index=25&type=section&id=Note%2015%20%E2%80%93%20SUBSEQUENT%20EVENTS) This note discloses significant events after the balance sheet date, including a Notice of Default from the lender and an update on the Hilti Complex sale - The Company received a Notice of Default from its lender on September 30, 2025, due to the failure to pay off Term Loans and Revolving Loan upon their maturity on September 19, 2025[95](index=95&type=chunk)[96](index=96&type=chunk) - The purchase price for the Hilti Complex was **reduced to $32,200,000**, and the buyer issued a Notice to Proceed on October 6, 2025, with closing anticipated by November 25, 2025[97](index=97&type=chunk)[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, focusing on liquidity, debt default, and segment performance [Overview](index=26&type=section&id=Overview) The company operates two divisions, PaperPie and Publishing, facing risks from non-compliance with its Usborne distribution agreement, with overall net revenues and net loss decreasing - The Company is the exclusive US MLM distributor for Usborne Publishing Limited and also publishes Kane Miller, Learning Wrap-Ups, and SmartLab Toys[101](index=101&type=chunk) - Non-compliance with Usborne's minimum purchase volumes and payment terms creates a risk of agreement termination, though no notification has been received[101](index=101&type=chunk) | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Revenues | $4,621,100 | $6,509,200 | $11,727,500 | $16,502,600 | | Net Loss | $(1,294,700) | $(1,803,400) | $(2,369,900) | $(3,082,400) | [Non-Segment Operating Results for the Three Months Ended August 31, 2025](index=26&type=section&id=Non-Segment%20Operating%20Results%20for%20the%20Three%20Months%20Ended%20August%2031,%202025) Non-segment operating expenses decreased due to lower labor, depreciation, property taxes, and insurance, while interest expense increased and income tax benefit decreased - Total non-segment operating expenses **decreased by $0.3 million (13.0%) to $2.0 million**, driven by lower labor expenses in warehouse operations, reduced depreciation, and decreased property taxes and insurance[104](index=104&type=chunk) - Interest expense **increased by $0.1 million (20.0%) to $0.6 million**, attributed to higher interest rates on all debt[105](index=105&type=chunk) - Income tax benefit **decreased by $0.2 million (28.6%) to $0.5 million**, primarily due to decreased gross sales and a lower effective tax rate of **26.0%** (down from 26.9%)[106](index=106&type=chunk) [Non-Segment Operating Results for the Six Months Ended August 31, 2025](index=27&type=section&id=Non-Segment%20Operating%20Results%20for%20the%20Six%20Months%20Ended%20August%2031,%202025) For the six-month period, non-segment operating expenses decreased due to staff reductions and lower freight costs, while other income increased and income tax benefit decreased - Total non-segment operating expenses **decreased by $0.8 million (16.0%) to $4.2 million**, primarily due to **$0.5 million** in labor expense reductions and **$0.2 million** in depreciation decreases[107](index=107&type=chunk) - Other income **increased by $0.2 million (18.2%) to $1.3 million**, mainly from a **$0.4 million** increase in rental income from a new tenant in the Hilti Complex[109](index=109&type=chunk) - Income tax benefit **decreased by $0.3 million (27.3%) to $0.8 million**, primarily related to reduced operating losses, with an effective tax rate of **25.9%** (down from 26.8%)[110](index=110&type=chunk) [PaperPie Operating Results for the Three and Six Months Ended August 31, 2025](index=27&type=section&id=PaperPie%20Operating%20Results%20for%20the%20Three%20and%20Six%20Months%20Ended%20August%2031,%202025) The PaperPie segment experienced significant declines in net revenues and active brand partners, but improved operating results due to substantial expense reductions | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net revenues | $3,731,200 | $5,440,300 | $9,791,500 | $14,340,600 | | Gross margin | $2,161,800 | $3,000,200 | $5,752,800 | $8,814,100 | | Total operating expenses | $2,176,500 | $3,470,900 | $5,305,800 | $8,513,700 | | Operating income (loss) | $(14,700) | $(470,700) | $447,000 | $300,400 | | Average number of active brand partners | 5,800 | 13,900 | 6,800 | 13,700 | - PaperPie net revenues **decreased by 31.5%** for both periods, with active brand partners decreasing by **58.3%** (three months) and **50.4%** (six months) due to economic challenges, Usborne agreement uncertainty, and lack of new titles[112](index=112&type=chunk)[118](index=118&type=chunk) - Operating expenses for PaperPie **decreased by 37.1%** (three months) and **37.6%** (six months), primarily due to reduced shipping costs and lower Brand Partner incentive trip expenses[116](index=116&type=chunk)[121](index=121&type=chunk) - Operating loss for the three months **improved from $(470,700) to $(14,700)**, and operating income for the six months **increased from $300,400 to $447,000**, despite revenue declines, due to significant expense reductions[117](index=117&type=chunk)[122](index=122&type=chunk) [Publishing Operating Results for the Three and Six Months Ended August 31, 2025](index=31&type=section&id=Publishing%20Operating%20Results%20for%20the%20Three%20and%20Six%20Months%20Ended%20August%2031,%202025) The Publishing segment experienced decreased net revenues, gross margin, and operating income for both periods, primarily due to increased discounts offered to spur sales | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net revenues | $889,900 | $1,068,900 | $1,936,000 | $2,162,000 | | Gross margin | $526,300 | $646,500 | $1,072,400 | $1,292,000 | | Total operating expenses | $320,600 | $391,300 | $658,900 | $805,200 | | Operating income | $205,700 | $255,200 | $413,500 | $486,800 | - Publishing net revenues **decreased by 18.2%** (three months) and **13.6%** (six months), primarily due to additional discounts offered to retail customers[125](index=125&type=chunk)[129](index=129&type=chunk) - Gross margin as a percentage of net revenues **decreased to 59.1%** (three months) and **55.4%** (six months) due to increased discounts and changes in product mix[126](index=126&type=chunk)[130](index=130&type=chunk) - Operating income **decreased by 33.3%** (three months) and **20.0%** (six months), mainly associated with the decline in revenues and increased discounts[128](index=128&type=chunk)[132](index=132&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is challenged by operating losses and increased interest rates, with plans to sell real estate and reduce inventory to address debt default - Net cash provided by operating activities was **$1,459,700** for the first six months of fiscal year 2026, primarily driven by a **$3,958,500 decrease in inventories**[134](index=134&type=chunk)[141](index=141&type=chunk) - Cash used in investing activities was **$263,900**, mainly for software upgrades and building improvements, offset by asset sales[136](index=136&type=chunk) - Cash used in financing activities was **$900,000** for term debt payments[137](index=137&type=chunk) - The Company's credit agreement expired on September 19, 2025, leading to a Notice of Default on September 30, 2025, with approximately **$29,949,100** in outstanding principal balance[139](index=139&type=chunk)[140](index=140&type=chunk)[169](index=169&type=chunk) [Risks and Uncertainties](index=34&type=section&id=Risks%20and%20Uncertainties) The company acknowledges substantial doubt about its ability to continue as a going concern due to credit agreement default and recurring operating losses - Substantial doubt exists about the Company's ability to continue as a going concern due to the credit agreement default and recurring operating losses[144](index=144&type=chunk) - Mitigating plans include selling the Hilti Complex to pay off debt, reducing inventory for cash flow, and increasing active PaperPie Brand Partners to pre-pandemic levels[144](index=144&type=chunk) [Critical Accounting Policies](index=34&type=section&id=Critical%20Accounting%20Policies) This section highlights critical accounting policies involving significant estimates and judgments, including inventory valuation, credit losses, and revenue recognition - Key accounting policies requiring significant estimates include valuation of inventory, provision for credit losses, allowance for sales returns, long-lived assets, and deferred income taxes[145](index=145&type=chunk) - Share-based compensation expense is recognized for probable vesting awards, with **no expense recorded** in the current six-month period as all previously granted shares have vested[148](index=148&type=chunk)[149](index=149&type=chunk) - Inventory valuation includes allowances for obsolescence and consigned inventory not expected to be sold or returned, with noncurrent inventory defined as quantities exceeding 2.5 years of anticipated sales[154](index=154&type=chunk)[156](index=156&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item states that quantitative and qualitative disclosures about market risk are not applicable to the company - The company is not required to provide quantitative and qualitative disclosures about market risk[158](index=158&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the effectiveness of disclosure controls and procedures, concluding they were effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed **effective** as of August 31, 2025, ensuring timely and accurate information disclosure[159](index=159&type=chunk)[160](index=160&type=chunk) - No material changes in internal control over financial reporting occurred during the second quarter of the fiscal year[161](index=161&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings - The Company is not a party to any material legal proceedings[163](index=163&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, the registrant is not required to provide a detailed discussion of risk factors in this quarterly report - Risk Factors disclosure is not required for smaller reporting companies[164](index=164&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not engage in any unregistered sales of equity securities or share repurchases during the three months ended August 31, 2025 | Period | Total of Shares Purchased | Average Price Paid per Share | Total of Shares Purchased as Part of Publicly Announced Plan | Maximum of Shares that may be Repurchased under the Plan | | :---------------- | :-------------------------- | :--------------------------- | :----------------------------------------------------------- | :--------------------------------------------------------- | | June 1 - 30, 2025 | - | - | - | 375,993 | | July 1 - 31, 2025 | - | - | - | 375,993 | | August 1 - 31, 2025 | - | - | - | 375,993 | | Total | - | - | - | | - No shares were purchased under the stock repurchase plan during the three months ended August 31, 2025[165](index=165&type=chunk) - The 2019 stock repurchase plan allows for up to **800,000 shares**, with **375,993 shares** remaining available for repurchase[165](index=165&type=chunk) [Item 3. Defaults Upon Senior Securities](index=37&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item states that there are no defaults upon senior securities to report - This item is not applicable, indicating no defaults upon senior securities[166](index=166&type=chunk) [Item 4. Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company has no mine safety disclosures to report - There are no mine safety disclosures[167](index=167&type=chunk) [Item 5. Other Information](index=37&type=section&id=Item%205.%20Other%20Information) On September 30, 2025, the company received a Notice of Default from its lender due to the failure to repay its Credit Agreement upon maturity - The Company received a Notice of Default and Reservation of Rights Letter from BOKF, NA on September 30, 2025, for failing to pay the Credit Agreement balances by the maturity date[168](index=168&type=chunk) - The default imposes an **additional 2% interest rate** on existing borrowing rates and grants the lender rights to demand payment or liquidate collateral[169](index=169&type=chunk) - The total outstanding principal balance under the Credit Agreement was approximately **$29,949,100** as of September 30, 2025[169](index=169&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including various corporate documents, amendments to the Credit Agreement, and certifications - The exhibits include restated certificates of incorporation, by-laws, the Usborne Distribution Agreement, and multiple amendments to the Credit Agreement with BOKF, NA[171](index=171&type=chunk)[172](index=172&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed herewith[172](index=172&type=chunk) - A Notice of Default and Reservation of Rights, dated September 30, 2025, from BOKF, NA, is included as Exhibit 10.20[172](index=172&type=chunk) SIGNATURES This section contains the official signatures of the company's executive officers, certifying the report's accuracy - The report was signed on October 9, 2025, by Craig M. White, President, Chief Executive Officer, and Chairman of the Board, and Dan E. O'Keefe, Chief Financial Officer and Corporate Secretary[176](index=176&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year June 30, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission file number: 001-40391 iPower Inc. (Exact name of registrant as specified in its charter) Nevada 82-5144171 Sta ...

[Explanatory Note](index=4&type=section&id=Explanatory%20Note) Nikola Corporation filed for Chapter 11 bankruptcy on February 19, 2025, leading to debt acceleration, Nasdaq delisting, and a confirmed Plan of Liquidation that cancels all equity interests for no value - Nikola Corporation and certain subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Code on **February 19, 2025**[9](index=9&type=chunk) - The bankruptcy filing constituted an event of default, accelerating obligations under the company's convertible notes[10](index=10&type=chunk) - Nikola's common stock was suspended from trading on Nasdaq on February 26, 2025, and delisted effective April 14, 2025. The company intends to file a Form 15 for deregistration[11](index=11&type=chunk) - A Plan of Liquidation was filed on June 23, 2025, and confirmed by the Bankruptcy Court on **September 5, 2025**. This plan provides for the liquidation of remaining assets, creation of a liquidation trust, and dissolution of the company[12](index=12&type=chunk)[13](index=13&type=chunk) - Pursuant to the Plan of Liquidation, all common stock and equity securities will be cancelled by order of the Bankruptcy Court, and holders will not receive any distribution[14](index=14&type=chunk) - The company has sold substantially all of its assets and ceased business operations, including truck manufacturing and sales, since **April 2025**, and is in the process of winding down[15](index=15&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements based on management's current expectations and assumptions, which are subject to significant risks and uncertainties, including the company's pending bankruptcy and liquidation. Actual results may differ materially - The report contains forward-looking statements identified by words such as 'believe,' 'may,' 'will,' 'expect,' and similar expressions, which predict future events or trends[17](index=17&type=chunk) - These statements are based on various assumptions and current management expectations and are not predictions of actual performance[17](index=17&type=chunk) - Forward-looking statements are subject to risks and uncertainties, including the Company's pending bankruptcy proceedings and liquidation, that could cause actual results to differ materially from those expected[18](index=18&type=chunk) [PART I](index=7&type=section&id=PART%20I) [Item 1. Business](index=7&type=section&id=Item%201.%20Business) Nikola Corporation operated in two business units: Truck (FCEV and BEV Class 8 trucks) and Energy (hydrogen fueling infrastructure under the HYLA brand). The company commenced commercial production of Tre BEVs in Q1 2022 and Tre FCEVs in Q3 2023. However, as of April 2025, the company has ceased business operations and sold substantially all assets due to bankruptcy [Company Overview](index=7&type=section&id=Company%20Overview) Nikola Corporation focused on commercializing hydrogen fuel cell electric vehicles (FCEV) and battery electric vehicles (BEV) Class 8 trucks, alongside developing hydrogen fueling infrastructure under the HYLA brand. Production of BEVs started in Q1 2022 and FCEVs in Q3 2023 at its Arizona facility - Nikola operated in two business units: Truck (commercializing FCEV and BEV Class 8 trucks) and Energy (developing hydrogen fueling infrastructure under the HYLA brand)[22](index=22&type=chunk)[24](index=24&type=chunk) - Commercial production of Tre BEVs began in **Q1 2022**, and Tre FCEVs in **Q3 2023**, both at the Coolidge, Arizona manufacturing facility[23](index=23&type=chunk) [Shift to Zero-Emission Vehicles](index=7&type=section&id=Shift%20to%20Zero-Emission%20Vehicles) Nikola aimed to address the environmental impact of diesel vehicles, which are a major source of air pollutants and GHG emissions, by promoting zero-emission vehicles (ZEVs) as a viable solution to meet climate and regulatory targets - Diesel vehicles are a major source of harmful air pollutants and U.S. greenhouse gas (GHG) emissions, negatively impacting health and quality of life[25](index=25&type=chunk) - Zero-emission vehicles are considered a viable option to reduce emissions in the transportation sector and meet climate, ozone, and regulatory targets[26](index=26&type=chunk) - There is a strong global consensus among governments to shift to zero-emission vehicles and eventually eliminate internal combustion engine (ICE) vehicles[26](index=26&type=chunk) [Zero-Emission Vehicle Incentive Programs](index=7&type=section&id=Zero-Emission%20Vehicle%20Incentive%20Programs) Various incentive programs, such as California's HVIP and New York's NYTVIP, were crucial for lowering the upfront and operational costs of zero-emission vehicles, including Nikola's Tre FCEV and BEV trucks, which qualified for significant incentives and tax credits - Vehicle-specific incentive programs like California's HVIP and New York's NYTVIP were expected to play an important role in the adoption of zero-emission vehicles[27](index=27&type=chunk) - Nikola's Tre FCEV qualified for HVIP incentives of **$240,000 to $288,000 per truck in 2024**, and the Tre BEV was eligible for **$120,000 to $150,000**[28](index=28&type=chunk) - Purchasers of Tre BEV and FCEVs also qualified for an additional **$40,000** in clean commercial vehicle tax credits from the federal government starting in 2023[28](index=28&type=chunk) - The loss or absence of these grants, credits, or incentives could have a material adverse effect on demand for Nikola's trucks and its business[30](index=30&type=chunk) [Industry and Competition](index=8&type=section&id=Industry%20and%20Competition) The Class 8 heavy-duty truck industry is highly competitive and evolving towards zero-emission solutions due to new regulations and technological advancements. Key competitive factors include total cost of ownership, reliability, fueling infrastructure, and service quality. Nikola faced competition from both traditional OEMs and new entrants, many of whom had greater resources - The Class 8 heavy-duty truck industry is highly competitive, driven by new regulatory requirements for vehicle emissions, technological advances, and shifting customer demands towards zero-emission solutions[32](index=32&type=chunk) - Primary competitive factors include total cost of ownership (TCO), reliability, availability of charging/refueling networks, service quality, product performance, emissions profile, and technological innovation[31](index=31&type=chunk)[37](index=37&type=chunk) - Nikola faced competition from established OEMs (Daimler, Volvo, Paccar) and new entrants (Tesla, BYD, XOS, Lion) in the BEV market, and Hyundai, Toyota, Daimler, and Volvo in the FCEV market[35](index=35&type=chunk)[36](index=36&type=chunk) - Most competitors possess greater financial, technical, manufacturing, marketing, and other resources than Nikola[34](index=34&type=chunk) [Products](index=9&type=section&id=Products) Nikola offered two Class 8 truck models: the Tre BEV, designed for short and medium-haul with a range of up to 330 miles, and the Tre FCEV, targeted for medium missions up to 500 miles per fill, leveraging the BEV platform with hydrogen fuel cell technology - The Nikola Tre Class 8 BEV is a purpose-built zero-emissions truck with a range of up to **330 miles**, designed for short and medium-haul markets in North America. Sales began in **Q2 2022**[38](index=38&type=chunk) - The Nikola Tre Class 8 FCEV uses hydrogen fuel cells, targeting medium missions up to **500 miles per fill** and multi-shift operations. Sales began in **Q4 2023**[39](index=39&type=chunk)[40](index=40&type=chunk) - The Tre FCEV leverages the Tre BEV platform with modifications for hydrogen fuel cell operation, improved aerodynamics, thermal management, and light-weighting[40](index=40&type=chunk) [Nikola Energy](index=9&type=section&id=Nikola%20Energy) Nikola Energy, under the HYLA brand, was developing a hydrogen fueling ecosystem in North America, encompassing hydrogen supply, distribution, storage, and dispensing. It also provided BEV charging solutions, focusing on mobile and fixed infrastructure - Nikola launched HYLA in **January 2023** as its new brand for hydrogen energy products, comprising a planned hydrogen fueling ecosystem and integrated BEV charging solutions[41](index=41&type=chunk) - The hydrogen fueling ecosystem includes hydrogen supply (on-site, hub production, or third-party contracts), distribution (liquid, gas, dissolved hydrogen via various methods), and storage/dispensing (fixed heavy-duty stations and modular assets)[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) - BEV charging solutions focused on mobile charging trailers (MCTs) for remote testing and transitional charging, and fixed infrastructure development with end-user fleets and dealers[45](index=45&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) - The first HYLA 700 bar pressure hydrogen mobile fueler was commissioned in **2022**, and the first modular station opened in Ontario, California, in **Q4 2023**[50](index=50&type=chunk) [Sales, Service, and our Dealer Network](index=10&type=section&id=Sales%2C%20Service%2C%20and%20our%20Dealer%20Network) Nikola employed an end-user-focused, integrated solution approach for sales, service, and parts. This included traditional marketing, direct fleet engagement, a training academy for technicians, and a dealer network for sales and maintenance, supported by predictive maintenance and over-the-air software updates - Nikola adopted an end-user-focused, integrated solution approach for delivering trucks, infrastructure, and support services, including market research and direct engagement with fleets[54](index=54&type=chunk)[55](index=55&type=chunk) - The Nikola training academy, opened in **December 2021**, provides dealer technician training and certification for BEV and FCEV trucks[56](index=56&type=chunk) - Service solutions included smart predictive maintenance, over-the-air software updates, and a dealer network for maintenance and warranty work, with trained technicians and diagnostic technologies[59](index=59&type=chunk) - A sales and service dealer network was established in key metropolitan areas and major interstate highway intersections across the U.S.[57](index=57&type=chunk) [Bosch Fuel Cell Supply](index=11&type=section&id=Bosch%20Fuel%20Cell%20Supply) Nikola had agreements with Robert Bosch LLC for the supply of fuel cell power module (FCPM) components and a license to adapt and assemble FCPMs for its FCEV trucks, effective through 2030 - Nikola entered a Fuel Cell Supply Framework Agreement with Robert Bosch LLC in **August 2021** to purchase FCPM components from June 1, 2023, through December 31, 2030[58](index=58&type=chunk) - An FCPM Design and Manufacturing License Agreement with Bosch (**September 2021**) granted Nikola a non-exclusive license to intellectual property for adapting, developing, and assembling FCPMs for its FCEV trucks[58](index=58&type=chunk) - Bosch continues to supply FCPMs assembled in Germany to Nikola for its trucks[60](index=60&type=chunk) [Manufacturing and Production](index=12&type=section&id=Manufacturing%20and%20Production) Nikola's 670,000 sq ft manufacturing facility in Coolidge, Arizona, was designed with environmentally thoughtful features, including energy-efficient lighting, HVAC, and a solar array, utilizing modern energy-efficient equipment - Nikola's manufacturing facility in Coolidge, Arizona, is approximately **670,000 square feet** and features state-of-the-art manufacturing technology[61](index=61&type=chunk) - The facility was designed with environmentally thoughtful features, including energy-efficient LED lighting, HVAC, industrial fans, day lighting, smart controls, low water use landscaping, and a **750 kW solar array**[61](index=61&type=chunk) - The manufacturing process utilizes modern energy-efficient equipment, electric automated guided vehicles (AGVs), and electric forklifts[61](index=61&type=chunk) [Intellectual Property](index=12&type=section&id=Intellectual%20Property) Nikola protected its core technology and intellectual property through a combination of patents, trademarks, copyrights, trade secrets, and confidentiality agreements, focusing on vehicle powertrains (battery and fuel cell) and hydrogen fueling - Nikola's success depends on its ability to protect core technology and intellectual property through a combination of patent, trademark, copyright, and trade secret protection[62](index=62&type=chunk) - The company also uses confidentiality and invention assignment agreements with employees and consultants to control access to proprietary information[62](index=62&type=chunk) - Patents and patent applications cover vehicle and vehicle powertrain (including battery and fuel cell technology) and hydrogen fueling[63](index=63&type=chunk) [Sustainability](index=12&type=section&id=Sustainability) Sustainability was central to Nikola's mission of zero tailpipe emission vehicles, integrating sustainable principles into operations, systems, and management. The company had a dedicated sustainability team, performed materiality assessments, and integrated oversight into its corporate governance - Sustainability is inherent in Nikola's purpose-built zero tailpipe emission vehicles and integrated into its operations, systems, and management[64](index=64&type=chunk) - The company focused on avoiding emissions in heavy-duty transportation through clean technology and energy solutions, while also managing its operational footprint[64](index=64&type=chunk) - Nikola appointed a sustainability team lead, partnered for a materiality assessment, and integrated sustainability oversight into its sustainability, nominating, and corporate governance committee[65](index=65&type=chunk) [Safety](index=12&type=section&id=Safety) Nikola implemented a comprehensive health and safety management system, overseen by dedicated officers, covering employees and partners. This included contractor safety programs, routine internal inspections, and audits, resulting in ISO 9001, 14001, and 45001 certifications - Nikola's safety programs encompass employees and partners, with safety being critical in all phases of production, testing, validation, and use[66](index=66&type=chunk) - A health and safety management system is implemented, steered by the Head of Environmental Health and Safety and a Safety Officer[66](index=66&type=chunk) - Routine monthly internal inspections are conducted at all facilities, and internal audits of the Environmental Management System are performed[66](index=66&type=chunk) - The company achieved International Standards Organization (ISO) **9001, 14001, and 45001** certifications[66](index=66&type=chunk) [Governance](index=12&type=section&id=Governance) Nikola aimed for leadership in corporate responsibility through a Code of Business Conduct and Ethics and a Code of Ethics for Senior Financial Officers, supplemented by workforce training and a whistleblower program - Nikola's corporate governance is guided by a Code of Business Conduct and Ethics and a Code of Ethics for Senior Financial Officers, publicly available on its website[67](index=67&type=chunk) - Ethics policies are supplemented by workforce training courses on ethical standards and an Ethics and Whistleblower program for anonymous reporting of concerns[67](index=67&type=chunk) - Any concerns regarding accounting or auditing matters reported through these procedures are communicated promptly to the audit committee[67](index=67&type=chunk) [Employees](index=13&type=section&id=Employees) As of December 31, 2024, Nikola had approximately 940 employees, primarily in Arizona. Employee relations were favorable, with no external union representation, and the company actively complied with employment laws - As of **December 31, 2024**, Nikola had approximately **940 employees**, with the majority located in Coolidge, Arizona, or the Phoenix metropolitan area[68](index=68&type=chunk) - None of the employees were represented by an external employee organization such as a union, and relations with employees were considered favorable[68](index=68&type=chunk) - The company actively sought to comply with all local, state, and federal employment laws and monitored labor and human capital management risks[69](index=69&type=chunk) [Government Regulation](index=13&type=section&id=Government%20Regulation) Nikola operated in a heavily regulated industry, subject to extensive environmental, vehicle safety, and emissions regulations at international, federal, state, and local levels. Compliance was critical, with violations potentially leading to substantial fines or operational cessation - Nikola operates in an industry subject to extensive and increasingly stringent environmental regulations governing water use, air emissions, hazardous materials, and environmental protection[70](index=70&type=chunk) - Vehicles are designed to comply with numerous regulatory safety requirements established by NHTSA (FMVSS) and Canadian CMVSS[71](index=71&type=chunk)[72](index=72&type=chunk) - The company is required to obtain a Certificate of Conformity for GHG from the EPA and an Executive Order for GHG from CARB, which it has received each model year since **2021**[75](index=75&type=chunk)[77](index=77&type=chunk) - Nikola's BEV and FCEV trucks received Executive Orders for Zero Emission Powertrain and Enhanced Zero Emission Vehicle from CARB since **2023**, qualifying them for HVIP funding[78](index=78&type=chunk)[79](index=79&type=chunk) - Battery packs conform with mandatory regulations for transporting 'dangerous goods,' including lithium-ion batteries, and are designed to meet and exceed UN Manual of Tests and Criteria compliance[81](index=81&type=chunk)[82](index=82&type=chunk) [Available Information](index=14&type=section&id=Available%20Information) Nikola's SEC filings, including annual, quarterly, and current reports, proxy statements, and other information, are publicly available on the SEC's website and the company's investor relations page - Nikola files annual, quarterly, and current reports, proxy statements, and other information with the SEC, available to the public at www.sec.gov[83](index=83&type=chunk) - SEC filings are also available free of charge on the Investors Overview page of Nikola's website at nikolamotor.com[83](index=83&type=chunk) [Item 1A. Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) Nikola has ceased business operations and sold substantially all assets, with its Plan of Liquidation confirmed by the Bankruptcy Court. All existing equity interests will be cancelled for no value, leading to a total loss for equity investors. Trading in common stock is highly speculative and may not reflect this pending cancellation - Nikola has ceased business operations and sold substantially all of its assets, and the Bankruptcy Court has confirmed its Plan of Liquidation[84](index=84&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) - On the Effective Date (expected **December 2025**), all existing common stock and equity securities will be cancelled for no value, and investors will lose their entire investments[89](index=89&type=chunk) - Trading in Nikola's common stock is highly speculative and may not reflect the pending cancellation of shares pursuant to the Plan of Liquidation[90](index=90&type=chunk) - The bankruptcy filings accelerated obligations under the company's convertible notes and led to the suspension and voluntary delisting of common stock from Nasdaq[85](index=85&type=chunk)[86](index=86&type=chunk) [Item 1B. Unresolved Staff Comments](index=15&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments - There are no unresolved staff comments[91](index=91&type=chunk) [Item 1C. Cybersecurity](index=15&type=section&id=Item%201C.%20Cybersecurity) Nikola implemented processes and controls for identifying, monitoring, assessing, mitigating, and managing cybersecurity risks, integrated into its overall risk management program. This included end-user training, security assessments, incident response plans, and engagement with third-party experts, with oversight from the Global Head of IT and the audit committee - Nikola implemented processes and controls for identifying, monitoring, assessing, mitigating, and managing potential cybersecurity risks, integrated into its overall risk management program[92](index=92&type=chunk) - The cybersecurity risk mitigation program includes end-user training, application security assessments, risk scores, security audits, and change review boards[92](index=92&type=chunk) - The security team, led by the Global Head of Information Technology, is responsible for cybersecurity practices and provides regular updates to the audit committee of the board of directors[94](index=94&type=chunk)[95](index=95&type=chunk) - Nikola partners with third-party security vendors to conduct security assessments, penetration testing, and ongoing risk assessments[96](index=96&type=chunk) [Item 2. Properties](index=15&type=section&id=Item%202.%20Properties) Nikola leased its headquarters in Phoenix, Arizona (over 150,000 sq ft), additional office space in Arizona, California, and Colorado, a service center in California, and eight parcels of land in California and Canada for refueling stations. Its manufacturing facility was leased in Coolidge, Arizona - Nikola leased its headquarters facility in Phoenix, Arizona, consisting of over **150,000 square feet**[98](index=98&type=chunk) - The company also leased office space in Arizona, California, and Colorado, a service center in California, and eight parcels of land in California and Canada for refueling stations[98](index=98&type=chunk) - An approximately **400-acre** parcel of real property in Coolidge, Arizona, where the manufacturing facility is constructed, is also leased[98](index=98&type=chunk) [Item 3. Legal Proceedings](index=16&type=section&id=Item%203.%20Legal%20Proceedings) Material pending legal proceedings are detailed in Note 13, Commitments and Contingencies, to the consolidated financial statements - A description of material pending legal proceedings is provided in Note 13, Commitments and Contingencies, to the consolidated financial statements[99](index=99&type=chunk) [Item 4. Mine Safety Disclosures](index=16&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - This item is not applicable[100](index=100&type=chunk) [PART II](index=17&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=17&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Nikola's common stock was delisted from Nasdaq on April 14, 2025, and is now quoted on the Pink Market under "NKLAQ." As of April 28, 2025, there were 214 holders of record. The company has never paid cash dividends and has no current plans to do so, intending to retain future earnings for operations - Nikola's common stock was delisted from The Nasdaq Stock Market LLC on **April 14, 2025**, and is now available for quotation on the Pink Market under the symbol "**NKLAQ**"[103](index=103&type=chunk) - As of **April 28, 2025**, there were **214 holders of record** of Nikola's common stock[104](index=104&type=chunk) - Nikola has not paid any cash dividends on its common stock to date and has no current plans to pay cash dividends for the foreseeable future, intending to retain future earnings for operations[105](index=105&type=chunk) [Item 6. [Reserved]](index=17&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved - This item is reserved[106](index=106&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of Nikola's financial condition and results of operations for the year ended December 31, 2024, compared to 2023, focusing on continuing operations. It highlights the impact of the company's bankruptcy and pending liquidation on financial comparability and future outlook [Overview](index=18&type=section&id=Overview) Nikola operated in two business units: Truck (FCEV and BEV Class 8 trucks) and Energy (hydrogen fueling infrastructure under the HYLA brand). The company required substantial additional capital to fund operations and was impacted by a voluntary recall of BEV trucks in H2 2023 - Nikola operated in two business units: Truck (commercializing FCEV and BEV Class 8 trucks) and Energy (developing hydrogen fueling infrastructure under the HYLA brand)[108](index=108&type=chunk)[109](index=109&type=chunk) - The company required substantial additional capital to manufacture and validate products, services, and fund operations, dependent on revenue, gross margins, and financing[111](index=111&type=chunk) - Commercial production of Tre BEVs began in **Q1 2022** and Tre FCEVs in **Q3 2023**; however, BEV production and shipment were suspended in **H2 2023** due to a voluntary recall[112](index=112&type=chunk) - Nikola accrued **$57.4 million** for BEV truck recall campaign costs, with **$44.3 million** incurred through December 31, 2024[113](index=113&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) Nikola experienced a significant increase in total revenues by 92% to $68.9 million in 2024, primarily driven by a 107% increase in truck sales. However, gross loss widened by 8% to $(230.4) million, and loss from operations increased by 41% to $(916.5) million, largely due to a $336.8 million impairment expense in 2024. Net loss from continuing operations increased by 11% to $(958.2) million Years Ended December 31, 2024 vs. 2023 (in thousands, except per share data) | Metric | 2024 | 2023 | $ Change | % Change | | :----------------------------------- | :------- | :------- | :------- | :------- | | Revenues: | | | | | | Truck sales | $62,210 | $30,061 | $32,149 | 107% | | Service and other | $6,652 | $5,778 | $874 | 15% | | **Total revenues** | **$68,862** | **$35,839** | **$33,023** | **92%** | | Cost of revenues: | | | | | | Truck sales | $279,854 | $242,519 | $37,335 | 15% | | Service and other | $19,434 | $7,387 | $12,047 | 163% | | **Total cost of revenues** | **$299,288** | **$249,906** | **$49,382** | **20%** | | **Gross loss** | **$(230,426)** | **$(214,067)** | **$(16,359)** | **8%** | | Operating expenses: | | | | | | Research and development | $158,061 | $208,160 | $(50,099) | (24)% | | Selling, general and administrative | $191,212 | $198,768 | $(7,556) | (4)% | | Impairment expense | $336,758 | $— | $336,758 | NM | | Loss on supplier deposits | $— | $28,834 | $(28,834) | NM | | **Total operating expenses** | **$686,031** | **$435,762** | **$250,269** | **57%** | | **Loss from operations** | **$(916,457)** | **$(649,829)** | **$(266,628)** | **41%** | | Other income (expense): | | | | | | Interest expense, net | $(22,824) | $(76,023) | $53,199 | (70)% | | Gain on divestiture of affiliate | $— | $70,849 | $(70,849) | NM | | Loss on debt extinguishment | $(6,004) | $(31,025) | $25,021 | (81)% | | Inducement expense | $(7,714) | $— | $(7,714) | NM | | Other expense, net | $(3,529) | $(162,163) | $158,634 | (98)% | | Loss before income taxes and equity in net loss of affiliates | $(956,528) | $(848,191) | $(108,337) | 13% | | Income tax expense | $71 | $12 | $59 | 492% | | Loss before equity in net loss of affiliates | $(956,599) | $(848,203) | $(108,396) | 13% | | Equity in net loss of affiliates | $(1,630) | $(16,418) | $14,788 | (90)% | | **Net loss from continuing operations** | **$(958,229)** | **$(864,621)** | **$(93,608)** | **11%** | | Basic and diluted net loss per share | $(17.56) | $(32.42) | $14.86 | (46)% | | Weighted-average shares outstanding | 54,558,229 | 26,667,685 | 27,890,544 | 105% | [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2024, Nikola's principal liquidity source was $104.3 million in cash and cash equivalents. The company's current assets were $265.1 million and current liabilities were $245.4 million. Management concluded that the Chapter 11 bankruptcy filing raises substantial doubt about the company's ability to continue as a going concern - As of **December 31, 2024**, Nikola's principal sources of liquidity were cash and cash equivalents totaling **$104.3 million**[136](index=136&type=chunk) - Current assets were **$265.1 million** (including **$104.3 million** cash and **$71.8 million** inventory), and current liabilities were **$245.4 million** (including **$80.2 million** SEC settlement and **$24.9 million** warranty reserves)[137](index=137&type=chunk)[138](index=138&type=chunk) - Management concluded that the Chapter 11 bankruptcy petitions raise substantial doubt about the company's ability to continue as a going concern for 12 months following the issuance of financial statements[139](index=139&type=chunk) Summary of Cash Flow Data (in thousands) | Years Ended December 31, | 2024 | 2023 | | :------------------------------ | :------- | :------- | | Net cash used in operating activities | $(521,504) | $(496,178) | | Net cash used in investing activities | $(25,209) | $(66,749) | | Net cash provided by financing activities | $174,360 | $742,983 | - Net cash used in operating activities was **$521.5 million in 2024**, primarily due to a net loss of **$958.2 million**, partially offset by non-cash items like impairment expense (**$336.8 million**) and inventory write-downs (**$88.0 million**)[145](index=145&type=chunk) - Net cash provided by financing activities was **$174.4 million in 2024**, mainly from proceeds from common stock issuance (**$144.1 million**) and convertible notes (**$80.0 million**), partially offset by debt and lease repayments[149](index=149&type=chunk) [Off-Balance Sheet Arrangements](index=24&type=section&id=Off-Balance%20Sheet%20Arrangements) Nikola has not engaged in any off-balance sheet arrangements since its incorporation - Since the date of incorporation, Nikola has not engaged in any off-balance sheet arrangements[151](index=151&type=chunk) [Critical Accounting Policies and Estimates](index=24&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Nikola's financial statements rely on significant management judgments and estimates, particularly for impairment assessments of long-lived and intangible assets, valuation of derivative liabilities, lease assumptions, revenue recognition, contingent liabilities (including litigation and warranty reserves), and stock-based compensation - Significant estimates and judgments involve impairment assessments for long-lived and intangible assets, valuation of derivative assets and liabilities, lease assumptions, revenue recognition, contingent liabilities (litigation, inventory, warranty reserves), and stock-based compensation[152](index=152&type=chunk)[217](index=217&type=chunk) - Product warranty costs and recall campaign costs are recognized based on estimates of product failure rates, replacement costs, and required repairs, which are highly subjective and require significant management judgment[154](index=154&type=chunk)[156](index=156&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk) - Goodwill and indefinite-lived intangible assets are tested for impairment annually, and long-lived assets are reviewed when carrying values may not be recoverable. In 2024, a sustained stock price decline led to impairment charges for goodwill (**$5.2 million**), indefinite-lived intangible assets (**$47.2 million**), and long-lived assets (**$284.3 million**)[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[256](index=256&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk) [Recent Accounting Pronouncements](index=26&type=section&id=Recent%20Accounting%20Pronouncements) Nikola adopted ASU No. 2023-07 on Segment Reporting effective December 31, 2024, with no material impact. The company is evaluating the impact of ASU No. 2023-09 (Income Taxes), ASU No. 2024-03 (Expense Disaggregation Disclosures), and ASU No. 2024-04 (Induced Conversions of Convertible Debt) for future periods - Nikola adopted ASU No. 2023-07, Segment Reporting, effective **December 31, 2024**, which increased required disclosures about reportable segments but had no material impact on financial condition or results of operations[293](index=293&type=chunk) - The company is currently evaluating the impact of recently issued accounting pronouncements, including ASU No. 2023-09 (Income Taxes), ASU No. 2024-03 (Expense Disaggregation Disclosures), and ASU No. 2024-04 (Induced Conversions of Convertible Debt Instruments), for future periods[294](index=294&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk)[298](index=298&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Nikola is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Nikola is not required to provide quantitative and qualitative disclosures about market risk[166](index=166&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=27&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Nikola Corporation's audited consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows for the years ended December 31, 2024 and 2023, along with accompanying notes. The financial statements are prepared assuming a going concern, despite the company's Chapter 11 filing [Report of Independent Registered Public Accounting Firm (Grant Thornton LLP)](index=28&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20(Grant%20Thornton%20LLP)) Grant Thornton LLP, as the auditor since 2024, issued an unqualified opinion on Nikola's consolidated financial statements for the year ended December 31, 2024. However, they highlighted the Chapter 11 filing as raising substantial doubt about the company's ability to continue as a going concern. The critical audit matter identified was the liability for product warranties due to significant management and auditor judgment in estimating product failure rates - Grant Thornton LLP issued an unqualified opinion on Nikola's consolidated financial statements for the year ended **December 31, 2024**[170](index=170&type=chunk) - The audit report highlighted that the Chapter 11 filing on **February 19, 2025**, raises substantial doubt about the Company's ability to continue as a going concern[171](index=171&type=chunk) - The critical audit matter identified was the liability for product warranties (**$53.2 million** at December 31, 2024), due to significant management and auditor judgment in developing assumptions for expected product failure rates[176](index=176&type=chunk)[177](index=177&type=chunk) [Report of Independent Registered Public Accounting Firm (Ernst & Young LLP)](index=30&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20(Ernst%20%26%20Young%20LLP)) Ernst & Young LLP, as the auditor from 2018 to 2024, issued an unqualified opinion on Nikola's consolidated financial statements for the year ended December 31, 2023 - Ernst & Young LLP issued an unqualified opinion on Nikola's consolidated financial statements for the year ended **December 31, 2023**[180](index=180&type=chunk) - Ernst & Young LLP served as the Company's auditor from **2018 to 2024**[183](index=183&type=chunk) [Consolidated Balance Sheets](index=31&type=section&id=Consolidated%20Balance%20Sheets) Nikola's total assets decreased from $1,274.9 million in 2023 to $596.2 million in 2024, primarily due to a significant reduction in cash and cash equivalents and impairment of property, plant, and equipment. Total liabilities decreased from $555.7 million to $488.8 million, while total stockholders' equity decreased from $719.2 million to $107.4 million Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------------ | :------------------ | | **Assets** | | | | Cash and cash equivalents | $104,302 | $464,715 | | Restricted cash and cash equivalents | $4,284 | $1,224 | | Accounts receivable, net | $33,381 | $17,974 | | Inventory | $71,847 | $62,588 | | Prepaid expenses and other current assets | $51,244 | $25,911 | | **Total current assets** | **$265,058** | **$572,412** | | Property, plant and equipment, net | $230,876 | $503,416 | | Intangible assets, net | $1,364 | $85,860 | | Goodwill | $— | $5,238 | | **Total assets** | **$596,177** | **$1,274,857** | | **Liabilities** | | | | Accounts payable | $53,412 | $44,133 | | Accrued expenses and other current liabilities | $182,391 | $207,022 | | Debt and finance lease liabilities, current | $9,595 | $8,950 | | **Total current liabilities** | **$245,398** | **$260,105** | | Long-term debt and finance lease liabilities, net of current portion | $192,700 | $269,279 | | **Total liabilities** | **$488,755** | **$555,683** | | **Stockholders' equity** | | | | Common stock (shares outstanding) | 115,639,591 | 44,336,100 | | Additional paid-in capital | $4,136,586 | $3,790,401 | | Accumulated deficit | $(4,029,298) | $(3,071,069) | | **Total stockholders' equity** | **$107,422** | **$719,174** | - Total assets decreased by **$678.7 million (53%)** from **$1,274.9 million in 2023** to **$596.2 million in 2024**[186](index=186&type=chunk) - Cash and cash equivalents decreased by **$360.4 million (78%)** from **$464.7 million in 2023** to **$104.3 million in 2024**[186](index=186&type=chunk) - Total stockholders' equity decreased by **$611.8 million (85%)** from **$719.2 million in 2023** to **$107.4 million in 2024**[186](index=186&type=chunk) [Consolidated Statements of Operations](index=32&type=section&id=Consolidated%20Statements%20of%20Operations) Nikola reported a net loss of $(958.2) million in 2024, an increase from $(966.3) million in 2023 (which included discontinued operations). Loss from continuing operations increased to $(958.2) million in 2024 from $(864.6) million in 2023, driven by higher operating expenses, particularly impairment expense Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 2024 | 2023 | | :----------------------------------- | :------- | :------- | | Total revenues | $68,862 | $35,839 | | Gross loss | $(230,426) | $(214,067) | | Total operating expenses | $686,031 | $435,762 | | Loss from operations | $(916,457) | $(649,829) | | Net loss from continuing operations | $(958,229) | $(864,621) | | Loss from discontinued operations | $— | $(101,661) | | **Net loss** | **$(958,229)** | **$(966,282)** | | Basic and diluted net loss per share | $(17.56) | $(36.23) | | Weighted-average shares outstanding | 54,558,229 | 26,667,685 | - Net loss from continuing operations increased by **$93.6 million (11%)** to **$(958.2) million in 2024**[188](index=188&type=chunk) - Total operating expenses increased by **$250.3 million (57%)** to **$686.0 million in 2024**, primarily due to a **$336.8 million** impairment expense[188](index=188&type=chunk) - Basic and diluted net loss per share improved from **$(36.23) in 2023** to **$(17.56) in 2024**, partly due to a **105% increase** in weighted-average shares outstanding[188](index=188&type=chunk) [Consolidated Statements of Comprehensive Loss](index=33&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) Nikola reported a comprehensive loss of $(957.9) million in 2024, compared to $(964.9) million in 2023. This includes the net loss adjusted for foreign currency translation adjustments Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 2024 | 2023 | | :----------------------------------- | :------- | :------- | | Net loss | $(958,229) | $(966,282) | | Other comprehensive income (loss): | | | | Foreign currency translation adjustment, net of tax | $284 | $1,415 | | **Comprehensive loss** | **$(957,945)** | **$(964,867)** | [Consolidated Statements of Stockholders' Equity](index=34&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity decreased significantly from $719.2 million in 2023 to $107.4 million in 2024, primarily due to a net loss of $(958.2) million, partially offset by $187.4 million from common stock issued for convertible notes conversions and $126.9 million from equity distribution agreements - Total stockholders' equity decreased from **$719.174 million** as of December 31, 2023, to **$107.422 million** as of December 31, 2024[192](index=192&type=chunk) - The accumulated deficit increased by **$958.2 million** due to the net loss in 2024, reaching **$(4,029.3) million**[192](index=192&type=chunk) - Additional paid-in capital increased by **$346.2 million**, primarily from common stock issued for convertible notes conversions (**$187.4 million**) and Equity Distribution Agreements (**$126.9 million**)[192](index=192&type=chunk) - Common stock shares issued and outstanding increased from **44,336,100 in 2023** to **115,639,591 in 2024**, reflecting new issuances and the reverse stock split adjustment[186](index=186&type=chunk)[192](index=192&type=chunk) [Consolidated Statements of Cash Flows](index=35&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In 2024, Nikola used $(521.5) million in operating activities and $(25.2) million in investing activities, while generating $174.4 million from financing activities. This resulted in a net decrease of $(372.4) million in cash and cash equivalents, ending the year with $121.6 million Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2024 | 2023 | | :-------------------------------- | :------- | :------- | | Net cash used in operating activities | $(521,504) | $(496,178) | | Net cash used in investing activities | $(25,209) | $(66,749) | | Net cash provided by financing activities | $174,360 | $742,983 | | Net increase (decrease) in cash and cash equivalents and restricted cash | $(372,353) | $180,056 | | Cash and cash equivalents, including restricted cash, end of period | $121,612 | $493,965 | - Net cash used in operating activities was **$(521.5) million in 2024**, primarily driven by the net loss from continuing operations, partially offset by non-cash adjustments like impairment expense and inventory write-downs[145](index=145&type=chunk)[195](index=195&type=chunk) - Net cash provided by financing activities was **$174.4 million in 2024**, mainly from proceeds from common stock issuances under Equity Distribution Agreements and convertible debt instruments[149](index=149&type=chunk)[196](index=196&type=chunk) [Notes to Consolidated Financial Statements](index=37&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on Nikola's accounting policies, financial statement components, and significant events, including the Chapter 11 bankruptcy filing, which raises substantial doubt about the company's going concern ability [1. BASIS OF PRESENTATION](index=37&type=section&id=1.%20BASIS%20OF%20PRESENTATION) This note outlines Nikola's business as a designer and manufacturer of FCEV and BEV trucks and energy infrastructure. It details the reverse stock split in June 2024 and the Chapter 11 bankruptcy filing in February 2025, which raises substantial doubt about the company's ability to continue as a going concern, leading to a plan of liquidation and cancellation of equity interests - Nikola Corporation is a designer and manufacturer of heavy-duty commercial fuel cell electric vehicles (FCEV) and battery electric vehicles (BEV), and energy infrastructure solutions[198](index=198&type=chunk) - A **one-for-thirty reverse stock split** of common stock became effective on **June 24, 2024**, and the number of authorized common shares was reduced from **1,600,000,000 to 1,000,000,000**[200](index=200&type=chunk) - On **February 19, 2025**, Nikola and certain subsidiaries filed voluntary petitions for relief under Chapter 11, and a plan of liquidation was filed on **June 23, 2025**, and confirmed on **September 5, 2025**[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) - Pursuant to the Plan of Liquidation, all common stock and equity securities will be cancelled by order of the Bankruptcy Court, and holders will not receive any distribution[210](index=210&type=chunk) - Management concluded that the Chapter 11 filing raises substantial doubt about the company's ability to continue as a going concern[212](index=212&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=38&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details Nikola's significant accounting policies, including principles of consolidation, comprehensive loss, use of estimates, segment information (single operating segment), accounts receivable, concentration of credit, supplier, and customer risks, cash and cash equivalents, fair value of financial instruments (including derivative liabilities), inventory, investments, property, plant and equipment, leases, goodwill, intangible assets, income taxes, stock-based compensation, revenue recognition, product warranties and recall campaigns, and recent accounting pronouncements - The preparation of financial statements requires management to make certain estimates and assumptions, which affect reported amounts and disclosures, and actual results could differ materially[215](index=215&type=chunk)[217](index=217&type=chunk) - Nikola operates as a single operating and reportable segment, with the CEO as the chief operating decision-maker[218](index=218&type=chunk) - The company is subject to concentration of supplier risk (limited sources for battery products and fuel cell power modules) and customer risk (dependence on a few dealers for over 10% of total revenue)[221](index=221&type=chunk)[222](index=222&type=chunk)[224](index=224&type=chunk) - Derivative liabilities were recognized for embedded conversion features in convertible notes due to temporary cash settlement requirements, with changes in fair value recorded in other expense, net[234](index=234&type=chunk)[235](index=235&type=chunk)[238](index=238&type=chunk) - Goodwill and indefinite-lived intangible assets are tested for impairment annually, and long-lived assets are reviewed when carrying values may not be recoverable, with impairment charges recognized in 2024[256](index=256&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk) - Product warranty costs and recall campaign costs are estimated and recognized when probable and estimable, based on factors like warranty length, product costs, and failure rates, involving significant management judgment[278](index=278&type=chunk)[279](index=279&type=chunk) [3. BALANCE SHEET COMPONENTS](index=53&type=section&id=3.%20BALANCE%20SHEET%20COMPONENTS) This note provides detailed breakdowns of key balance sheet components. Inventory increased to $71.8 million in 2024, with BEV finished goods reclassified to work-in-process and significant write-downs in 2023 due to recalls. Prepaid expenses and other current assets increased to $51.2 million, including insurance and non-trade receivables. Property, plant and equipment, net, decreased to $230.9 million due to a $254.2 million impairment loss in 2024. Accrued expenses and other current liabilities decreased to $182.4 million, including settlement liabilities and warranty reserves Inventory (in thousands) | Category | December 31, 2024 | December 31, 2023 | | :------------- | :------------------ | :------------------ | | Raw materials | $2,408 | $32,889 | | Work-in-process | $30,146 | $15,486 | | Finished goods | $30,806 | $8,206 | | Service parts | $8,487 | $6,007 | | **Total inventory** | **$71,847** | **$62,588** | - During 2023, all BEV truck finished goods inventory was reclassified to work-in-process for retrofitting, and **$45.7 million** was written down for excess or obsolete BEV battery packs and components due to the voluntary recall[299](index=299&type=chunk) Property, Plant and Equipment, Net (in thousands) | Category | December 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------------ | :------------------ | | Buildings | $62,862 | $239,918 | | Tooling | $54,471 | $39,389 | | Construction-in-progress | $66,085 | $135,994 | | Finance lease assets | $12,538 | $37,504 | | Equipment | $88,682 | $67,657 | | Software | $10,202 | $8,649 | | Land | $347 | $7,957 | | Other | $8,032 | $6,409 | | Demo vehicles | $2,955 | $788 | | Leasehold improvements | $4,027 | $3,100 | | Property, plant and equipment, gross | $310,201 | $547,365 | | Less: accumulated depreciation and amortization | $(79,325) | $(43,949) | | **Total property, plant and equipment, net** | **$230,876** | **$503,416** | - An impairment loss of **$254.2 million** was recognized for property, plant and equipment in 2024, based on the difference between carrying value and estimated fair value[306](index=306&type=chunk) Accrued Expenses and Other Current Liabilities (in thousands) | Category | December 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------------ | :------------------ | | Settlement liabilities | $115,950 | $91,330 | | Warranty liability, current | $24,939 | $65,703 | | Inventory received not yet invoiced | $10,603 | $8,642 | | Accrued return reserve | $4,425 | $658 | | Accrued purchase of intangible asset | $5,193 | $13,796 | | Accrued payroll and payroll related expenses | $5,020 | $3,254 | | Accrued purchases of property, plant and equipment | $5,009 | $2,458 | | Operating lease liabilities, current | $3,295 | $1,867 | | Other accrued expenses | $6,078 | $6,236 | | Accrued outsourced engineering services | $1,879 | $4,207 | | Derivative liability | $— | $8,871 | | **Total** | **$182,391** | **$207,022** | [4. LEASES](index=56&type=section&id=4.%20LEASES) Nikola leased various assets under noncancellable operating and finance leases expiring through March 2033. Total lease cost was $14.0 million in 2024. In Q4 2024, an impairment test resulted in impairment losses of $40.8 million for finance lease ROU assets and $0.2 million for operating lease ROU assets - Nikola leased land, buildings, mobile fueling, hydrogen infrastructure assets, and equipment under noncancellable operating and finance leases expiring through **March 2033**[312](index=312&type=chunk) - Total lease cost was **$14.0 million in 2024**, an increase from **$8.2 million in 2023**[315](index=315&type=chunk) Maturities of Lease Liabilities (in thousands) | Years Ended December 31, | Finance leases | Operating leases | Total | | :----------------------- | :------------- | :--------------- | :---- | | 2025 | $10,135 | $4,039 | $14,174 | | 2026 | $19,063 | $3,347 | $22,410 | | 2027 | $8,310 | $1,877 | $10,187 | | 2028 | $7,153 | $1,642 | $8,795 | | 2029 | $4,150 | $1,365 | $5,515 | | Thereafter | $1,327 | $1,712 | $3,039 | | **Total lease payments** | **$50,138** | **$13,982** | **$64,120** | - Impairment losses of **$40.8 million** for finance lease right-of-use assets and **$0.2 million** for operating lease right-of-use assets were recognized in 2024[318](index=318&type=chunk) [5. GOODWILL AND INTANGIBLE ASSETS, NET](index=61&type=section&id=5.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS%2C%20NET) Nikola's total intangible assets, net, decreased from $85.9 million in 2023 to $1.4 million in 2024, and goodwill was fully impaired. This was due to impairment charges of $82.3 million in 2024 for indefinite-lived intangible assets, definite-lived intangible assets, and goodwill, triggered by a sustained decline in stock price and market capitalization Goodwill and Intangible Assets, Net (in thousands) | Category | December 31, 2024 (Net Carrying Amount) | December 31, 2023 (Net Carrying Amount) | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | | Licenses: | | | | S-WAY Product and Platform license | $441 | $37,500 | | FCPM license | $— | $47,181 | | Other intangibles | $923 | $1,179 | | **Total intangible assets** | **$1,364** | **$85,860** | | **Goodwill** | **$—** | **$5,238** | - Amortization expense for all intangible assets was **$7.4 million** for both the years ended December 31, 2024, and 2023[320](index=320&type=chunk) - In 2024, Nikola recognized impairment charges of **$82.3 million** for its indefinite-lived intangible asset, definite-lived intangible assets, and goodwill, triggered by sustained declines in stock price and market capitalization[325](index=325&type=chunk) [6. INVESTMENTS IN AFFILIATES](index=62&type=section&id=6.%20INVESTMENTS%20IN%20AFFILIATES) Nikola's investment in affiliates, primarily Wabash Valley Resources LLC (20% ownership), was $55.4 million in 2024. Equity in net loss of affiliates decreased significantly to $(1.6) million in 2024, mainly due to the divestiture of Nikola Iveco Europe GmbH in 2023, which generated a $70.8 million gain. Nikola - TA HRS 1, LLC was also dissolved in 2023 - Nikola's investment in Wabash Valley Resources LLC (**20% equity interest**) was **$55.4 million** as of December 31, 2024[327](index=327&type=chunk) - Equity in net loss of affiliates decreased from **$(16.4) million in 2023** to **$(1.6) million in 2024**, primarily due to a reduction of losses from Nikola Iveco Europe GmbH[327](index=327&type=chunk)[135](index=135&type=chunk) - The divestiture of Nikola Iveco Europe GmbH in **June 2023** resulted in a gain of **$70.8 million**[334](index=334&type=chunk)[335](index=335&type=chunk) - The joint venture Nikola - TA HRS 1, LLC was dissolved in **November 2023**, with Nikola receiving a distribution equal to its investment basis[345](index=345&type=chunk) [7. DEBT AND FINANCE LEASE LIABILITIES](index=66&type=section&id=7.%20DEBT%20AND%20FINANCE%20LEASE%20LIABILITIES) Total debt and finance lease liabilities (current and non-current) decreased from $278.2 million in 2023 to $202.3 million in 2024. This includes Toggle Convertible Notes, Senior Convertible Notes, 8.25% Convertible Notes, financing obligations, collateralized promissory notes, and insurance premium financing. Significant conversions of convertible notes occurred in both years Debt and Finance Lease Liabilities (in thousands) | Category | December 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------------ | :------------------ | | Current: | | | | Finance lease liabilities | $6,783 | $6,312 | | Insurance premium financing | $1,865 | $1,852 | | Promissory notes | $777 | $699 | | Financing obligations | $170 | $87 | | **Debt and finance lease liabilities, current** | **$9,595** | **$8,950** | | Non-current: | | | | Financing obligations | $102,389 | $101,470 | | Toggle Convertible Notes | $52,638 | $124,061 | | Finance lease liabilities | $34,875 | $26,395 | | Promissory notes | $1,572 | $2,306 | | 8.25% Convertible Notes | $1,226 | $15,047 | | **Long-term debt and finance lease liabilities, net of current portion** | **$192,700** | **$269,279** | - In 2024, holders of June 2022 Toggle Convertible Notes converted **$94.2 million**, resulting in an inducement expense of **$22.9 million**[374](index=374&type=chunk) - Third Purchase Agreement Notes (Senior Convertible Notes) had **$47.8 million** principal converted in 2024, and the agreement was terminated with a **$39.4 million** payment[405](index=405&type=chunk) - The 8.25% Convertible Notes saw **$19.8 million** principal converted in 2024 and **$153.4 million in 2023**[418](index=418&type=chunk) - Financing obligations for the Phoenix headquarters and Coolidge land totaled **$102.4 million** as of December 31, 2024[421](index=421&type=chunk)[425](index=425&type=chunk) [8. CAPITAL STRUCTURE](index=81&type=section&id=8.%20CAPITAL%20STRUCTURE) Nikola's authorized shares as of December 31, 2024, included 1,000,000,000 common shares and 150,000,000 preferred shares. The company utilized stock purchase agreements (Tumim) and equity distribution agreements (Citi, BTIG) to issue common stock, raising significant net proceeds in 2023 and 2024. Public and direct offerings also contributed to capital - As of **December 31, 2024**, Nikola had authorized **1,000,000,000 shares of common stock** and **150,000,000 shares of preferred stock**[440](index=440&type=chunk) - The company terminated the First and Second Tumim Purchase Agreements in 2023 after selling shares for net proceeds of **$8.4 million** and **$59.2 million**, respectively[444](index=444&type=chunk)[447](index=447&type=chunk) - Under Equity Distribution Agreements, Nikola sold **28.9 million shares** for **$126.0 million** net proceeds in 2024 and **2.3 million shares** for **$117.5 million** net proceeds in 2023[449](index=449&type=chunk) - Public offerings in 2023 raised **$32.2 million (April)** and **$95.6 million (December)**, and a direct offering in **April 2023** raised **$63.2 million**[454](index=454&type=chunk)[455](index=455&type=chunk)[456](index=456&type=chunk) [9. STOCK-BASED COMPENSATION EXPENSE](index=83&type=section&id=9.%20STOCK-BASED%20COMPENSATION%20EXPENSE) Nikola's stock-based compensation expense decreased from $75.4 million in 2023 to $32.0 million in 2024. The company granted stock options, restricted stock units (RSUs), and market-based RSUs (TSR awards) under its 2017 and 2020 Stock Plans. Unrecognized compensation expense totaled $27.8 million as of December 31, 2024 Stock-Based Compensation Expense (in thousands) | Category | 2024 | 2023 | | :----------------------------------- | :------- | :------- | | Selling, general, and administrative | $21,360 | $51,003 | | Research and development | $9,343 | $22,213 | | Cost of revenues | $1,266 | $2,175 | | **Total stock-based compensation expense** | **$31,969** | **$75,391** | - Nikola granted stock options, restricted stock units (RSUs), and market-based RSU awards (TSR awards) under its **2017 and 2020 Stock Plans**[457](index=457&type=chunk)[460](index=460&type=chunk)[463](index=463&type=chunk)[464](index=464&type=chunk) - Market-based RSU awards (TSR awards) have a performance condition based on the company's total shareholder return (TSR) relative to a broad group of green energy companies[464](index=464&type=chunk) - Total unrecognized compensation expense related to outstanding share-based awards was **$27.8 million** as of December 31, 2024, with a weighted-average recognition period of **1.37 to 1.65 years**[468](index=468&type=chunk) [10. DECONSOLIDATION OF SUBSIDIARY](index=86&type=section&id=10.%20DECONSOLIDATION%20OF%20SUBSIDIARY) Nikola deconsolidated Romeo Power, Inc. on June 30, 2023, by transferring ownership of its assets to an Assignee. This strategic shift resulted in a loss from deconsolidation of $24.9 million in 2023, and Romeo's results are reported as discontinued operations - Nikola deconsolidated Romeo Power, Inc. as of **June 30, 2023**, by transferring ownership of its assets to SG Service Co., LLC, as Assignee for the Benefit of Creditors of Romeo[469](index=469&type=chunk) - The deconsolidation resulted in a loss of **$24.9 million** from deconsolidation of discontinued operations, recorded in 2023[472](index=472&type=chunk) - The operating results of Romeo are reported as discontinued operations for the year ended **December 31, 2023**[471](index=471&type=chunk) Net Loss from Discontinued Operations (in thousands) | Category | 2023 | | :-------------------------- | :------- | | Revenues | $1,665 | | Cost of revenues | $12,926 | | Gross loss | $(11,261) | | Operating expenses: | | | Research and development | $5,673 | | Selling, general and administrative | $14,937 | | Loss on supplier deposits | $44,835 | | Total operating expenses | $65,445 | | Loss from operations | $(76,706) | | Other income (expense), net | | | Interest expense, net | $(53) | | Revaluation of warrant liability | $33 | | **Loss from discontinued operations** | **$(76,726)** | [11. RETIREMENT SAVINGS PLAN](index=89&type=section&id=11.%20RETIREMENT%20SAVINGS%20PLAN) Nikola sponsors a 401(k) savings plan for eligible employees, providing an employer matching contribution. In 2024 and 2023, the company contributed $4.0 million and $4.1 million, respectively, in matching contributions - Nikola sponsors a 401(k) savings plan available to all eligible employees[475](index=475&type=chunk) - The company provides an employer matching contribution of up to **100% for the first 1% of compensation** and **50% for each additional 1%** contributed between 1% and 6%[475](index=475&type=chunk) - Employer matching contributions were **$4.0 million in 2024** and **$4.1 million in 2023**[475](index=475&type=chunk) [12. INCOME TAXES](index=89&type=section&id=12.%20INCOME%20TAXES) Nikola recognized immaterial income tax expense in 2024 ($71 thousand) and 2023 ($12 thousand). The company has significant federal and state net operating loss (NOL) carryforwards and tax credits, but maintains a full valuation allowance against its net deferred tax assets due to a lack of earnings history. A Section 382 study in March 2025 identified an ownership change but no limitation on NOL utilization after December 31, 2047 - Income tax expense was **$71 thousand in 2024** and **$12 thousand in 2023**, primarily related to changes in indefinite-lived goodwill deferred tax liabilities[476](index=476&type=chunk) - Nikola maintains a full valuation allowance of **$341.0 million in 2024** and **$597.7 million in 2023** against its net deferred tax assets due to a lack of earnings history[481](index=481&type=chunk) - As of December 31, 2024, the company had federal net operating loss carryforwards of **$11.2 million (expiring 2037)** and **$195.8 million (indefinite)**, and state NOL carryforwards of **$764.1 million (expiring starting 2033)**[482](index=482&type=chunk) - A Section 382 study in **March 2025** identified an ownership change on **September 30, 2023**, but concluded there is no limitation on the company's ability to utilize its net operating losses after **December 31, 2047**[483](index=483&type=chunk) - Gross unrecognized tax benefits related to research and experimental tax credits were **$21.9 million in 2024** and **$22.8 million in 2023**[485](index=485&type=chunk) [13. COMMITMENTS AND CONTINGENCIES](index=93&type=section&id=13.%20COMMITMENTS%20AND%20CONTINGENCIES) Nikola is involved in various legal and regulatory actions, including an SEC settlement ($80.2 million remaining liability in 2024), shareholder securities litigation, and derivative litigation. The company was awarded $165.0 million plus interest in arbitration against Mr. Milton. It also has purchase commitments ($115.5 million in 2024) and a $7.2 million maximum exposure under an inventory repurchase agreement. The BEV recall campaign, with $57.4 million accrued, was completed in June 2025 - Nikola has a remaining liability of **$80.2 million** as of December 31, 2024, for the **$125.0 million** SEC civil penalty, with a resolution agreement reached to classify **$43.1 million** as an Allowed General Unsecured Claim with a **$4.0 million** cash payment on the Effective Date[491](index=491&type=chunk) - An arbitration panel awarded Nikola approximately **$165.0 million plus interest** against Mr. Milton, which the company is pursuing for c

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents KB Home's unaudited consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited consolidated financial statements, notes, and a general decline in revenues and net income are presented [Consolidated Statements of Operations](index=3&type=section&id=Consolidated%20Statements%20of%20Operations) Details revenues, net income, and diluted EPS for three and nine months ended August 31, 2025 and 2024 Total Revenues | Period | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :----- | :--------------- | :--------------- | :--------- | | 3 Months | $1,620,474 | $1,752,608 | (8)% | | 9 Months | $4,541,836 | $4,930,187 | (8)% | Net Income | Period | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :----- | :--------------- | :--------------- | :--------- | | 3 Months | $109,828 | $157,329 | (30)% | | 9 Months | $327,268 | $464,413 | (30)% | Diluted EPS | Period | 2025 | 2024 | YoY Change | | :----- | :--- | :--- | :--------- | | 3 Months | $1.61 | $2.04 | (21)% | | 9 Months | $4.60 | $5.94 | (23)% | [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Snapshot of assets, liabilities, and stockholders' equity as of August 31, 2025, and November 30, 2024 Total Assets | Date | Amount (Thousands) | | :--- | :----------------- | | Aug 31, 2025 | $6,985,572 | | Nov 30, 2024 | $6,936,169 | Cash and Cash Equivalents (Homebuilding) | Date | Amount (Thousands) | | :--- | :----------------- | | Aug 31, 2025 | $330,586 | | Nov 30, 2024 | $597,973 | Notes Payable | Date | Amount (Thousands) | | :--- | :----------------- | | Aug 31, 2025 | $1,943,582 | | Nov 30, 2024 | $1,691,679 | Total Stockholders' Equity | Date | Amount (Thousands) | | :--- | :----------------- | | Aug 31, 2025 | $3,902,363 | | Nov 30, 2024 | $4,060,616 | [Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Stockholders'%27%20Equity) Outlines changes in equity, including net income, dividends, and stock repurchases, for nine months Net Income (9 Months) | Period | 2025 (Thousands) | 2024 (Thousands) | | :----- | :--------------- | :--------------- | | 9 Months | $327,268 | $464,413 | Dividends on Common Stock (9 Months) | Period | 2025 (Thousands) | 2024 (Thousands) | | :----- | :--------------- | :--------------- | | 9 Months | $(52,806) | $(53,537) | Stock Repurchases (9 Months) | Period | 2025 (Thousands) | 2024 (Thousands) | | :----- | :--------------- | :--------------- | | 9 Months | $(442,614) | $(251,941) | Total Stockholders' Equity (End of Period) | Date | Amount (Thousands) | | :--- | :----------------- | | Aug 31, 2025 | $3,902,363 | | Aug 31, 2024 | $3,987,094 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Presents cash flows from operating, investing, and financing activities for nine months Net Cash Provided by Operating Activities | Period | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :----- | :--------------- | :--------------- | :--------- | | 9 Months | $31,840 | $81 | Significant Increase | Net Cash Used in Investing Activities | Period | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :----- | :--------------- | :--------------- | :--------- | | 9 Months | $(42,237) | $(38,138) | (11)% increase in outflow | Net Cash Used in Financing Activities | Period | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :----- | :--------------- | :--------------- | :--------- | | 9 Months | $(256,498) | $(313,592) | 18% decrease in outflow | Net Decrease in Cash and Cash Equivalents | Period | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :----- | :--------------- | :--------------- | :--------- | | 9 Months | $(266,895) | $(351,649) | 24% decrease in outflow | [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Detailed explanations supporting financial statements, covering policies, segments, and specific line items [1. Basis of Presentation and Significant Accounting Policies](index=7&type=section&id=1.%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) Describes financial statement preparation, key accounting policies, and new pronouncement evaluations - Cash equivalents totaled **$164.7 million** at August 31, 2025, down from **$385.1 million** at November 30, 2024, primarily invested in interest-bearing bank deposit accounts and money market funds[19](index=19&type=chunk) - Comprehensive income for the nine months ended August 31, 2025, was **$327.3 million**, equal to net income for the period, down from **$464.4 million** in 2024[20](index=20&type=chunk) - The company is evaluating the potential impact of new FASB guidance on segment reporting (ASU 2023-07), income tax disclosures (ASU 2023-09), and expense disaggregation (ASU 2024-03)[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) [2. Segment Information](index=8&type=section&id=2.%20Segment%20Information) Provides financial data for homebuilding and financial services segments, including revenues and pretax income - KB Home operates five reporting segments: four homebuilding segments (West Coast, Southwest, Central, Southeast) and one financial services segment[25](index=25&type=chunk) Homebuilding Revenues (Nine Months Ended August 31) | Segment | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :-------- | :--------------- | :--------------- | :--------- | | West Coast | $1,926,722 | $2,017,336 | (4.5)% | | Southwest | $962,486 | $954,602 | 0.8% | | Central | $869,182 | $1,069,136 | (18.7)% | | Southeast | $767,829 | $868,115 | (11.5)% | | **Total** | **$4,526,219** | **$4,909,189** | **(7.8)%** | Homebuilding Pretax Income (Nine Months Ended August 31) | Segment | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :-------- | :--------------- | :--------------- | :--------- | | West Coast | $216,925 | $252,099 | (13.9)% | | Southwest | $171,432 | $165,302 | 3.7% | | Central | $64,387 | $128,446 | (49.9)% | | Southeast | $55,529 | $103,827 | (46.5)% | | Corporate & Other | $(107,678) | $(82,254) | (30.9)% | | **Total** | **$400,595** | **$567,420** | **(29.5)%** | Inventory Impairment and Land Option Contract Abandonment Charges (Nine Months Ended August 31) | Segment | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :-------- | :--------------- | :--------------- | :--------- | | West Coast | $2,973 | $2,441 | 21.8% | | Southwest | $1,642 | $116 | 1315.5% | | Central | $9,372 | $725 | 1192.7% | | Southeast | $4,364 | $403 | 983.0% | | **Total** | **$18,351** | **$3,685** | **397.9%** | [3. Financial Services](index=9&type=section&id=3.%20Financial%20Services) Details financial performance and assets of the financial services segment, including revenues and pretax income Financial Services Revenues (Nine Months Ended August 31) | Category | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :---------------- | :--------------- | :--------------- | :--------- | | Insurance commissions | $8,268 | $12,685 | (34.8)% | | Title services | $7,349 | $8,313 | (11.6)% | | **Total** | **$15,617** | **$20,998** | **(25.6)%** | Financial Services Pretax Income (Nine Months Ended August 31) | Period | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :----- | :--------------- | :--------------- | :--------- | | 9 Months | $24,373 | $35,793 | (31.9)% | - Total assets for the financial services segment were **$59.8 million** at August 31, 2025, a decrease from **$66.9 million** at November 30, 2024[31](index=31&type=chunk) [4. Earnings Per Share](index=10&type=section&id=4.%20Earnings%20Per%20Share) Presents basic and diluted earnings per share calculations and weighted average shares outstanding Basic Earnings Per Share | Period | 2025 | 2024 | YoY Change | | :----- | :--- | :--- | :--------- | | 3 Months | $1.64 | $2.10 | (21.9)% | | 9 Months | $4.69 | $6.12 | (23.3)% | Diluted Earnings Per Share | Period | 2025 | 2024 | YoY Change | | :----- | :--- | :--- | :--------- | | 3 Months | $1.61 | $2.04 | (21.1)% | | 9 Months | $4.60 | $5.94 | (22.6)% | - Weighted average diluted shares outstanding for the nine months ended August 31, 2025, decreased to **70,643 thousand** from **77,565 thousand** in the prior year[32](index=32&type=chunk) [5. Receivables](index=11&type=section&id=5.%20Receivables) Breakdown of receivables, including amounts from utility companies and for self-insurance claims Total Receivables | Date | Amount (Thousands) | | :--- | :----------------- | | Aug 31, 2025 | $386,486 | | Nov 30, 2024 | $377,533 | - Key components of receivables at August 31, 2025, include **$186.2 million** due from utility companies and **$151.9 million** for self-insurance and other legal claims[34](index=34&type=chunk) [6. Inventories](index=11&type=section&id=6.%20Inventories) Details inventory composition, including land under development and capitalized interest Total Inventories | Date | Amount (Thousands) | | :--- | :----------------- | | Aug 31, 2025 | $5,838,816 | | Nov 30, 2024 | $5,528,020 | - Land under development increased to **$3.79 billion** at August 31, 2025, from **$3.54 billion** at November 30, 2024[35](index=35&type=chunk) Interest Incurred and Amortized (Nine Months Ended August 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | | :------------------------------------ | :--------------- | :--------------- | | Interest incurred | $84,676 | $79,665 | | Interest amortized to construction and land costs | $(75,755) | $(83,872) | [7. Inventory Impairments and Land Option Contract Abandonments](index=11&type=section&id=7.%20Inventory%20Impairments%20and%20Land%20Option%20Contract%20Abandonments) Discusses charges related to inventory impairments and land option contract abandonments - Inventory impairment charges of **$7.3 million** were recognized for the nine months ended August 31, 2025, primarily related to one community due to increased costs and a change in operational strategy[40](index=40&type=chunk) - Land option contract abandonment charges increased to **$11.0 million** for the nine months ended August 31, 2025, from **$3.7 million** in the prior year[42](index=42&type=chunk) - As of August 31, 2025, **14 active communities** or land parcels with a carrying value of **$168.7 million** were evaluated for recoverability[39](index=39&type=chunk) [8. Variable Interest Entities](index=12&type=section&id=8.%20Variable%20Interest%20Entities) Describes involvement with VIEs and interests in land option contracts - One joint venture was identified as a Variable Interest Entity (VIE), but KB Home was not the primary beneficiary, so it remained unconsolidated[45](index=45&type=chunk) Interests in Land Option Contracts (August 31, 2025) | Category | Cash Deposits (Thousands) | Aggregate Purchase Price (Thousands) | | :------------------------------------ | :------------------------ | :----------------------------------- | | Unconsolidated VIEs | $46,642 | $1,203,536 | | Other land option contracts and similar contracts | $29,871 | $749,024 | | **Total** | **$76,513** | **$1,952,560** | - Inventories of **$20.2 million** were recorded with corresponding financing obligations for land option contracts considered financing arrangements at August 31, 2025[48](index=48&type=chunk) [9. Investments in Unconsolidated Joint Ventures](index=13&type=section&id=9.%20Investments%20in%20Unconsolidated%20Joint%20Ventures) Financial information for unconsolidated joint ventures in homebuilding and financial services Homebuilding Unconsolidated Joint Ventures (Nine Months Ended August 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :---------------- | :--------------- | :--------------- | :--------- | | Revenues | $58,767 | $37,539 | 56.6% | | Income | $10,117 | $6,594 | 53.4% | Financial Services Unconsolidated Joint Venture (KBHS) (Nine Months Ended August 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :------- | :--------------- | :--------------- | :--------- | | Revenues | $79,326 | $93,485 | (15.1)% | | Income | $26,889 | $38,844 | (30.8)% | - KBHS's mortgage loans held for sale increased to **$174.9 million** at August 31, 2025, from **$122.8 million** at November 30, 2024[55](index=55&type=chunk) - Changes in the fair value of Interest Rate Lock Commitments (IRLCs) resulted in a loss of **$6.6 million** for the nine months ended August 31, 2025, compared to a gain of **$3.8 million** in the prior year[57](index=57&type=chunk) [10. Other Assets](index=16&type=section&id=10.%20Other%20Assets) Details components of other assets, including equity securities without readily determinable fair values Total Other Assets | Date | Amount (Thousands) | | :--- | :----------------- | | Aug 31, 2025 | $102,880 | | Nov 30, 2024 | $105,920 | - Other assets include **$15.2 million** in equity securities without readily determinable fair values at August 31, 2025, stemming from a March 2024 sale that recognized a **$12.5 million** gain in 2024[61](index=61&type=chunk) [11. Accrued Expenses and Other Liabilities](index=16&type=section&id=11.%20Accrued%20Expenses%20and%20Other%20Liabilities) Breakdown of accrued expenses and other liabilities, including self-insurance and employee compensation Total Accrued Expenses and Other Liabilities | Date | Amount (Thousands) | | :--- | :----------------- | | Aug 31, 2025 | $770,450 | | Nov 30, 2024 | $796,261 | - Self-insurance and other legal liabilities increased to **$341.1 million** at August 31, 2025, from **$315.9 million** at November 30, 2024[62](index=62&type=chunk) - Employee compensation and related benefits decreased to **$146.0 million** at August 31, 2025, from **$182.5 million** at November 30, 2024[62](index=62&type=chunk) [12. Leases](index=17&type=section&id=12.%20Leases) Outlines lease-related financial information, including expense, right-of-use assets, and liabilities - Total lease expense for the nine months ended August 31, 2025, was **$15.4 million**, consistent with the prior year[64](index=64&type=chunk) Lease Right-of-Use Assets and Liabilities | Metric | Aug 31, 2025 (Thousands) | Nov 30, 2024 (Thousands) | | :---------------------- | :----------------------- | :----------------------- | | Lease right-of-use assets | $18,278 | $18,734 | | Lease liabilities | $20,772 | $20,887 | [13. Income Taxes](index=17&type=section&id=13.%20Income%20Taxes) Details income tax expense, effective tax rates, and the impact of tax credits and deferred tax assets Income Tax Expense and Effective Tax Rate (Nine Months Ended August 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | | :---------------- | :--------------- | :--------------- | | Income tax expense | $97,700 | $138,800 | | Effective tax rate | 23.0% | 23.0% | - Section 45L tax credits decreased year-over-year for the nine months ended August 31, 2025, due to heightened qualification standards and a strategic decision to build highly energy-efficient homes that do not qualify for these credits[67](index=67&type=chunk)[68](index=68&type=chunk) - The One Big Beautiful Bill Act (OBBBA) repeals Section 45L tax credits for new energy-efficient homes delivered after June 30, 2026[69](index=69&type=chunk) - Deferred tax assets were **$119.2 million** at August 31, 2025, partly offset by a **$16.8 million** valuation allowance, primarily related to state net operating losses[71](index=71&type=chunk) [14. Notes Payable](index=18&type=section&id=14.%20Notes%20Payable) Breakdown of notes payable, including credit facility borrowings and senior notes, and covenant compliance Notes Payable | Category | Aug 31, 2025 (Thousands) | Nov 30, 2024 (Thousands) | | :------------------------------------ | :----------------------- | :----------------------- | | Unsecured revolving credit facility | $250,000 | $0 | | Senior unsecured term loan due August 25, 2026 | $359,329 | $358,826 | | Senior notes (various maturities) | $1,331,104 | $1,329,704 | | Mortgages and land contracts due to land sellers and other loans | $3,149 | $3,149 | | **Total** | **$1,943,582** | **$1,691,679** | - As of August 31, 2025, **$250.0 million** of cash borrowings and **$8.3 million** of letters of credit were outstanding under the **$1.09 billion** Credit Facility, leaving **$831.7 million** available for cash borrowings[75](index=75&type=chunk) - The company was in compliance with all applicable terms and covenants under its Credit Facility, Term Loan, senior notes, and other debt instruments as of August 31, 2025[80](index=80&type=chunk) [15. Fair Value Disclosures](index=19&type=section&id=15.%20Fair%20Value%20Disclosures) Presents fair value measurements for inventories and senior notes, categorized by hierarchy Inventories Measured at Fair Value (Nonrecurring, Nine Months Ended August 31, 2025) | Description | Fair Value Hierarchy | Pre Impairment Value (Thousands) | Impairment Charges (Thousands) | Fair Value (Thousands) | | :---------- | :------------------- | :------------------------------- | :----------------------------- | :--------------------- | | Inventories | Level 3 | $24,268 | $(7,341) | $16,927 | - The estimated fair value of senior notes was **$1.32 billion** at August 31, 2025, compared to a carrying value of **$1.33 billion**[85](index=85&type=chunk) [16. Commitments and Contingencies](index=20&type=section&id=16.%20Commitments%20and%20Contingencies) Details warranty and self-insurance liabilities, legal claims, performance bonds, and land option commitments Warranty Liability | Metric | Aug 31, 2025 (Thousands) | Nov 30, 2024 (Thousands) | | :---------------------- | :----------------------- | :----------------------- | | Balance at end of period | $98,598 | $96,026 | Self-Insurance Liability | Metric | Aug 31, 2025 (Thousands) | Nov 30, 2024 (Thousands) | | :---------------------- | :----------------------- | :----------------------- | | Balance at end of period | $188,749 | $185,428 | - Approximately **269 outstanding noticed claims** under Florida Chapter 558 were present at August 31, 2025, primarily related to stucco and water-intrusion issues[101](index=101&type=chunk) - Performance bonds outstanding increased to **$1.39 billion** at August 31, 2025, from **$1.33 billion** at November 30, 2024, while letters of credit decreased to **$70.7 million** from **$81.6 million**[102](index=102&type=chunk) - Total cash deposits for land option contracts were **$76.5 million** to purchase land with an aggregate price of **$1.95 billion** at August 31, 2025[103](index=103&type=chunk) [17. Legal Matters](index=23&type=section&id=17.%20Legal%20Matters) Discusses ongoing legal proceedings, including a DOJ subpoena, and related accruals - The company received a civil subpoena from the U.S. Department of Justice Civil Division on October 2, 2023, regarding the inspection, rating, marketing, and advertising of its ENERGY STAR certified homes, with an uncertain outcome not considered probable or estimable for loss or penalty[104](index=104&type=chunk) - Accruals for probable and reasonably estimable losses related to litigation and regulatory proceedings are deemed adequate[105](index=105&type=chunk) [18. Stockholders' Equity](index=24&type=section&id=18.%20Stockholders'%27%20Equity) Information on stock repurchases and cash dividends declared and paid, impacting equity - The board authorized repurchases of up to **$1.00 billion** of common stock on April 18, 2024, with **$261.5 million** remaining availability as of August 31, 2025[108](index=108&type=chunk) - In the nine months ended August 31, 2025, the company repurchased **7,788,113 shares** of common stock at a total cost of **$438.5 million**[108](index=108&type=chunk) - Quarterly cash dividends declared and paid totaled **$0.75 per share** for the nine months ended August 31, 2025, up from **$0.70 per share** in 2024[110](index=110&type=chunk) [19. Stock-Based Compensation](index=24&type=section&id=19.%20Stock-Based%20Compensation) Details stock options, restricted stock, and performance share unit compensation expenses - As of August 31, 2025, **376,641 stock options** were outstanding with a weighted average exercise price of **$16.21**, with no stock-based compensation expense associated as all are fully vested[111](index=111&type=chunk) - Total compensation expense for restricted stock and PSUs was **$25.1 million** for the nine months ended August 31, 2025, compared to **$25.3 million** in 2024[111](index=111&type=chunk) [20. Supplemental Disclosure to Consolidated Statements of Cash Flows](index=25&type=section&id=20.%20Supplemental%20Disclosure%20to%20Consolidated%20Statements%20of%20Cash%20Flows) Additional details on cash and cash equivalents by segment and income taxes paid Cash and Cash Equivalents at End of Period (Nine Months Ended August 31) | Segment | 2025 (Thousands) | 2024 (Thousands) | | :---------- | :--------------- | :--------------- | | Homebuilding | $330,586 | $374,911 | | Financial services | $1,712 | $782 | | **Total** | **$332,298** | **$375,693** | - Income taxes paid for the nine months ended August 31, 2025, decreased to **$88.9 million** from **$145.9 million** in the prior year[112](index=112&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's perspective on financial condition, operations, market responses, and revised projections for 2025 [OVERVIEW](index=26&type=section&id=OVERVIEW) Summarizes consolidated financial performance, market conditions, and key operational metrics for fiscal 2025 Consolidated Financial Summary (Nine Months Ended August 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | Variance | | :---------------- | :--------------- | :--------------- | :------- | | Total revenues | $4,541,836 | $4,930,187 | (8)% | | Net income | $327,268 | $464,413 | (30)% | | Diluted earnings per share | $4.60 | $5.94 | (23)% | - The housing market environment was softer in the first nine months of fiscal 2025 due to affordability concerns and tepid consumer confidence, though demand stabilized in Q3 with moderating mortgage rates[114](index=114&type=chunk)[115](index=115&type=chunk) - Net orders for Q3 2025 decreased **4%** year-over-year to **2,950**, with the average selling price of net orders down **11%** to **$445,600** due to price reductions and a simplified sales approach[115](index=115&type=chunk)[116](index=116&type=chunk) - Total liquidity at August 31, 2025, was **$1.16 billion**, including cash and cash equivalents and available capacity under the Credit Facility[119](index=119&type=chunk) - Ending backlog value at August 31, 2025, decreased **32%** year-over-year to approximately **$1.99 billion**[120](index=120&type=chunk) [HOMEBUILDING](index=27&type=section&id=HOMEBUILDING) Details financial and operational performance of the homebuilding segment, including revenues, homes, margins, and backlog Homebuilding Financial and Operational Data (Nine Months Ended August 31) | Metric | 2025 | 2024 | YoY Change | | :------------------------------------ | :--- | :--- | :--------- | | Housing revenues (Thousands) | $4,525,732 | $4,905,617 | (8)% | | Homes delivered | 9,283 | 10,191 | (9)% | | Average selling price | $487,500 | $481,400 | 1.3% | | Housing gross profit margin | 19.2% | 21.1% | (190) bps | | Adjusted housing gross profit margin | 19.6% | 21.1% | (150) bps | | SG&A as % of housing revenues | 10.6% | 10.2% | 40 bps | | Operating income (Thousands) | $389,965 | $534,809 | (27)% | - Homebuilding operating income for the nine months ended August 31, 2025, declined **27%** year-over-year, primarily due to lower housing gross profits and the absence of land sale profits, partly offset by lower selling, general and administrative expenses[125](index=125&type=chunk) - Inventory-related charges increased significantly to **$18.4 million** for the nine months ended August 31, 2025, from **$3.7 million** in the prior year[125](index=125&type=chunk) Net Orders and Backlog (Nine Months Ended August 31) | Metric | 2025 | 2024 | YoY Change | | :-------------------- | :--- | :--- | :--------- | | Net orders | 9,182 | 10,405 | (12)% | | Cancellation rate | 16% | 14% | 200 bps | | Ending backlog – homes | 4,333 | 5,724 | (24)% | | Ending community count | 264 | 254 | 4% | [HOMEBUILDING REPORTING SEGMENTS](index=31&type=section&id=HOMEBUILDING%20REPORTING%20SEGMENTS) Detailed breakdown of financial and operational performance across four homebuilding reporting segments West Coast Segment (Nine Months Ended August 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :------------------------------------ | :--------------- | :--------------- | :--------- | | Revenues | $1,926,722 | $2,017,336 | (4)% | | Homes delivered | 2,789 | 3,021 | (8)% | | Average selling price | $690,800 | $667,600 | 3% | | Operating income | $211,735 | $248,689 | (15)% | | Operating income as % of revenues | 11.0% | 12.3% | (130) bps | Southwest Segment (Nine Months Ended August 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :------------------------------------ | :--------------- | :--------------- | :--------- | | Revenues | $962,486 | $954,602 | 1% | | Homes delivered | 2,020 | 2,110 | (4)% | | Average selling price | $476,500 | $452,400 | 5% | | Operating income | $171,602 | $165,489 | 4% | | Operating income as % of revenues | 17.8% | 17.3% | 50 bps | Central Segment (Nine Months Ended August 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :------------------------------------ | :--------------- | :--------------- | :--------- | | Revenues | $869,182 | $1,069,136 | (19)% | | Homes delivered | 2,505 | 2,971 | (16)% | | Average selling price | $347,000 | $358,800 | (3)% | | Operating income | $64,375 | $128,426 | (50)% | | Operating income as % of revenues | 7.4% | 12.0% | (460) bps | Southeast Segment (Nine Months Ended August 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :------------------------------------ | :--------------- | :--------------- | :--------- | | Revenues | $767,829 | $868,115 | (12)% | | Homes delivered | 1,969 | 2,089 | (6)% | | Average selling price | $389,700 | $415,600 | (6)% | | Operating income | $55,532 | $103,805 | (47)% | | Operating income as % of revenues | 7.2% | 12.0% | (480) bps | [FINANCIAL SERVICES REPORTING SEGMENT](index=35&type=section&id=FINANCIAL%20SERVICES%20REPORTING%20SEGMENT) Analyzes financial performance of the financial services segment, including revenues, pretax income, and loan originations Financial Services Segment Performance (Nine Months Ended August 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | YoY Change | | :---------------- | :--------------- | :--------------- | :--------- | | Revenues | $15,617 | $20,998 | (26)% | | Pretax income | $24,373 | $35,793 | (32)% | | Equity in income of unconsolidated joint venture | $13,445 | $19,422 | (31)% | KBHS Loan Originations (Nine Months Ended August 31) | Metric | 2025 | 2024 | YoY Change | | :---------------- | :--- | :--- | :--------- | | Loans | 6,630 | 7,332 | (9.6)% | | Principal (Thousands) | $2,717,138 | $2,916,804 | (6.8)% | | % of homebuyers using KBHS | 86% | 87% | (100) bps | - The decline in financial services pretax income was due to decreases in insurance commissions, title services revenues, and reduced income from the unconsolidated joint venture, KBHS, which experienced a loss in the fair value of IRLCs[159](index=159&type=chunk)[160](index=160&type=chunk) [INCOME TAXES](index=37&type=section&id=INCOME%20TAXES) Discusses income tax expense, effective tax rate, and the impact of tax credits and legislative changes Income Tax Expense and Effective Tax Rate (Nine Months Ended August 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | | :---------------- | :--------------- | :--------------- | | Income tax expense | $97,700 | $138,800 | | Effective tax rate | 23.0% | 23.0% | - The effective tax rate for the nine months ended August 31, 2025, remained consistent with the prior year, despite a decrease in Section 45L tax credits due to heightened qualification standards and strategic decisions[163](index=163&type=chunk)[164](index=164&type=chunk) - The repeal of Section 45L tax credits by the OBBBA will eliminate this benefit for homes delivered after June 30, 2026[165](index=165&type=chunk) [NON-GAAP FINANCIAL MEASURES](index=37&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) Reconciles GAAP and non-GAAP financial measures, focusing on adjusted housing gross profit margin Housing Gross Profit Margin Reconciliation (Nine Months Ended August 31) | Metric | 2025 | 2024 | | :------------------------------------ | :--- | :--- | | Housing gross profit margin (GAAP) | 19.2% | 21.1% | | Adjusted housing gross profit margin (Non-GAAP) | 19.6% | 21.1% | - Adjusted housing gross profit margin, which excludes inventory impairment and land option contract abandonment charges, decreased by **150 basis points** year-over-year for the nine months ended August 31, 2025[168](index=168&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses liquidity, capital resources, debt levels, and cash flow activities, including investments and repurchases Total Liquidity | Date | Amount (Thousands) | | :--- | :----------------- | | Aug 31, 2025 | $1,162,326 | | Nov 30, 2024 | $1,679,713 | - Cash and cash equivalents decreased to **$330.6 million** at August 31, 2025, from **$598.0 million** at November 30, 2024[171](index=171&type=chunk) - Investments in land and land development for the nine months ended August 31, 2025, declined **7%** year-over-year to **$1.95 billion**, with land acquisition expenditures representing **40%** of total investments[173](index=173&type=chunk) - The number of lots owned or controlled decreased by **15%** to **65,251** at August 31, 2025, largely due to homes delivered and strategic abandonment of **21,054** previously controlled lots[177](index=177&type=chunk) - The ratio of debt to capital increased to **33.2%** at August 31, 2025, from **29.4%** at November 30, 2024, due to cash borrowings under the Credit Facility[180](index=180&type=chunk) - The company was in compliance with all financial covenants under the Credit Facility and Term Loan as of August 31, 2025[188](index=188&type=chunk)[190](index=190&type=chunk) - Net cash provided by operating activities for the nine months ended August 31, 2025, was **$31.8 million**, a significant increase from **$81 thousand** in the prior year[195](index=195&type=chunk) - Stock repurchases totaled **$438.5 million** and dividend payments were **$52.8 million** for the nine months ended August 31, 2025[197](index=197&type=chunk) [Supplemental Guarantor Financial Information](index=43&type=section&id=Supplemental%20Guarantor%20Financial%20Information) Summarized financial data for guarantor subsidiaries, backing senior notes and credit facilities - Senior notes, Credit Facility borrowings, and Term Loan borrowings are guaranteed on a joint and several basis by Guarantor Subsidiaries, which are **100% owned** by KB Home[203](index=203&type=chunk)[204](index=204&type=chunk) Summarized Balance Sheet Data (Guarantor Subsidiaries, in Thousands) | Metric | Aug 31, 2025 | Nov 30, 2024 | | :-------------------------------- | :----------- | :----------- | | Cash | $274,523 | $543,233 | | Inventories | $5,240,220 | $4,981,097 | | Notes payable | $1,943,582 | $1,691,679 | | Stockholders' equity | $3,539,212 | $3,729,310 | Summarized Statement of Operations Data (Guarantor Subsidiaries, Nine Months Ended August 31, 2025, in Thousands) | Metric | Amount | | :-------------------------------- | :----- | | Revenues | $4,107,293 | | Pretax income | $399,679 | | Net income | $307,879 | [Critical Accounting Policies and Estimates](index=44&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Confirms no significant changes to critical accounting policies and estimates since the last annual report - There have been no significant changes to critical accounting policies and estimates during the nine months ended August 31, 2025, from those disclosed in the Annual Report on Form 10-K for the year ended November 30, 2024[210](index=210&type=chunk) [Recent Accounting Pronouncements](index=44&type=section&id=Recent%20Accounting%20Pronouncements) Discusses the expected impact of recent accounting pronouncements on consolidated financial statements - No recent accounting pronouncements are expected to have a material impact on the consolidated financial statements[212](index=212&type=chunk) [Outlook](index=44&type=section&id=Outlook) Company's perspective on housing market, strategic priorities, capital allocation, and financial projections for 2025 - The long-term outlook for the housing market remains favorable due to demographic trends and undersupply, despite near-term affordability concerns and cautious consumer sentiment[214](index=214&type=chunk) - The company plans to remain nimble, balancing pace and price, focusing on Built to Order homes, and managing inventory of finished lots to optimize returns and cash flow[216](index=216&type=chunk)[217](index=217&type=chunk) - Capital allocation priorities include continued investment in land and land development, scaled back to align with current conditions, and returning capital to stockholders through share repurchases[217](index=217&type=chunk)[218](index=218&type=chunk) 2025 Fourth Quarter Projections | Metric | Range | | :------------------------------------ | :-------------------- | | Housing Revenues | $1.60 billion - $1.70 billion | | Average Selling Price | $465,000 - $475,000 | | Homebuilding Operating Income Margin (excl. charges) | 8.5% - 8.9% | | Housing Gross Profit Margin (excl. charges) | 18.0% - 18.4% | | SG&A as % of Housing Revenues | 9.3% - 9.7% | | Effective Tax Rate | ~23.0% | 2025 Full Year Projections | Metric | Range/Estimate | | :------------------------------------ | :------------- | | Housing Revenues | $6.10 billion - $6.20 billion | | Average Selling Price | ~$483,000 | | Homebuilding Operating Income Margin (excl. charges) | ~8.9% | | Housing Gross Profit Margin (excl. charges) | 19.2% - 19.3% | | SG&A as % of Housing Revenues | 10.2% - 10.3% | | Effective Tax Rate | ~23.0% | | Ending Community Count | ~260 | - The company expects to repurchase between **$50.0 million** and **$150.0 million** of common stock in Q4 2025, with **$261.5 million** remaining under the current authorization[219](index=219&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk since November 30, 2024, except for Credit Facility borrowings - No material changes in market risk since November 30, 2024, except for **$250.0 million** cash borrowings outstanding under the Credit Facility[229](index=229&type=chunk) - The Credit Facility borrowing rates are subject to interest rate changes based on adjusted term SOFR or a base rate, plus a spread dependent on the consolidated leverage ratio[229](index=229&type=chunk) [Item 4. Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were effective, and no material changes in internal control over financial reporting occurred - Disclosure controls and procedures were evaluated and deemed effective as of August 31, 2025[230](index=230&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended August 31, 2025[231](index=231&type=chunk) [PART II. OTHER INFORMATION](index=48&type=section&id=PART%20II.%20OTHER%20INFORMATION) Covers legal proceedings, risk factors, equity security sales, other information, and a list of exhibits [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 17 for a discussion of the company's legal proceedings - For a discussion of legal proceedings, refer to Note 17 – Legal Matters in the Notes to Consolidated Financial Statements[232](index=232&type=chunk) [Item 1A. Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the Annual Report on Form 10-K - No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended November 30, 2024[234](index=234&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Summarizes common stock repurchases during the three months ended August 31, 2025 Summary of Equity Securities Purchases (Three Months Ended August 31, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Dollar Value of Shares Purchased (Thousands) | | :----- | :----------------------------- | :--------------------------- | :----------------------------------------- | | July 1-31 | 2,135,092 | $56.20 | $119,999 | | Aug 1-31 | 1,164,407 | $58.79 | $68,461 | | **Total** | **3,299,499** | **$57.12** | **$188,460** | - As of August 31, 2025, **$261.5 million** of remaining availability existed under the **$1.00 billion** share repurchase authorization approved on April 18, 2024[236](index=236&type=chunk) [Item 5. Other Information](index=49&type=section&id=Item%205.%20Other%20Information) No Rule 10b5-1 trading arrangements adopted or terminated by directors, officers, or the company - No directors, executive officers, or the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended August 31, 2025[235](index=235&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including equity incentive plans and certifications - Exhibits include Amended and Restated KB Home 2014 Equity Incentive Plan Performance-Based Restricted Stock Unit Award Agreement (2025) and Restricted Stock Award Agreement (2025)[237](index=237&type=chunk)[238](index=238&type=chunk) - Certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 are included[238](index=238&type=chunk) - XBRL Instance Document and Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents are filed[238](index=238&type=chunk) [SIGNATURES](index=51&type=section&id=SIGNATURES) Contains the required signatures for the filing of the Form 10-Q

[News Release Overview](index=1&type=section&id=News%20Release%20Overview) Park Aerospace Corp. announced its second quarter fiscal year 2026 financial results for the period ended August 31, 2025 [Company Information & Reporting Period](index=1&type=section&id=1.1%20Company%20Information%20%26%20Reporting%20Period) Park Aerospace Corp. reported its second quarter fiscal year 2026 financial results for the period ended August 31, 2025 - Company Name: **Park Aerospace Corp. (NYSE-PKE)**[1](index=1&type=chunk) - Reporting Period: Second Quarter Fiscal Year 2026 (ended August 31, 2025)[1](index=1&type=chunk) [Conference Call Announcement](index=1&type=section&id=1.2%20Conference%20Call%20Announcement) The company announced a conference call on October 9, 2025, to discuss financial results, offering live webcast, presentation materials, and replay services - A conference call to discuss financial results and other important information will be held on **October 9, 2025, at 5:00 PM Eastern Time**[1](index=1&type=chunk)[8](index=8&type=chunk) - Live audio webcast and presentation materials are available on the company's website and a designated link[1](index=1&type=chunk)[10](index=10&type=chunk) - A replay of the conference call will be available from **8:00 PM Eastern Time on October 9, 2025, until 11:59 PM Eastern Time on October 16, 2025**[9](index=9&type=chunk) [Financial Highlights](index=1&type=section&id=Financial%20Highlights) This section provides an overview of Park Aerospace Corp.'s financial performance for the second quarter and first half of fiscal year 2026, including key metrics and non-GAAP adjustments [Second Quarter (Q2 FY2026) Performance](index=1&type=section&id=2.1%20Second%20Quarter%20%28Q2%20FY2026%29%20Performance) Park Aerospace Corp. reported a slight decrease in net sales but growth in net earnings, net earnings before special items, and adjusted EBITDA, alongside improved EPS for Q2 FY2026 Second Quarter Financial Performance (in thousands of USD) | Metric | Q2 FY2026 (Ended Aug 31, 2025) | Q2 FY2025 (Ended Sep 1, 2024) | Year-over-Year Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Net Sales | $16,381 | $16,709 | -1.96% | | Net Earnings | $2,404 | $2,066 | +16.36% | | Net Earnings Before Special Items | $2,404 | $2,092 | +14.92% | | Adjusted EBITDA | $3,401 | $3,206 | +6.08% | | Basic and Diluted EPS | $0.12 | $0.10 | +20.00% | | Basic and Diluted EPS Before Special Items | $0.12 | $0.10 | +20.00% | [Six Months (H1 FY2026) Performance](index=1&type=section&id=2.2%20Six%20Months%20%28H1%20FY2026%29%20Performance) For the first half of fiscal year 2026, the company achieved growth in net sales, net earnings, and adjusted EBITDA, with a significant increase in earnings per share Six-Month Financial Performance (in thousands of USD) | Metric | H1 FY2026 (Ended Aug 31, 2025) | H1 FY2025 (Ended Sep 1, 2024) | Year-over-Year Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Net Sales | $31,781 | $30,679 | +3.59% | | Net Earnings | $4,484 | $3,059 | +46.60% | | Net Earnings Before Special Items | $4,484 | $3,873 | +15.78% | | Adjusted EBITDA | $6,364 | $5,816 | +9.42% | | Basic EPS | $0.23 | $0.15 | +53.33% | | Diluted EPS | $0.22 | $0.15 | +46.67% | | Basic EPS Before Special Items | $0.23 | $0.19 | +21.05% | | Diluted EPS Before Special Items | $0.22 | $0.19 | +15.79% | [Special Items and Non-GAAP Measures](index=1&type=section&id=2.3%20Special%20Items%20and%20Non-GAAP%20Measures) The company reported no special items in FY2026, contrasting with storm damage expenses in FY2025, and utilizes non-GAAP measures to assess ongoing operational performance - The company reported **no special items** for the second quarter and first six months of fiscal year 2026[5](index=5&type=chunk) - In the second quarter and first six months of fiscal year 2025, the company recorded pre-tax charges of **$46 thousand** and **$1.098 million**, respectively, related to storm damage at its Newton, Kansas facility[5](index=5&type=chunk) - The company discloses non-GAAP measures, including **Adjusted EBITDA** and operating results before special items, to help shareholders and other readers evaluate its operating performance, as special items are not part of its ongoing normal business operations[11](index=11&type=chunk) [Company Business Overview](index=2&type=section&id=Company%20Business%20Overview) Park Aerospace Corp. specializes in developing and manufacturing advanced composite materials and components for the global aerospace market, focusing on complex, small-scale projects [Products and Services](index=2&type=section&id=3.1%20Products%20and%20Services) Park Aerospace Corp. develops and manufactures advanced composite materials, including film adhesives and lightning strike protection, and designs composite parts and structures for the global aerospace market - The company develops and manufactures **solution and hot-melt advanced composite materials** for the global aerospace market[12](index=12&type=chunk) - Advanced composite materials include **film adhesives (Aeroadhere®)** and **lightning strike protection materials (Electroglide®)**[12](index=12&type=chunk) - Composite materials are offered for both **hand lay-up and automated fiber placement (AFP)** manufacturing applications[12](index=12&type=chunk) [Target Markets and Strategy](index=2&type=section&id=3.2%20Target%20Markets%20and%20Strategy) The company's materials and components are widely used across various aerospace sectors, with a strategic focus on undertaking complex, small-scale, or challenging projects others are unwilling or unable to complete - Advanced composite materials are used in the manufacture of primary and secondary structures for **jet engines, large and regional transport aircraft, military aircraft, unmanned aerial vehicles (UAVs), business jets, general aviation aircraft, and rotorcraft**[12](index=12&type=chunk) - Specialty ablative materials for **rocket motors and nozzles**, and specially designed materials for **radome applications** are also provided[12](index=12&type=chunk) - The company designs and manufactures **composite parts, structures, and assemblies**, as well as **low-volume tooling** for the aerospace industry, including its proprietary **SigmaStrut™ and AlphaStrut™ product lines**[12](index=12&type=chunk) - The company's objective is to accomplish tasks that others are **unwilling or unable to complete**, or that are too difficult, too small, or too tedious[12](index=12&type=chunk) [Detailed Financial Statements](index=3&type=section&id=Detailed%20Financial%20Statements) This section presents comprehensive financial statements, including performance tables, condensed balance sheets, operating statements, and non-GAAP reconciliation for various reporting periods [Performance Table (GAAP & Non-GAAP)](index=3&type=section&id=4.1%20Performance%20Table%20%28GAAP%20%26%20Non-GAAP%29) This section provides a detailed performance table, including net sales, net earnings (GAAP and before special items), EPS, and weighted average shares outstanding for 13-week and 26-week periods Performance Table (GAAP & Non-GAAP) (in thousands of USD, except per share data) | Metric | 13 Weeks Ended Aug 31, 2025 | 13 Weeks Ended Sep 1, 2024 | 13 Weeks Ended Jun 1, 2025 | 26 Weeks Ended Aug 31, 2025 | 26 Weeks Ended Sep 1, 2024 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Sales | $16,381 | $16,709 | $15,400 | $31,781 | $30,679 | | Net Earnings Before Special Items | $2,404 | $2,092 | $2,080 | $4,484 | $3,873 | | Storm Damage Expense (Net of Tax) | - | $(46) | - | - | $(1,098) | | Income Tax Impact of Pre-Tax Special Items | - | $20 | - | - | $284 | | Net Earnings | $2,404 | $2,066 | $2,080 | $4,484 | $3,059 | | Basic EPS | $0.12 | $0.10 | $0.10 | $0.23 | $0.15 | | Diluted EPS | $0.12 | $0.10 | $0.10 | $0.22 | $0.15 | | Weighted Average Shares Outstanding (Basic) | 19,875 | 20,216 | 19,919 | 19,897 | 20,234 | | Weighted Average Shares Outstanding (Diluted) | 19,986 | 20,291 | 19,968 | 19,977 | 20,331 | [Condensed Comparative Balance Sheets](index=4&type=section&id=4.2%20Condensed%20Comparative%20Balance%20Sheets) The balance sheet indicates a decrease in total assets and total liabilities, with a slight reduction in stockholders' equity from March 2, 2025, to August 31, 2025 Condensed Comparative Balance Sheets (in thousands of USD, except per share data) | Metric | Aug 31, 2025 (Unaudited) | Mar 2, 2025 | Change | | :----------------------------------- | :-------------------------- | :------------ | :------- | | Cash and Marketable Securities | $61,553 | $68,834 | $(7,281) | | Total Current Assets | $83,306 | $90,294 | $(6,988) | | Total Assets | $116,448 | $122,108 | $(5,660) | | Total Current Liabilities | $4,741 | $9,261 | $(4,520) | | Total Liabilities | $10,653 | $14,954 | $(4,301) | | Stockholders' Equity | $105,795 | $107,154 | $(1,359) | | Equity Per Share | $5.31 | $5.36 | $(0.05) | [Condensed Comparative Statements of Operations](index=5&type=section&id=4.3%20Condensed%20Comparative%20Statements%20of%20Operations) This section details the company's operating performance, showing gross profit and net earnings as a percentage of net sales for 13-week and 26-week periods, highlighting improved profitability Condensed Comparative Statements of Operations (in thousands of USD, except percentages) | Metric | 13 Weeks Ended Aug 31, 2025 | 13 Weeks Ended Sep 1, 2024 | 26 Weeks Ended Aug 31, 2025 | 26 Weeks Ended Sep 1, 2024 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Sales | $16,381 | $16,709 | $31,781 | $30,679 | | Cost of Sales | $11,265 | $11,952 | $21,947 | $21,823 | | Gross Profit | $5,116 | $4,757 | $9,834 | $8,856 | | Gross Profit as a % of Net Sales | 31.2% | 28.5% | 30.9% | 28.9% | | Selling, General and Administrative Expenses | $2,271 | $2,140 | $4,570 | $4,157 | | Selling, General and Administrative Expenses as a % of Net Sales | 13.9% | 12.8% | 14.4% | 13.5% | | Operating Earnings | $2,845 | $2,617 | $5,264 | $4,699 | | Net Earnings | $2,404 | $2,066 | $4,484 | $3,059 | | Net Earnings as a % of Net Sales | 14.7% | 12.4% | 14.1% | 10.0% | [Reconciliation of Non-GAAP Financial Measures](index=6&type=section&id=4.4%20Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section provides a reconciliation from GAAP net earnings to Adjusted EBITDA, detailing adjustments for income tax, interest, depreciation, stock-based compensation, and special items for 13-week and 26-week periods Reconciliation of Non-GAAP Financial Measures (in thousands of USD) | Adjustment Item | 13 Weeks Ended Aug 31, 2025 | 13 Weeks Ended Sep 1, 2024 | 26 Weeks Ended Aug 31, 2025 | 26 Weeks Ended Sep 1, 2024 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | GAAP Net Earnings | $2,404 | $2,066 | $4,484 | $3,059 | | Income Tax Expense | $831 | $750 | $1,525 | $1,126 | | Interest and Other Income | $(390) | $(245) | $(745) | $(584) | | Depreciation | $455 | $488 | $911 | $927 | | Stock-Based Compensation Expense | $101 | $101 | $189 | $190 | | Storm Damage Expense | - | $46 | - | $1,098 | | **Adjusted EBITDA** | **$3,401** | **$3,206** | **$6,364** | **$5,816** |

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 August 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-05721 Jefferies Financial Group Inc. (Exact name of registrant as specified in its charter) | New York 13-2615557 | | --- | | (State or othe ...

[Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section defines forward-looking statements, noting inherent risks and uncertainties that may cause actual results to differ materially - Statements about future estimates, expectations, beliefs, intentions, projections, goals, aspirations, commitments, or strategies are forward-looking statements[13](index=13&type=chunk) - Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations[13](index=13&type=chunk) - Known material risk factors are described in "Item 1A. Risk Factors" of the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[13](index=13&type=chunk) [Report of Independent Registered Public Accounting Firm](index=4&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM) Ernst & Young LLP reviewed interim financial statements, finding no material modifications for GAAP conformity - Ernst & Young LLP reviewed the condensed consolidated interim financial statements for the periods ended September 30, 2025 and 2024[17](index=17&type=chunk) - The auditors are not aware of any material modifications needed for the interim financial statements to conform with U.S. GAAP[17](index=17&type=chunk) - The consolidated balance sheet as of December 31, 2024, is fairly stated in all material respects[18](index=18&type=chunk) [Part I. Financial Information](index=5&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents Delta's unaudited condensed consolidated financial statements, providing a snapshot of financial position and performance [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Balance Sheets show increased total assets and stockholders' equity, with a slight decrease in total liabilities | (in millions) | September 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total assets | $79,623 | $75,372 | | Total liabilities | $60,801 | $60,079 | | Total stockholders' equity | $18,822 | $15,293 | - Cash and cash equivalents increased to **$3,791 million** at September 30, 2025, from **$3,069 million** at December 31, 2024[22](index=22&type=chunk) - Air traffic liability increased to **$8,165 million** at September 30, 2025, from **$7,094 million** at December 31, 2024[22](index=22&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Delta reported increased operating revenue and net income for both three and nine months, driven by passenger revenue | (in millions, except per share data) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenue | $16,673 | $15,677 | $47,361 | $46,084 | | Total operating expense | $14,989 | $14,280 | $43,006 | $41,806 | | Operating Income | $1,684 | $1,397 | $4,355 | $4,278 | | Net Income | $1,417 | $1,272 | $3,786 | $2,614 | | Diluted Earnings Per Share | $2.17 | $1.97 | $5.80 | $4.04 | - Passenger revenue increased by **3%** for the three months ended September 30, 2025, and by **2%** for the nine months ended September 30, 2025, compared to the prior year periods[24](index=24&type=chunk) - Aircraft fuel and related taxes decreased by **6%** for the three months and **9%** for the nine months ended September 30, 2025, year-over-year[24](index=24&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities remained strong, while investing cash use increased and financing cash use decreased | (in millions) | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $6,082 | $6,131 | | Net cash used in investing activities | $(3,458) | $(2,570) | | Net cash used in financing activities | $(2,074) | $(2,670) | | Net Increase in Cash, Cash Equivalents and Restricted Cash Equivalents | $550 | $891 | | Cash, cash equivalents and restricted cash equivalents at end of period | $3,971 | $4,286 | - Property and equipment additions (flight and ground) totaled **$(3,592) million** for the nine months ended September 30, 2025[27](index=27&type=chunk) - Payments on debt and finance lease obligations were **$(3,931) million** for the nine months ended September 30, 2025[27](index=27&type=chunk) [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity significantly increased due to strong net income and comprehensive income, partially offset by dividends | (in millions) | Balance at Dec 31, 2024 | Balance at Sep 30, 2025 | | :--- | :--- | :--- | | Total Stockholders' Equity | $15,293 | $18,822 | | Retained Earnings | $8,783 | $12,126 | | Accumulated Other Comprehensive Loss | $(4,979) | $(4,858) | - Net income contributed **$3,787 million** to retained earnings during the nine months ended September 30, 2025[30](index=30&type=chunk) - Dividends declared totaled **$(318) million** for the nine months ended September 30, 2025[30](index=30&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations for the unaudited condensed consolidated financial statements, offering context for key figures [NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=NOTE%201.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the basis of presentation for interim financial statements under GAAP, noting interim results are not indicative of the full year - The financial statements are prepared in accordance with GAAP for interim financial information and should be read with the 2024 Form 10-K[33](index=33&type=chunk) - Operating results for interim periods are not necessarily indicative of the entire year due to seasonal variations and fuel price volatility[34](index=34&type=chunk) - The company is assessing the impact of ASU No. 2025-06, "Targeted Improvements to the Accounting for Internal-Use Software," effective January 1, 2028[36](index=36&type=chunk) [NOTE 2. REVENUE RECOGNITION](index=9&type=section&id=NOTE%202.%20REVENUE%20RECOGNITION) This note details passenger and other operating revenue components, including loyalty programs and refinery sales | (in millions) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Passenger revenue | $13,506 | $13,107 | $38,852 | $38,079 | | Cargo | $233 | $196 | $654 | $574 | | Other revenue | $2,934 | $2,374 | $7,855 | $7,431 | | Total operating revenue | $16,673 | $15,677 | $47,361 | $46,084 | - Cash sales from marketing agreements related to the loyalty program were **$6.0 billion** for the nine months ended September 30, 2025, up from **$5.5 billion** in 2024[40](index=40&type=chunk) | (in millions) | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | Domestic Passenger Revenue | $26,521 | $26,033 | | Atlantic Passenger Revenue | $7,221 | $7,159 | | Latin America Passenger Revenue | $3,047 | $3,008 | | Pacific Passenger Revenue | $2,063 | $1,879 | [NOTE 3. FAIR VALUE MEASUREMENTS](index=11&type=section&id=NOTE%203.%20FAIR%20VALUE%20MEASUREMENTS) This note provides a breakdown of assets and liabilities measured at fair value, including cash, investments, and fuel hedge contracts | (in millions) | September 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash equivalents | $2,364 | $1,619 | | Restricted cash equivalents | $180 | $351 | | Long-term investments and related | $3,391 | $2,372 | | Fuel hedge contracts | $4 | $(17) | - The company recognized a gain of **$12 million** on fuel hedge contracts for the nine months ended September 30, 2025, compared to a gain of **$9 million** in the prior year[51](index=51&type=chunk) - Equity investments in private companies are classified as Level 3 due to unobservable inputs in their valuations[50](index=50&type=chunk) [NOTE 4. INVESTMENTS](index=12&type=section&id=NOTE%204.%20INVESTMENTS) This note details Delta's equity investments, including stakes in various airlines, which significantly increased | (in millions) | September 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Air France-KLM | $98 | $62 | | China Eastern | $199 | $155 | | Grupo Aeroméxico | $402 | $354 | | Hanjin KAL | $712 | $507 | | LATAM | $1,379 | $837 | | Unifi Aviation | $132 | $146 | | Wheels Up | $485 | $435 | | Other investments | $476 | $350 | | Total Equity investments | $3,883 | $2,846 | - Delta's equity investments increased by over **$1 billion** from December 31, 2024, to September 30, 2025[52](index=52&type=chunk) - The company extended contractual transfer restrictions on its investment in Wheels Up until May 2026[52](index=52&type=chunk) [NOTE 5. DEBT](index=13&type=section&id=NOTE%205.%20DEBT) This note summarizes Delta's outstanding debt, which decreased due to new unsecured note issuances and an amended SkyMiles Credit Facility | (in millions) | September 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total secured and unsecured debt | $14,173 | $15,373 | | Total debt | $14,174 | $15,347 | | Total long-term debt | $12,299 | $13,546 | - In June 2025, Delta issued **$2.0 billion** in unsecured notes (4.95% due 2028 and 5.25% due 2030) to repay the PSP loan due 2030 and for general corporate purposes[55](index=55&type=chunk) - The SkyMiles Credit Facility was amended in September 2025, refinancing term loans at a reduced margin of **1.50%** per annum and extending maturity to October 2028[56](index=56&type=chunk) - As of September 30, 2025, Delta had approximately **$3.1 billion** undrawn and available under its revolving credit facilities[57](index=57&type=chunk) [NOTE 6. EMPLOYEE BENEFIT PLANS](index=14&type=section&id=NOTE%206.%20EMPLOYEE%20BENEFIT%20PLANS) This note outlines net periodic costs for Delta's pension and other postretirement benefit plans, with mixed cost changes | (in millions) | Nine Months Ended Sep 30, 2025 (Pension) | Nine Months Ended Sep 30, 2024 (Pension) | | :--- | :--- | :--- | | Service cost | $125 | $116 | | Interest cost | $623 | $603 | | Expected return on plan assets | $(800) | $(789) | | Recognized net actuarial loss | $151 | $186 | | Net periodic cost | $99 | $116 | | (in millions) | Nine Months Ended Sep 30, 2025 (Other Postretirement) | Nine Months Ended Sep 30, 2024 (Other Postretirement) | | :--- | :--- | :--- | | Service cost | $99 | $69 | | Interest cost | $135 | $136 | | Expected return on plan assets | $(1) | $(2) | | Recognized net actuarial loss | $15 | $14 | | Net periodic cost | $245 | $214 | - Service cost for employee benefit plans is recorded in salaries and related costs, while other components are in miscellaneous, net non-operating expense[62](index=62&type=chunk) [NOTE 7. COMMITMENTS AND CONTINGENCIES](index=15&type=section&id=NOTE%207.%20COMMITMENTS%20AND%20CONTINGENCIES) This note details Delta's future aircraft purchase commitments, totaling **$16.0 billion**, and addresses legal contingencies - Future aircraft purchase commitments totaled approximately **$16.0 billion** at September 30, 2025[64](index=64&type=chunk) | Aircraft Type | Purchase Commitments | | :--- | :--- | | A220-300 | 66 | | A321-200neo | 71 | | A350-900 | 6 | | A350-1000 | 20 | | B-737-10 | 100 | | Total | 263 | - The company believes the resolution of current legal proceedings will not have a material adverse effect on its Condensed Consolidated Financial Statements[67](index=67&type=chunk) [NOTE 8. ACCUMULATED OTHER COMPREHENSIVE LOSS](index=16&type=section&id=NOTE%208.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) This note presents the components of accumulated other comprehensive loss (AOCL), which decreased due to reclassifications into earnings | (in millions) | Balance at Jan 1, 2025 | Balance at Sep 30, 2025 | | :--- | :--- | :--- | | Pension and Other Benefit Liabilities | $(5,557) | $(5,398) | | Other | $42 | $41 | | Tax Effect | $536 | $499 | | Total | $(4,979) | $(4,858) | - Reclassifications into earnings for pension and other benefit liabilities amounted to **$122 million** (net of tax) for the nine months ended September 30, 2025[70](index=70&type=chunk) [NOTE 9. SEGMENTS](index=17&type=section&id=NOTE%209.%20SEGMENTS) This note provides financial information for Delta's Airline and Refinery segments, with the Airline segment dominating revenue and income - The refinery segment provides approximately **75%** of the airline's jet fuel consumption (**200,000 barrels per day**) through its own production and third-party agreements[71](index=71&type=chunk) | (in millions) | Airline (9M 2025) | Refinery (9M 2025) | Consolidated (9M 2025) | | :--- | :--- | :--- | :--- | | Operating revenue | $43,681 | $5,213 | $47,361 | | Operating income | $4,313 | $42 | $4,355 | | Capital expenditures | $3,537 | $55 | $3,592 | - Refinery operating income decreased to **$42 million** for the nine months ended September 30, 2025, from **$76 million** in the prior year, primarily due to lower pricing of refined products[121](index=121&type=chunk)[74](index=74&type=chunk) [NOTE 10. EARNINGS PER SHARE](index=19&type=section&id=NOTE%2010.%20EARNINGS%20PER%20SHARE) This note presents the computation of basic and diluted earnings per share (EPS), showing an increase for both three and nine months | (in millions, except per share data) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $1,417 | $1,272 | $3,786 | $2,614 | | Basic weighted average shares outstanding | 649 | 641 | 648 | 640 | | Diluted weighted average shares outstanding | 654 | 647 | 653 | 647 | | Basic earnings per share | $2.18 | $1.98 | $5.85 | $4.08 | | Diluted earnings per share | $2.17 | $1.97 | $5.80 | $4.04 | - Dilutive effect of share-based instruments was **5 million shares** for the nine months ended September 30, 2025[77](index=77&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Delta's financial condition and results, covering revenue, expenses, non-operating results, refinery, fleet, and liquidity [September 2025 Quarter Financial Highlights](index=20&type=section&id=September%202025%20Quarter%20Financial%20Highlights) Delta reported a strong September 2025 quarter with operating income increasing to **$1.7 billion**, driven by premium products and loyalty awards - Operating income for the September 2025 quarter was **$1.7 billion**, an increase of **$287 million** compared to September 2024[79](index=79&type=chunk) - Total revenue increased **$1.0 billion**, with passenger revenue up **$399 million**, driven by premium products and loyalty travel awards[80](index=80&type=chunk) - Total operating expense increased **$709 million (5%)**, primarily due to a **4%** capacity increase and higher employee costs, partially offset by lower aircraft fuel costs[81](index=81&type=chunk) - Liquidity as of September 30, 2025, was **$6.9 billion**, and operating activities generated **$1.8 billion** during the quarter[82](index=82&type=chunk)[83](index=83&type=chunk) [Results of Operations - Three Months Ended September 30, 2025 and 2024](index=21&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20September%2030,%202025%20and%202024) For the three months ended September 30, 2025, Delta saw **6%** revenue growth to **$16.7 billion**, while operating expenses rose **5%** to **$15.0 billion** [Total Operating Revenue](index=21&type=section&id=Total%20Operating%20Revenue%20(Three%20Months)) Total operating revenue for the three months increased by **$996 million (6%)** to **$16.7 billion**, driven by premium products and refinery sales | (in millions) | Sep 30, 2025 | Sep 30, 2024 | Increase (Decrease) | % Increase (Decrease) | | :--- | :--- | :--- | :--- | :--- | | Passenger revenue | $13,506 | $13,107 | $399 | 3% | | Cargo | $233 | $196 | $37 | 19% | | Other | $2,934 | $2,374 | $560 | 24% | | Total operating revenue | $16,673 | $15,677 | $996 | 6% | - Premium products ticket revenue increased by **9% ($460 million)** to **$5,796 million**[87](index=87&type=chunk) - Loyalty travel awards revenue increased by **13% ($130 million)** to **$1,108 million**[87](index=87&type=chunk) [Passenger Revenue by Geographic Region](index=21&type=section&id=Passenger%20Revenue%20by%20Geographic%20Region%20(Three%20Months)) Domestic passenger revenue increased by **5%** on **4%** capacity growth, while international revenue saw mixed results | (in millions) | Sep 30, 2025 Passenger Revenue | % Increase (Decrease) | | :--- | :--- | :--- | | Domestic | $9,103 | 5% | | Atlantic | $2,977 | (2)% | | Latin America | $759 | (3)% | | Pacific | $667 | 3% | | Total | $13,506 | 3% | - Domestic capacity increased by **4%**, while load factor decreased by **2 points**[88](index=88&type=chunk) - Pacific region saw a **10%** increase in Passenger Mile (RPMs) and a **2 point** increase in Load Factor[88](index=88&type=chunk) [Other Revenue](index=22&type=section&id=Other%20Revenue%20(Three%20Months)) Other revenue increased by **$560 million (24%)** to **$2.9 billion**, driven by refinery sales and ancillary businesses | (in millions) | Sep 30, 2025 | Sep 30, 2024 | Increase | % Increase | | :--- | :--- | :--- | :--- | :--- | | Refinery | $1,476 | $1,083 | $393 | 36% | | Loyalty program | $847 | $820 | $27 | 3% | | Ancillary businesses | $256 | $161 | $95 | 59% | | Miscellaneous | $355 | $310 | $45 | 15% | | Other revenue | $2,934 | $2,374 | $560 | 24% | - Loyalty program revenue, mainly from American Express cardholder spend and new acquisitions, increased by **3%**[92](index=92&type=chunk) - Miscellaneous revenue includes lounge access, codeshare agreements, and international joint venture partnership settlements[94](index=94&type=chunk) [Operating Expense](index=23&type=section&id=Operating%20Expense%20(Three%20Months)) Total operating expense increased by **$709 million (5%)** to **$15.0 billion**, driven by salaries, offset by **6%** lower fuel costs | (in millions) | Sep 30, 2025 | Sep 30, 2024 | Increase (Decrease) | % Increase (Decrease) | | :--- | :--- | :--- | :--- | :--- | | Salaries and related costs | $4,443 | $4,231 | $212 | 5% | | Aircraft fuel and related taxes | $2,570 | $2,747 | $(177) | (6)% | | Ancillary businesses and refinery | $1,724 | $1,250 | $474 | 38% | | Landing fees and other rents | $921 | $832 | $89 | 11% | | Profit sharing | $392 | $320 | $72 | 23% | | Total operating expense | $14,989 | $14,280 | $709 | 5% | - The market price of jet fuel decreased by **8%**, leading to a **$177 million** reduction in aircraft fuel and related taxes, despite a **4%** increase in consumption[97](index=97&type=chunk) - Profit sharing increased by **$72 million** due to higher quarterly results[102](index=102&type=chunk) [Results of Operations - Nine Months Ended September 30, 2025 and 2024](index=24&type=section&id=Results%20of%20Operations%20-%20Nine%20Months%20Ended%20September%2030,%202025%20and%202024) For the nine months, total operating revenue increased **3%** to **$47.4 billion**, while operating expenses rose **3%** to **$43.0 billion** [Total Operating Revenue](index=24&type=section&id=Total%20Operating%20Revenue%20(Nine%20Months)) Total operating revenue for the nine months increased by **$1.3 billion (3%)** to **$47.4 billion**, driven by premium products and loyalty awards | (in millions) | Sep 30, 2025 | Sep 30, 2024 | Increase (Decrease) | % Increase (Decrease) | | :--- | :--- | :--- | :--- | :--- | | Passenger revenue | $38,852 | $38,079 | $773 | 2% | | Cargo | $654 | $574 | $80 | 14% | | Other | $7,855 | $7,431 | $424 | 6% | | Total operating revenue | $47,361 | $46,084 | $1,277 | 3% | - Ticket - Premium products revenue increased by **7% ($1,025 million)** to **$16,402 million**[103](index=103&type=chunk) - Loyalty travel awards revenue increased by **12% ($342 million)** to **$3,140 million**[103](index=103&type=chunk) [Passenger Revenue by Geographic Region](index=24&type=section&id=Passenger%20Revenue%20by%20Geographic%20Region%20(Nine%20Months)) Domestic passenger revenue increased by **2%** on higher capacity, while international revenue increased **2%**, with Pacific region showing **10%** growth | (in millions) | Sep 30, 2025 Passenger Revenue | % Increase (Decrease) | | :--- | :--- | :--- | | Domestic | $26,521 | 2% | | Atlantic | $7,221 | 1% | | Latin America | $3,047 | 1% | | Pacific | $2,063 | 10% | | Total | $38,852 | 2% | - Domestic capacity increased by **4%**, while load factor decreased by **3 points**[105](index=105&type=chunk) - Pacific region RPMs increased by **18%** and load factor increased by **4 points**[105](index=105&type=chunk) [Other Revenue](index=24&type=section&id=Other%20Revenue%20(Nine%20Months)) Other revenue for the nine months increased by **$424 million (6%)** to **$7.9 billion**, driven by ancillary businesses and refinery revenue | (in millions) | Sep 30, 2025 | Sep 30, 2024 | Increase | % Increase | | :--- | :--- | :--- | :--- | :--- | | Refinery | $3,680 | $3,520 | $160 | 5% | | Loyalty program | $2,509 | $2,451 | $58 | 2% | | Ancillary businesses | $710 | $554 | $156 | 28% | | Miscellaneous | $956 | $906 | $50 | 6% | | Other revenue | $7,855 | $7,431 | $424 | 6% | [Operating Expense](index=25&type=section&id=Operating%20Expense%20(Nine%20Months)) Total operating expense for the nine months increased by **$1.2 billion (3%)** to **$43.0 billion**, with salaries rising and fuel costs decreasing by **9%** | (in millions) | Sep 30, 2025 | Sep 30, 2024 | Increase (Decrease) | % Increase (Decrease) | | :--- | :--- | :--- | :--- | :--- | | Salaries and related costs | $12,928 | $12,035 | $893 | 7% | | Aircraft fuel and related taxes | $7,439 | $8,157 | $(718) | (9)% | | Contracted services | $3,442 | $3,134 | $308 | 10% | | Landing fees and other rents | $2,650 | $2,347 | $303 | 13% | | Regional carrier expense | $1,913 | $1,731 | $182 | 11% | | Total operating expense | $43,006 | $41,806 | $1,200 | 3% | - Aircraft fuel and related taxes decreased by **$718 million** due to a **13%** decrease in the market price per gallon of jet fuel[108](index=108&type=chunk) - The refinery generated a **one cent** benefit per gallon for the nine months ended September 30, 2025, compared to **two cents** per gallon in the prior year[108](index=108&type=chunk) [Non-Operating Results](index=26&type=section&id=Non-Operating%20Results) Total non-operating income, net, significantly improved to **$317 million**, primarily driven by a substantial gain on investments | (in millions) | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | Favorable (Unfavorable) | | :--- | :--- | :--- | :--- | | Interest expense, net | $(521) | $(567) | $46 | | Gain/(loss) on investments, net | $1,007 | $(73) | $1,080 | | Loss on extinguishment of debt | $(26) | $(36) | $10 | | Miscellaneous, net | $(143) | $(146) | $3 | | Total non-operating income/(expense), net | $317 | $(822) | $1,139 | - Interest expense, net, decreased due to debt reduction initiatives, including **$3.9 billion** in payments on debt and finance lease obligations during the nine months ended September 30, 2025[114](index=114&type=chunk) - The gain on investments, net, was driven by changes in stock prices, foreign currency fluctuations, and other valuation techniques for equity investments[115](index=115&type=chunk) - The projected annual effective tax rate for 2025 is **24% to 25%**, excluding mark-to-market gains[117](index=117&type=chunk) [Refinery Segment](index=27&type=section&id=Refinery%20Segment) Delta's refinery segment, supplying **75%** of jet fuel, generated **$42 million** in operating income, a decrease due to lower product pricing - The refinery provides approximately **200,000 barrels per day**, or **75%** of Delta's jet fuel consumption[120](index=120&type=chunk) - Refinery operating income for the nine months ended September 30, 2025, was **$42 million**, down from **$76 million** in the prior year, primarily due to lower pricing of refined products[121](index=121&type=chunk)[123](index=123&type=chunk) | (in millions) | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | Exchanged products | $549 | $1,147 | | Sales of refined products | $132 | $197 | | Sales to airline segment | $852 | $1,147 | | Third party refinery sales | $3,680 | $3,520 | | Operating revenue | $5,213 | $6,011 | | Operating income/(loss) | $42 | $76 | [Operating Statistics](index=27&type=section&id=Operating%20Statistics) Delta's operating statistics show **4%** increase in ASM and **2%** in RPM, with load factor decreasing and mixed TRASM/CASM results | Consolidated | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2025 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue passenger miles (in millions) ("RPM") | 67,621 | 66,310 | 189,717 | 185,757 | | Available seat miles (in millions) ("ASM") | 79,054 | 76,162 | 225,099 | 216,360 | | Passenger load factor | 86 % | 87 % | 84 % | 86 % | | Total revenue per available seat mile ("TRASM") | 21.09 ¢ | 20.58 ¢ | 21.04 ¢ | 21.30 ¢ | | Cost per available seat mile ("CASM") | 18.96 ¢ | 18.75 ¢ | 19.11 ¢ | 19.32 ¢ | | Fuel gallons consumed (in millions) | 1,138 | 1,096 | 3,226 | 3,093 | | Average price per fuel gallon | $2.26 | $2.51 | $2.31 | $2.64 | - Fuel consumption increased by **4%** for both the three and nine months ended September 30, 2025, consistent with capacity growth[124](index=124&type=chunk) - Average price per fuel gallon decreased by **10%** for the quarter and **12%** for the nine-month period year-over-year[124](index=124&type=chunk) [Fleet Information](index=28&type=section&id=Fleet%20Information) Delta's mainline fleet comprised **986 aircraft** with an average age of **14.8 years**, with commitments for **263 new aircraft** | Fleet Type | Total Current Fleet | Purchase Commitments | Options | | :--- | :--- | :--- | :--- | | A220-300 | 34 | 66 | - | | A321-200neo | 84 | 71 | 70 | | A350-900 | 38 | 6 | 10 | | A350-1000 | - | 20 | - | | B-737-10 | - | 100 | 30 | | Total Mainline | 986 | 263 | 120 | - The average age of the mainline fleet is **14.8 years**[126](index=126&type=chunk) | Regional Carrier | Total Aircraft | | :--- | :--- | | Endeavor Air, Inc. | 140 | | SkyWest Airlines, Inc. | 126 | | Republic Airways, Inc. | 57 | | Total Regional | 323 | [Financial Condition and Liquidity](index=29&type=section&id=Financial%20Condition%20and%20Liquidity) Delta maintained strong liquidity of **$6.9 billion**, continued debt reduction, and initiated a **$1.0 billion** share repurchase program [Sources and Uses of Liquidity](index=29&type=section&id=Sources%20and%20Uses%20of%20Liquidity) Delta's liquidity is primarily generated from operating activities, with investing and financing activities focused on capital and debt management [Operating Activities](index=29&type=section&id=Operating%20Activities%20(Liquidity)) Delta generated **$6.1 billion** in cash flows from operations, influenced by seasonal ticket sales, fuel prices, and SkyMiles program cash sales - Cash flows from operations were **$6.1 billion** for the nine months ended September 30, 2025[131](index=131&type=chunk) - Fuel expense represented approximately **17%** of total operating expense for the nine months ended September 30, 2025[133](index=133&type=chunk) - Total cash sales to American Express were **$5.9 billion** for the nine months ended September 30, 2025, a **10%** increase from the prior year[136](index=136&type=chunk) [Investing Activities](index=30&type=section&id=Investing%20Activities%20(Liquidity)) Capital expenditures for the nine months were **$3.6 billion**, with an expected total capital spend of approximately **$5.0 billion** for 2025 - Capital expenditures were **$3.6 billion** for the nine months ended September 30, 2025[138](index=138&type=chunk) - Expected 2025 capital spend is approximately **$5.0 billion**, primarily for aircraft, fleet modifications, and technology[138](index=138&type=chunk) [Financing Activities](index=30&type=section&id=Financing%20Activities%20(Liquidity)) Delta had **$3.9 billion** in debt repayments, issued **$2.0 billion** in unsecured notes, and authorized a **$1.0 billion** share repurchase program - Cash outflows for debt and finance lease obligations totaled **$3.9 billion** for the nine months ended September 30, 2025[139](index=139&type=chunk) - Moody's upgraded Delta's credit rating to Baa2 (investment grade) in February 2025, and Fitch Ratings upgraded its outlook to Positive in the September 2025 quarter[142](index=142&type=chunk) - Total cash dividends for the nine months ended September 30, 2025, were **$318 million**[143](index=143&type=chunk) - A **$1.0 billion** opportunistic share repurchase program was authorized in June 2025, with no shares repurchased through September 30, 2025[144](index=144&type=chunk) [Critical Accounting Estimates](index=30&type=section&id=Critical%20Accounting%20Estimates) No material changes in Critical Accounting Estimates from the 2024 Form 10-K - No material changes in Critical Accounting Estimates from the 2024 Form 10-K[146](index=146&type=chunk) [Supplemental Information](index=31&type=section&id=Supplemental%20Information) This section provides reconciliations of non-GAAP financial measures to GAAP, excluding certain items for a clearer view of core operations - Non-GAAP financial measures are used to provide comparability and better understanding of core performance, excluding items like third-party refinery sales, MTM adjustments on hedges, and profit sharing[148](index=148&type=chunk)[150](index=150&type=chunk) | (in millions) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | Total revenue | $16,673 | $15,677 | | Third-party refinery sales | $(1,476) | $(1,083) | | Total revenue, adjusted | $15,197 | $14,594 | | (in millions) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | Operating expense | $14,989 | $14,280 | | Third-party refinery sales | $(1,476) | $(1,083) | | MTM adjustments and settlements on hedges | $(11) | $24 | | Operating expense, adjusted | $13,502 | $13,221 | | (cents) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | CASM | 18.96 ¢ | 18.75 ¢ | | Aircraft fuel and related taxes | (3.25) | (3.61) | | Third-party refinery sales | (1.87) | (1.42) | | Profit sharing | (0.50) | (0.42) | | CASM-Ex | 13.35 ¢ | 13.30 ¢ | | (in millions) | Three Months Ended Sep 30, 2025 | | :--- | :--- | | Net cash provided by operating activities | $1,847 | | Net cash used in investing activities | $(1,035) | | Pension plan contributions | $6 | | Net cash flows related to certain airport construction projects and other | $15 | | Free cash flow | $833 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk from the 2024 Form 10-K - No material changes in market risk from the 2024 Form 10-K[157](index=157&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Delta's management concluded that disclosure controls and procedures were effective, with no material changes in internal control - Disclosure controls and procedures were effective as of September 30, 2025[158](index=158&type=chunk) - No material changes in internal control over financial reporting during the three months ended September 30, 2025[159](index=159&type=chunk) [Part II. Other Information](index=34&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) This section updates on the Capacity Antitrust Litigation, which is proceeding to class discovery, with Delta maintaining claims are without merit - The Capacity Antitrust Litigation, alleging conspiracy to restrain capacity, is proceeding to class discovery[161](index=161&type=chunk) - In September 2025, the Court denied the defendants' motion to certify the decision for an interlocutory appeal or for reconsideration[161](index=161&type=chunk) - Delta believes the claims are without merit and is vigorously defending the lawsuits[161](index=161&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) No material changes from the risk factors described in the 2024 Form 10-K - No material changes from the risk factors described in the 2024 Form 10-K[162](index=162&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details common stock purchases, primarily shares withheld for tax obligations, noting no repurchases under the **$1.0 billion** program | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2025 | 3,566 | $49.42 | | August 2025 | 4,105 | $55.37 | | September 2025 | 23,848 | $60.54 | | Total | 31,519 | - | - Shares were withheld from employees to satisfy tax obligations in connection with grants of stock under the Performance Compensation Plan[164](index=164&type=chunk) - A **$1.0 billion** opportunistic share repurchase program was authorized in June 2025, but no shares were repurchased under it through September 30, 2025[165](index=165&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including organizational documents, a credit agreement amendment, and CEO/CFO certifications - Exhibit 10.1 is the Second Amendment to Term Loan Credit and Guaranty Agreement, entered into as of September 30, 2025, among SkyMiles IP Ltd., Delta Air Lines, Inc. and Barclays Bank PLC[169](index=169&type=chunk) - Exhibits 31.1 and 31.2 are certifications by Delta's Chief Executive Officer and Chief Financial Officer, respectively, for the quarterly report[169](index=169&type=chunk) [Signature](index=37&type=section&id=Signature) This section contains the signature of William C. Carroll, Senior Vice President - Controller, certifying the report - The report was signed by William C. Carroll, Senior Vice President - Controller (Principal Accounting Officer) on October 9, 2025[172](index=172&type=chunk)

[Executive Summary & Q3 2025 Performance Overview](index=1&type=section&id=Executive%20Summary%20%26%20Q3%202025%20Performance%20Overview) Levi Strauss & Co. delivered strong Q3 2025 results, exceeding guidance and demonstrating significant financial improvements driven by strategic shifts [Key Highlights and Management Commentary](index=1&type=section&id=Key%20Highlights%20and%20Management%20Commentary) Levi Strauss & Co. reported strong third-quarter 2025 financial results, exceeding guidance for sales, margins, and EPS. The company's strategic pivot to a DTC-first, head-to-toe denim lifestyle retailer is driving significant financial performance improvements, leading to a raised full-year outlook - Q3 2025 results exceeded guidance for sales, margins, and EPS[2](index=2&type=chunk) - Reported and organic net revenues both increased by **7%**[2](index=2&type=chunk) - The company is raising its full-year net revenue and EPS outlook, including the updated impact of tariffs[2](index=2&type=chunk) - CEO Michelle Gass highlighted the pivot to a DTC-first, head-to-toe denim lifestyle retailer as a key driver of financial performance inflection[2](index=2&type=chunk) - CFO Harmit Singh noted four consecutive quarters of high-single-digit growth and record gross margins, driven by a focus on profitability[2](index=2&type=chunk) [Q3 2025 Financial Performance Summary](index=1&type=section&id=Q3%202025%20Financial%20Performance%20Summary) The company achieved significant growth in net revenues and profitability in Q3 2025, with strong improvements in operating income and net income compared to the prior year. Gross margin expanded, though adjusted EBIT margin saw a slight decrease due to higher SG&A Q3 2025 Key Financial Metrics (vs. Q3 2024) | Metric | Q3 2025 | Q3 2024 | Change (Reported) | Change (Organic/Adjusted) | | :-------------------------------- | :------ | :------ | :---------------- | :-------------------------- | | Net Revenues | $1.5B | $1.443B | +7% | +7% | | Operating Income | $167.4M | $32.7M | +412% | N/A | | Net Income from Continuing Operations | $122M | $23M | +430% | N/A | | Adjusted Net Income | $136M | $134M | +1% | (1)% (Constant Currency) | | Diluted EPS from Continuing Operations | $0.31 | $0.06 | +$0.25 | N/A | | Adjusted Diluted EPS | $0.34 | $0.33 | +$0.01 | —¢ (Constant Currency) | | Operating Margin | 10.8% | 2.3% | +850 bps | N/A | | Adjusted EBIT Margin | 11.8% | 12.3% | -50 bps | (1)% (Constant Currency) | | Gross Margin | 61.7% | 60.6% | +110 bps | N/A | | SG&A Expenses | $776M | $726M | +6.8% | N/A | | Adjusted SG&A | $769M | $696M | +10.5% | N/A | - Gross margin increased by **110 basis points** to **61.7%**, primarily due to favorable channel mix and price increases, partially offset by tariffs[6](index=6&type=chunk) - Restructuring charges related to Project Fuel amounted to **$9 million**[6](index=6&type=chunk) [Segment and Channel Performance](index=1&type=section&id=Segment%20and%20Channel%20Performance) All geographic segments and the Direct-to-Consumer (DTC) channel demonstrated positive net revenue growth in Q3 2025. Asia led with the highest growth, and DTC continued its strong performance, comprising a significant portion of total net revenues Q3 2025 Net Revenues by Segment (vs. Q3 2024) | Segment | Q3 2025 Net Revenues | Reported Growth | Organic Growth | | :-------- | :------------------- | :-------------- | :------------- | | Americas | $806M | +6% | +7% | | Europe | $426M | +5% | +3% | | Asia | $278M | +12% | +12% | | Beyond Yoga® | $33M | +2% | +2% | Q3 2025 Operating Income by Segment (vs. Q3 2024) | Segment | Q3 2025 Operating Income | Q3 2024 Operating Income | Reported Growth | | :-------- | :----------------------- | :----------------------- | :-------------- | | Americas | $189M | $174M | +9% | | Europe | $91M | $83M | +9% | | Asia | $33M | $28M | +17% | | Beyond Yoga® | $(5)M | $(6)M | +17% | Q3 2025 Net Revenues by Channel (vs. Q3 2024) | Channel | Reported Growth | Organic Growth | | :-------- | :-------------- | :------------- | | DTC | +11% | +9% | | E-commerce | +18% | +16% | | Wholesale | +3% | +5% | - DTC comprised **46%** of total net revenues in Q3 2025[3](index=3&type=chunk) - U.S. organic growth within Americas was **3%**[3](index=3&type=chunk) - DTC organic growth by region: U.S. **+7%**, Europe **+4%**, Asia **+14%**[3](index=3&type=chunk) [Balance Sheet Review](index=3&type=section&id=Balance%20Sheet%20Review) The company maintained strong liquidity and completed a significant portion of the Dockers® sale, impacting its balance sheet as of August 31, 2025 [Key Balance Sheet Items](index=3&type=section&id=Key%20Balance%20Sheet%20Items) As of August 31, 2025, the company maintained a strong liquidity position, with cash and cash equivalents of $613 million and total liquidity of approximately $1.5 billion. Total inventories increased by 12% compared to Q3 2024 Key Balance Sheet Figures (as of August 31, 2025) | Metric | Amount | | :------------------------ | :------------- | | Cash and cash equivalents | $613 million | | Total liquidity | ~$1.5 billion | | Total inventories (YoY) | +12% | - The company refinanced its **€475 million** **3.375%** senior notes due in **2027** with **€475 million** **4.000%** senior notes due in **2030**[13](index=13&type=chunk) [Dockers® Sale](index=3&type=section&id=Dockers%C2%AE%20Sale) The company completed the sale of Dockers® intellectual property and operations in the U.S. and Canada for $194.7 million in gross proceeds. The sale of remaining Dockers® operations is anticipated to conclude in Q1 2026 - On July 31, 2025, the company sold Dockers® intellectual property and operations in the U.S. and Canada for gross proceeds of **$194.7 million**[8](index=8&type=chunk) - The sale of the remaining Dockers® operations is expected to close in the first quarter of 2026[8](index=8&type=chunk) [Shareholder Returns](index=3&type=section&id=Shareholder%20Returns) The company demonstrated a commitment to shareholder returns through declared dividends and a significant share repurchase program in Q3 2025 [Dividends](index=3&type=section&id=Dividends) The company declared a Q4 dividend of $0.14 per share, totaling approximately $55 million, payable on November 4, 2025 - For Q4, a dividend of **$0.14** per share was declared, totaling approximately **$55 million**[10](index=10&type=chunk)[14](index=14&type=chunk) - The dividend is payable on November 4, 2025, to holders of record on October 20, 2025[10](index=10&type=chunk) [Share Repurchase Program](index=3&type=section&id=Share%20Repurchase%20Program) The company returned approximately $151 million to shareholders in Q3, an increase of 118% year-over-year, including a $120 million accelerated share repurchase program that retired approximately 5 million shares - Approximately **$151 million** was returned to shareholders in Q3, a **118%** increase over the prior year[9](index=9&type=chunk) - A **$120 million** accelerated share repurchase program was launched, retiring approximately **5 million shares**[14](index=14&type=chunk) - As of August 31, 2025, **$440 million** remained under the current share repurchase authorization[9](index=9&type=chunk) [Updated Fiscal 2025 Guidance](index=3&type=section&id=Updated%20Fiscal%202025%20Guidance) The company raised its fiscal 2025 outlook for key financial metrics, reflecting confidence in continued performance despite ongoing macroeconomic and tariff considerations [Updated Full-Year Outlook](index=3&type=section&id=Updated%20Full-Year%20Outlook) Levi Strauss & Co. raised its fiscal 2025 guidance for reported net revenue growth, organic net revenue growth, and adjusted diluted EPS, while maintaining its gross margin expansion, adjusted EBIT margin, and tax rate outlook Updated Fiscal 2025 Guidance | Metric | Previous Guidance | Updated Guidance | | :-------------------- | :---------------- | :--------------- | | Reported net revenue growth | 1% to 2% | ~3% | | Organic net revenue growth | 4.5% to 5.5% | ~6% | | Gross margin expansion | 80 basis points | 100 basis points | | Adjusted EBIT margin | 11.4% to 11.6% | Maintained at 11.4% to 11.6% | | Tax rate | ~23% | Maintained at ~23% | | Adjusted diluted EPS | $1.25 to $1.30 | $1.27 to $1.32 | [Guidance Assumptions](index=3&type=section&id=Guidance%20Assumptions) The fiscal 2025 guidance is based on continuing operations, excluding the Dockers® business, and assumes current U.S. tariffs on imports from China (30%) and Rest-of-World (20%) remain unchanged. It also assumes no significant worsening of macroeconomic pressures - Guidance is based on continuing operations, with the Dockers® business reported in discontinued operations[11](index=11&type=chunk) - Assumes U.S. tariffs on imports from China remain at **30%** and Rest-of-World at **20%** for the remainder of the year[11](index=11&type=chunk) - Assumes no significant worsening of macro-economic pressures, inflationary pressures, recessionary concerns, supply chain disruptions, increased tariffs, or currency impacts[12](index=12&type=chunk) [Company Information & Disclosures](index=4&type=section&id=Company%20Information%20%26%20Disclosures) This section provides essential company background, investor communication details, cautionary statements regarding future projections, and explanations of non-GAAP financial measures [About Levi Strauss & Co.](index=4&type=section&id=About%20Levi%20Strauss%20%26%20Co.) Levi Strauss & Co. is a global leader in jeanswear and one of the world's largest brand-name apparel companies, designing and marketing jeans, casual wear, and accessories under various brands, with products sold in approximately 120 countries - LS&Co. is a global leader in jeanswear and one of the world's largest brand-name apparel companies[17](index=17&type=chunk) - The company designs and markets products under Levi's®, Levi Strauss Signature™, Denizen®, Dockers® and Beyond Yoga® brands[17](index=17&type=chunk) - Products are sold in approximately **120 countries** through chain retailers, department stores, online sites, and **~3,200 retail stores/shop-in-shops**[17](index=17&type=chunk) - Reported 2024 net revenues were **$6.4 billion**[17](index=17&type=chunk) [Investor Conference Call Information](index=4&type=section&id=Investor%20Conference%20Call%20Information) Details for accessing the Q3 2025 investor conference call and webcast replay are provided for interested parties - Pre-registration link provided for the conference call[16](index=16&type=chunk) - Live webcast accessible via a provided link[16](index=16&type=chunk) - Webcast replay available on http://investors.levistrauss.com approximately two hours after the event and archived for one quarter[16](index=16&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) The press release contains forward-looking statements regarding future financial results, business outlook, strategic priorities, and macroeconomic conditions. These statements are estimates based on current judgment and involve risks and uncertainties that could cause actual results to differ materially - Statements related to future financial results, business outlook, strategic priorities, and macroeconomic conditions are forward-looking[18](index=18&type=chunk) - These statements are estimates reflecting management's best judgment and involve risks and uncertainties beyond the company's control[18](index=18&type=chunk) - Investors are cautioned not to place undue reliance on these statements and should consider information in SEC filings (Form 10-K, 10-Q)[18](index=18&type=chunk) [Non-GAAP Financial Measures Explanation](index=5&type=section&id=Non-GAAP%20Financial%20Measures%20Explanation) The company uses various non-GAAP financial measures, such as Adjusted SG&A, Adjusted EBIT, Adjusted net income, and organic net revenues, to provide additional insights into its financial performance, enhance understanding of past performance, and facilitate period-to-period comparisons. These measures have limitations and should be viewed as supplementary to GAAP results - Non-GAAP measures are used to supplement GAAP financial statements, offering additional useful information about financial performance and enhancing understanding[19](index=19&type=chunk) - Examples of non-GAAP measures include Adjusted SG&A, Adjusted EBIT, Adjusted net income, Adjusted diluted EPS, organic net revenues, and Adjusted free cash flow[19](index=19&type=chunk) - Non-GAAP measures have limitations, lack standardized GAAP meaning, and may not be comparable to similarly titled measures used by other companies[19](index=19&type=chunk) - Organic net revenues exclude the impact of fluctuating foreign currency exchange rates, business acquisitions/divestitures, and the estimated impact of any 53rd week[20](index=20&type=chunk) - Constant-currency results facilitate period-to-period comparisons without the impact of fluctuating foreign currency exchange rates[20](index=20&type=chunk)[22](index=22&type=chunk) [Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated balance sheets, statements of income, and cash flows, detailing the company's financial position and performance [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets provide a snapshot of the company's financial position as of August 31, 2025, showing total assets of $6,656.4 million and total liabilities of $4,493.7 million Consolidated Balance Sheet Highlights (Dollars in millions) | Metric | August 31, 2025 | December 1, 2024 | | :---------------------------------- | :-------------- | :--------------- | | **ASSETS** | | | | Cash and cash equivalents | $612.8 | $690.0 | | Inventories | $1,286.3 | $1,131.3 | | Total current assets | $3,006.8 | $2,851.1 | | Total assets | $6,656.4 | $6,375.5 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Accounts payable | $621.4 | $663.4 | | Total current liabilities | $1,979.0 | $2,010.5 | | Long-term debt | $1,042.8 | $994.0 | | Total liabilities | $4,493.7 | $4,405.0 | | Total stockholders' equity | $2,162.7 | $1,970.5 | | Total liabilities and stockholders' equity | $6,656.4 | $6,375.5 | [Consolidated Statements of Income](index=10&type=section&id=Consolidated%20Statements%20of%20Income) The consolidated statements of income show net revenues of $1,543.4 million for the three months ended August 31, 2025, with a net income of $218.1 million, significantly up from $20.7 million in the prior year Consolidated Statements of Income Highlights (Dollars in millions, except per share amounts) | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 25, 2024 | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 25, 2024 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net revenues | $1,543.4 | $1,443.1 | $4,516.2 | $4,282.1 | | Gross profit | $951.6 | $873.9 | $2,805.0 | $2,576.1 | | Operating income | $167.4 | $32.7 | $467.0 | $54.2 | | Income from continuing operations before income taxes | $156.2 | $22.2 | $435.3 | $21.5 | | Net income from continuing operations | $122.0 | $22.7 | $341.8 | $30.0 | | Net income (loss) from discontinued operations, net of taxes | $96.1 | $(2.0) | $78.3 | $(2.0) | | Net income | $218.1 | $20.7 | $420.1 | $28.0 | | Diluted EPS - Continuing operations | $0.31 | $0.06 | $0.86 | $0.07 | | Diluted EPS - Discontinued operations | $0.24 | $(0.01) | $0.19 | — | | Net income - Diluted | $0.55 | $0.05 | $1.05 | $0.07 | [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended August 31, 2025, net cash provided by operating activities was $262.8 million, a decrease from the prior year, while net cash used for financing activities increased to $337.1 million Consolidated Statements of Cash Flows Highlights (Dollars in millions) | Metric | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 25, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net income | $420.1 | $28.0 | | Net cash provided by operating activities | $262.8 | $601.1 | | Net cash provided by (used for) investing activities | $(9.7) | $(192.2) | | Net cash used for financing activities | $(337.1) | $(229.1) | | Net increase (decrease) in cash and cash equivalents | $(77.2) | $178.3 | | Ending cash and cash equivalents | $612.8 | $577.1 | - Proceeds from the sale of business amounted to **$194.7 million** in the nine months ended August 31, 2025[33](index=33&type=chunk) - Accelerated share repurchase program utilized **$120.0 million** in the nine months ended August 31, 2025[33](index=33&type=chunk) [Reconciliation of GAAP to Non-GAAP Financial Measures](index=13&type=section&id=RECONCILIATION%20OF%20GAAP%20TO%20NON-GAAP%20FINANCIAL%20MEASURES) This section provides detailed definitions and reconciliations of various non-GAAP financial measures to their most directly comparable GAAP counterparts [Non-GAAP Measure Definitions](index=13&type=section&id=Non-GAAP%20Measure%20Definitions) This section defines key non-GAAP financial measures used by Levi Strauss & Co., such as Adjusted SG&A, Adjusted EBIT, Adjusted EBITDA, Adjusted net income, and Adjusted diluted earnings per share, outlining the adjustments made to their GAAP counterparts - Adjusted SG&A excludes property, plant, and equipment impairment, restructuring-related charges, and acquisition/integration-related charges[37](index=37&type=chunk) - Adjusted EBIT excludes income tax expense, interest expense, other income/expense, impairments, restructuring charges, and acquisition/integration-related charges from net income from continuing operations[37](index=37&type=chunk) - Adjusted EBITDA is Adjusted EBIT excluding depreciation and amortization expense[37](index=37&type=chunk) - Adjusted net income excludes various non-recurring or non-operational items and their tax impacts from net income from continuing operations[37](index=37&type=chunk) - Adjusted diluted earnings per share is Adjusted net income per weighted-average number of diluted common shares outstanding[37](index=37&type=chunk) [Adjusted SG&A Reconciliation](index=14&type=section&id=Adjusted%20SG%26A%20Reconciliation) The reconciliation shows that Adjusted SG&A for Q3 2025 was $769.3 million, an increase from $696.1 million in Q3 2024, primarily due to higher restructuring-related charges in the prior year Adjusted SG&A Reconciliation (Dollars in millions) | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 25, 2024 | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 25, 2024 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Selling, general and administrative expenses (GAAP) | $775.6 | $726.4 | $2,313.4 | $2,233.4 | | Property, plant, and equipment impairment | — | $(11.1) | — | $(11.1) | | Restructuring related charges and other, net | $(6.3) | $(19.2) | $(14.0) | $(44.6) | | Acquisition and integration related charges | — | — | — | $(4.0) | | **Adjusted SG&A (Non-GAAP)** | **$769.3** | **$696.1** | **$2,299.4** | **$2,173.7** | | SG&A margin | 50.3% | 50.3% | 51.2% | 52.2% | | Adjusted SG&A margin | 49.8% | 48.2% | 50.9% | 50.8% | - Restructuring related and other charges for Q3 2025 primarily include **$4.3 million** of Project Fuel costs and **$2.0 million** in estimated legal settlements[40](index=40&type=chunk) [Adjusted EBIT and Adjusted EBITDA Reconciliation](index=15&type=section&id=Adjusted%20EBIT%20and%20Adjusted%20EBITDA%20Reconciliation) Adjusted EBIT for Q3 2025 was $182.3 million, up from $177.8 million in Q3 2024, reflecting improved operating performance after excluding various non-recurring items. Adjusted EBITDA also increased to $234.0 million Adjusted EBIT and Adjusted EBITDA Reconciliation (Dollars in millions) | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 25, 2024 | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 25, 2024 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income from continuing operations (GAAP) | $122.0 | $22.7 | $341.8 | $30.0 | | Income tax expense (benefit) | 34.2 | (0.5) | 93.5 | (8.5) | | Interest expense | 12.5 | 10.1 | 35.2 | 30.4 | | Other (income) expense, net | (1.3) | 0.4 | (3.5) | 2.3 | | Property, plant, and equipment impairment | — | 11.1 | — | 11.1 | | Goodwill and other intangible asset impairment charges | — | 111.4 | 2.5 | 116.9 | | Restructuring charges, net | 8.6 | 3.4 | 22.1 | 171.6 | | Restructuring related charges and other, net | 6.3 | 19.2 | 14.0 | 44.6 | | Acquisition and integration related charges | — | — | — | 4.0 | | **Adjusted EBIT (Non-GAAP)** | **$182.3** | **$177.8** | **$505.6** | **$402.4** | | Depreciation and amortization | 51.7 | 48.8 | 151.2 | 136.4 | | **Adjusted EBITDA (Non-GAAP)** | **$234.0** | **$226.6** | **$656.8** | **$538.8** | | Adjusted EBIT margin | 11.8% | 12.3% | 11.2% | 9.4% | - Goodwill impairment charges for the nine months ended August 31, 2025, include **$2.5 million** related to the business in Bolivia[48](index=48&type=chunk) - Restructuring charges for Q3 2025 include **$8.6 million** in connection with Project Fuel, primarily severance and post-employment benefits[50](index=50&type=chunk) [Adjusted Net Income Reconciliation](index=16&type=section&id=Adjusted%20Net%20Income%20Reconciliation) Adjusted net income for Q3 2025 was $135.7 million, a slight increase from $133.9 million in Q3 2024, after accounting for various adjustments and their tax impacts Adjusted Net Income Reconciliation (Dollars in millions) | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 25, 2024 | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 25, 2024 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income from continuing operations (GAAP) | $122.0 | $22.7 | $341.8 | $30.0 | | Property, plant, and equipment impairment | — | 11.1 | — | 11.1 | | Goodwill and other intangible asset impairment charges | — | 111.4 | 2.5 | 116.9 | | Restructuring charges, net | 8.6 | 3.4 | 22.1 | 171.6 | | Restructuring related charges and other, net | 7.4 | 15.1 | 15.1 | 40.5 | | Loss on early extinguishment of debt | 1.5 | — | 1.5 | — | | Acquisition and integration related charges | — | — | — | 4.0 | | Tax impact of adjustments | (3.8) | (29.8) | (8.8) | (74.6) | | **Adjusted net income (Non-GAAP)** | **$135.7** | **$133.9** | **$374.2** | **$299.5** | | Adjusted net income margin | 8.8% | 9.3% | 8.3% | 7.0% | - Restructuring related and other charges for Q3 2025 include Project Fuel costs, legal settlements, and an insurance recovery[65](index=65&type=chunk) [Adjusted Diluted Earnings per Share Reconciliation](index=18&type=section&id=Adjusted%20Diluted%20Earnings%20per%20Share%20Reconciliation) Adjusted diluted earnings per share for Q3 2025 was $0.34, a slight increase from $0.33 in Q3 2024, reflecting the impact of various non-GAAP adjustments on a per-share basis Adjusted Diluted EPS Reconciliation (Unaudited) | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 25, 2024 | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 25, 2024 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Diluted earnings per share from continuing operations (GAAP) | $0.31 | $0.06 | $0.86 | $0.07 | | Property, plant, and equipment impairment | — | 0.03 | — | 0.03 | | Goodwill and other intangible asset impairment charges | — | 0.28 | 0.01 | 0.30 | | Restructuring charges, net | 0.02 | 0.01 | 0.06 | 0.43 | | Restructuring related charges and other, net | 0.02 | 0.04 | 0.04 | 0.10 | | Loss on early extinguishment of debt | — | — | — | — | | Acquisition and integration related charges | — | — | — | 0.01 | | Tax impact of adjustments | (0.01) | (0.09) | (0.03) | (0.19) | | **Adjusted diluted earnings per share (Non-GAAP)** | **$0.34** | **$0.33** | **$0.94** | **$0.75** | [Adjusted Free Cash Flow Reconciliation](index=19&type=section&id=Adjusted%20Free%20Cash%20Flow%20Reconciliation) Adjusted free cash flow for the nine months ended August 31, 2025, was $92.5 million, a decrease from $439.3 million in the prior year, primarily due to lower net cash provided by operating activities - Adjusted free cash flow is defined as net cash flow from operating activities less purchases of property, plant and equipment from continuing and discontinued operations[77](index=77&type=chunk) Adjusted Free Cash Flow Reconciliation (Dollars in millions) | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 25, 2024 | Nine Months Ended Aug 31, 2025 | Nine Months Ended Aug 25, 2024 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities (GAAP) | $24.8 | $52.3 | $262.8 | $601.1 | | Purchases of property, plant and equipment | $(64.2) | $(50.0) | $(170.3) | $(161.8) | | **Adjusted free cash flow (Non-GAAP)** | **$(39.4)** | **$2.3** | **$92.5** | **$439.3** | [Return on Invested Capital (ROIC)](index=20&type=section&id=Return%20on%20Invested%20Capital%20(ROIC)) The Return on Invested Capital (ROIC) for the trailing four quarters ended August 31, 2025, was 17.4%, an improvement from 14.6% in the prior year, indicating increased efficiency in generating operating income relative to invested capital - ROIC is defined as the trailing four quarters of Adjusted net income before interest and after taxes divided by the average trailing five quarters of total invested capital[79](index=79&type=chunk) Return on Invested Capital (ROIC) (Dollars in millions) | Metric | Trailing Four Quarters Ended Aug 31, 2025 | Trailing Four Quarters Ended Aug 25, 2024 | | :-------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Adjusted net income before interest and after taxes | $611.9 | $511.9 | | Average Total invested Capital | $3,522.8 | $3,506.5 | | **Return on Invested Capital (ROIC)** | **17.4%** | **14.6%** | [Organic Net Revenues and Constant-Currency Explanation](index=20&type=section&id=Organic%20Net%20Revenues%20and%20Constant-Currency%20Explanation) This section reiterates the definitions of organic net revenues and constant-currency measures, emphasizing their role in facilitating period-to-period comparisons by excluding the impact of foreign currency fluctuations, acquisitions/divestitures, and the 53rd week - Organic net revenues exclude the impact of fluctuating foreign currency exchange rates, net revenues from business acquisitions or divestitures, and the estimated impact of any 53rd week[20](index=20&type=chunk) - Constant-currency results facilitate period-to-period comparisons by removing the impact of fluctuating foreign currency exchange rates[20](index=20&type=chunk)[22](index=22&type=chunk) - These measures exclude the results of the Dockers® business, classified as discontinued operations[21](index=21&type=chunk) [Organic Net Revenues by Segment](index=21&type=section&id=Organic%20Net%20Revenues%20by%20Segment) Total organic net revenues increased by 6.9% for Q3 2025 and 8.0% for the nine months ended August 31, 2025, with all segments showing positive organic growth, particularly strong in Asia Organic Net Revenues by Segment (Dollars in millions) | Segment | Q3 2025 As Reported | Q3 2024 Organic Net Revenues | Q3 2025 Organic Growth | 9M 2025 As Reported | 9M 2024 Organic Net Revenues | 9M 2025 Organic Growth | | :-------------- | :------------------ | :--------------------------- | :--------------------- | :------------------ | :--------------------------- | :--------------------- | | Total net revenues | $1,543.4 | $1,444.4 | 6.9% | $4,516.2 | $4,177.7 | 8.0% | | Americas | $806.4 | $751.7 | 7.3% | $2,337.8 | $2,141.9 | 9.0% | | Europe | $426.3 | $413.3 | 3.1% | $1,229.9 | $1,154.0 | 6.6% | | Asia | $277.7 | $247.2 | 12.3% | $843.5 | $784.6 | 7.5% | | Beyond Yoga® | $33.0 | $32.2 | 2.5% | $105.0 | $97.2 | 8.0% | [Organic Net Revenues by Channel](index=22&type=section&id=Organic%20Net%20Revenues%20by%20Channel) The Direct-to-Consumer (DTC) channel continued to drive strong organic net revenue growth, increasing by 8.8% in Q3 2025, while Wholesale also showed solid growth of 5.3% Organic Net Revenues by Channel (Dollars in millions) | Channel | Q3 2025 As Reported | Q3 2024 Organic Net Revenues | Q3 2025 Organic Growth | 9M 2025 As Reported | 9M 2024 Organic Net Revenues | 9M 2025 Organic Growth | | :-------- | :------------------ | :--------------------------- | :--------------------- | :------------------ | :--------------------------- | :--------------------- | | Wholesale | $832.2 | $790.6 | 5.3% | $2,301.4 | $2,174.8 | 5.7% | | DTC | $711.2 | $653.8 | 8.8% | $2,214.8 | $2,002.9 | 10.6% | [Organic Net Revenues by Brand](index=23&type=section&id=Organic%20Net%20Revenues%20by%20Brand) Levi's® brands collectively achieved 7.0% organic net revenue growth in Q3 2025, with Levi Strauss Signature™ showing particularly strong growth of 21.1% Organic Net Revenues by Brand (Dollars in millions) | Brand | Q3 2025 As Reported | Q3 2024 Organic Net Revenues | Q3 2025 Organic Growth | 9M 2025 As Reported | 9M 2024 Organic Net Revenues | 9M 2025 Organic Growth | | :---------------------- | :------------------ | :--------------------------- | :--------------------- | :------------------ | :--------------------------- | :--------------------- | | Total Levi's Brands | $1,510.4 | $1,412.2 | 7.0% | $4,411.2 | $4,080.5 | 8.0% | | Levi's® | $1,450.8 | $1,363.0 | 6.4% | $4,236.4 | $3,927.9 | 7.9% | | Levi Strauss Signature™ | $59.6 | $49.2 | 21.1% | $172.5 | $152.6 | 13.0% | | Denizen® | — | — | * | $2.3 | — | * | [Constant-Currency Adjusted EBIT and Margin](index=24&type=section&id=Constant-Currency%20Adjusted%20EBIT%20and%20Margin) Constant-currency Adjusted EBIT for Q3 2025 was $182.3 million, showing a slight decrease of 0.9% compared to the prior year, while the constant-currency Adjusted EBIT margin was 11.8% Constant-Currency Adjusted EBIT and Margin (Dollars in millions) | Metric | Q3 2025 As Reported | Q3 2024 Constant-Currency | Q3 2025 Constant-Currency Growth | 9M 2025 As Reported | 9M 2024 Constant-Currency | 9M 2025 Constant-Currency Growth | | :-------------------------------------- | :------------------ | :------------------------ | :------------------------------- | :------------------ | :------------------------ | :------------------------------- | | Adjusted EBIT | $182.3 | $184.0 | (0.9)% | $505.6 | $397.0 | 27.4% | | Adjusted EBIT margin | 11.8% | 12.5% | (5.6)% | 11.2% | 9.3% | 20.4% | [Constant-Currency Adjusted Net Income and Diluted EPS](index=25&type=section&id=Constant-Currency%20Adjusted%20Net%20Income%20and%20Diluted%20EPS) Constant-currency Adjusted net income for Q3 2025 was $135.7 million, a slight decrease of 0.6% compared to the prior year, while constant-currency Adjusted diluted EPS remained flat at $0.34 Constant-Currency Adjusted Net Income and Diluted EPS (Dollars in millions, except per share amounts) | Metric | Q3 2025 As Reported | Q3 2024 Constant-Currency | Q3 2025 Constant-Currency Growth | 9M 2025 As Reported | 9M 2024 Constant-Currency | 9M 2025 Constant-Currency Growth | | :-------------------------------------- | :------------------ | :------------------------ | :------------------------------- | :------------------ | :------------------------ | :------------------------------- | | Adjusted net income | $135.7 | $136.5 | (0.6)% | $374.2 | $296.9 | 26.0% | | Adjusted diluted earnings per share | $0.34 | $0.34 | —% | $0.94 | $0.74 | 27.0% |