SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1994 Commission File Number
Number 0-11559
KEY TRONIC CORPORATION
Washington 91-0849125
(State of Incorporation) (I.R.S. Employer
Identification No.)
----------------------
North 4424 Sullivan
Spokane, Washington 99216
(509) 928-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
---
At January 17, 1995, 8,343,621 shares of Common Stock, no par value (the
only class of common stock), were outstanding.
KEY TRONIC CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Independent Accountants Review Report 3
Consolidated Balance Sheets - December 31, 1994
and July 2, 1994 4-5
Consolidated Statements of Income - Second Quarter
Ended December 31, 1994 and January 1, 1994 6
Consolidated Statements of Income - Two Quarters 7
Ended December 31, 1994 and January 1, 1994
Consolidated Statements of Cash Flows - Two Quarters
Ended December 31, 1994 and January 1, 1994 8
Notes to Consolidated Financial Statements 9-14
Item 2. Management's Discussion and Analysis of the Financial
Condition and Results of Operations 14-17
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Events 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders
Key Tronic Corporation
We have reviewed the accompanying consolidated balance sheet of Key Tronic
Corporation (the Corporation) and subsidiaries as of December 31, 1994, and the
related consolidated statements of operations for the three month and six months
ended December 31, 1994 and January 1, 1994, and cash flows for the six month
periods ended December 31, 1994 and January 1, 1994. These financial statements
are the responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Key Tronic Corporation and
subsidiaries as of July 2, 1994, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated August 24, 1994, we expressed an
unqualified opinion on those consolidated financial statements.
/s/ Deloitte & Touche LLP
January 27, 1995
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, July 2,
1994 1994
----------- --------
(Unaudited) (Audited)
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,417 $ 4,996
Trade receivables, less allowance for
doubtful accounts of $1,225 and $1,539 27,066 25,435
Inventories (Note 2) 24,874 21,787
Real estate held for sale 2,339 2,339
Deferred income tax asset - current 2,663 2,940
Other 3,510 1,838
----------- --------
Total current assets 62,869 59,335
Property, plant and equipment - at cost 84,912 82,348
Less accumulated depreciation 51,597 47,579
----------- --------
Total property, plant and equipment 33,315 34,769
Other Assets:
Deferred income tax asset - non-current 5,483 5,810
Goodwill 1,722 1,760
Other 1,398 254
----------- --------
Total other assets 8,603 7,824
----------- --------
$ 104,787 $101,928
=========== ========
See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
December 31, July 2,
1994 1994
----------- --------
(Unaudited) (Audited)
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations $ 2,609 $ 4,721
Accounts payable 16,603 17,159
Employee compensation and accrued vacation 3,503 2,929
Taxes other than income tax 1,551 1,496
Commissions payable 373 339
Other 4,666 5,076
----------- --------
Total current liabilities 29,305 31,720
----------- --------
Long-term obligations, less current portion
above 28,826 25,696
----------- --------
Commitments and Contingencies (Note 3)
Shareholders' Equity:
Common stock, no par value, authorized
25,000 shares; issued and outstanding
8,339 and 8,271 shares 36,693 36,251
Retained earnings 9,497 8,320
Foreign currency translation adjustment 466 (59)
----------- --------
Total shareholders' equity 46,656 44,512
----------- --------
$ 104,787 $101,928
=========== ========
See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Second Quarter Ended
December 31, January 1,
1994 1994
------------ ----------
(in thousands, except per share amounts)
Net sales $ 48,748 $ 41,262
Cost of sales (including warranty
provision of $296 and $250) 41,188 36,708
------------ ----------
Gross profit on sales 7,560 4,554
Operating Expenses:
Research, development and engineering 1,454 1,636
Selling 1,381 2,146
General and administrative (including
provision for doubtful accounts receivable
of $161 and $124) 2,623 2,698
------------ ----------
Operating income (loss) 2,102 (1,926)
Interest expense 764 446
Other (Income) expense 16 (27)
------------ ----------
Income (loss) before federal taxes on income 1,322 (2,345)
Provision (benefit) for income taxes 473 (42)
------------ ----------
Net income $ 849 $ (2,303)
============ ==========
Earnings Per Share (See exhibit 11):
Net income (loss) per weighted average
share $ .10 $ (0.28)
------------ ----------
Primary earnings per common share N.A. N.A.
------------ ----------
Fully diluted earnings per common share N.A. N.A.
------------ ----------
Weighted average shares outstanding 8,314 8,255
------------ ----------
Primary shares outstanding N.A. N.A.
------------ ----------
Fully diluted shares outstanding N.A. N.A.
------------ ----------
See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Two Quarters Ended
December 31, January 1,
1994 1994
------------ ----------
(in thousands, except per share amounts)
Net sales $ 94,184 $ 77,332
Cost of sales (including warranty
provision of $489 and $384) 80,281 68,244
------------ ----------
Gross profit on sales 13,903 9,088
Operating Expenses:
Research, development and engineering 2,779 2,927
Selling 2,607 3,983
General and administrative (including
provision for doubtful accounts receivable
of $345 and $218) 5,247 5,381
------------ ----------
Operating income (loss) 3,270 (3,203)
Interest expense 1,434 781
Other (Income) expense (20) (69)
------------ ----------
Income (loss) before federal taxes on income 1,856 (3,915)
Provision for income taxes 679 29
------------ ----------
Earnings (loss) before cumulative effect of
change in accounting 1,177 (3,944)
Cumulative effect to July 4, 1993, of change
in accounting for income taxes (Note 5) 0 8,750
------------ ----------
Net income $ 1,177 $ 4,806
============ ==========
Earnings (Loss) Per Share (See exhibit 11):
Before cumulative effect of change in
accounting N.A. $ (.48)
============ ==========
Net income per weighted average share $ .14 N.A.
============ ==========
Primary earnings per common share net of
cumulative effect to July 4, 1993 of
change in accounting for income taxes N.A. $ .55
============ ==========
Fully diluted earnings per common share
net of cumulative effect to July 4, 1993
of change in accounting for income taxes N.A. $ .55
============ ==========
Weighted average shares outstanding 8,294 N.A.
============ ==========
Primary shares outstanding N.A. 9,244
============ ==========
Fully diluted shares outstanding N.A. 9,244
============ ==========
See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Two Quarters Ended
December 31, January 1,
1994 1994
------------ ----------
Increase (decrease) in Cash and Cash Equivalents: (in thousands)
Cash Flows from Operating Activities:
Net income $ 1,177 $ 4,806
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Depreciation and amortization 4,287 4,100
Provision for obsolete inventory 1,063 204
Provision for doubtful receivables (7) 218
Provision for warranty 489 384
Gain on disposal of property and equipment (92) (5)
Cumulative effect of change in accounting
for income taxes (Note 5) 0 (8,750)
Changes in Operating Assets and Liabilities:
Trade receivables (1,624) (567)
Inventories (4,150) 1,754
Deferred income tax asset 604
Other assets (1,700) 807
Accounts payable (556) 1,158
Employee compensation and accrued vacation 574 30
Other liabilities (810) (3,643)
------------ ----------
Cash provided (used) by operating activities (745) 496
------------ ----------
Cash Flows from Investing Activities:
Cash paid for assets acquired and
liabilities assumed, net (Note 1) (22,000)
Proceeds from sale of property and equip. 238 5
Purchase of property and equipment (2,874) (3,480)
------------ ----------
Cash used in investing activities (2,636) (25,475)
------------ ----------
Cash Flows from Financing Activities:
Refinancing fees (1,183)
Issuance of common stock 442 86
Proceeds from long-term obligations 26,900 22,269
Payments on long-term obligations (25,882) (170)
------------ ----------
Cash provided by financing activities 277 22,185
------------ ----------
Effect of exchange rate changes on cash 525 (678)
------------ ----------
Net decrease in cash and cash equivalents (2,579) (3,472)
Cash and cash equivalents, beginning of year 4,996 6,205
------------ ----------
Cash and cash equivalents, end of second
quarter $ 2,417 $ 2,733
============ ==========
Non-Cash Investing and Financing Activities:
See note 6 to these financial statements
See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for a fair presentation of results
of operations for such periods. All adjustments are of a normal recurring
nature. The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements should be
read in conjunction with the financial statements and notes thereto contained in
the Company's annual report for the year ended July 2, 1994.
- ----------------------------------------------------------------------------
1. BUSINESS COMBINATION
On July 30, 1993, the Company acquired substantially all of the assets and
liabilities of Honeywell, Inc.'s Keyboard Division (HKD). The acquisition was
accounted for under the purchase accounting method of accounting and,
accordingly, the purchase price was allocated to the underlying acquired assets
and assumed liabilities at their estimated fair market values at July 30, 1993.
Acquisition costs are summarized as follows: (in thousands)
Cash $ 22,000
Liabilities assumed 5,832
Acquisition costs 5,000
Note payable, Honeywell Inc. 3,648
Common stock issued 3,200
----------
Total $ 39,680
----------
These costs were allocated based on fair value as follows:
Trade receivables $ 8,505
Inventories 10,964
Other current assets 489
Property, plant and equipment 17,922
Goodwill 1,800
----------
Total $ 39,680
----------
The stock was recorded at a twenty percent discount to the closing market
price on July 30, 1993 due to the three year trading restrictions on the stock
at the acquisition date. The costs incurred as part of the acquisition included
$1,125,000 for severance for terminating employees of HKD, $175,000 for
transition payroll for terminating employees of HKD, $1,100,000 for relocation
of employees of HKD, $700,000 for the closure of an acquired facility,
$1,000,000 for the assumption of certain potential liabilities (see note 9), and
$900,000 for certain other direct purchase and integration costs.
Details of this transaction are more fully reported on Form 8-K dated July
30, 1993.
2. INVENTORIES
December 31, July 2,
1994 1994
------------ -------
(Unaudited) (Audited)
(in thousands)
Finished goods $ 4,407 $ 3,385
Work-in-process 3,406 3,048
Raw materials 21,319 19,145
Reserve for obsolescence (4,258) (3,791)
------------ -------
$ 24,874 $21,787
============ =======
The increase in raw materials and work-in-process inventory is primarily to
support demand based on increases in customer forecasts. The increase in
finished goods inventory is to support anticipated demand in the retail
channels.
3. COMMITMENTS AND CONTINGENCIES
CAPITAL COMMITMENTS - The amount of firm commitments to contractors and
suppliers for capital expenditures was approximately $115,000 at December 31,
1994.
Litigation
The Company used Mica Sanitary landfill, a public dump site operated by the
County of Spokane, until early 1975. Mica landfill is a state lead National
Priority List site ("NPL") . Mica landfill was placed on the NPL in 1985. In
l988 the Washington Department of Ecology and Spokane County entered into a
Consent Decree requiring the County to conduct a Remedial Investigation (RI)
followed by appropriate Remedial Action (RA). The County's RI was completed by
the County in September 1992. An interim remedial action plan was completed in
late 1993 and instituted in mid 1994 to be followed by a 5 year performance
monitoring program to be conducted by the County to determine if additional
remedial measures are needed. The Company has not been named as a Potentially
Liable Party ("PLP") under the State Toxic Control Act ("STCA") or as a
Potentially Responsible Party ("PRP") under CERCLA, as amended ("CERCLA"). To
date, test results have not shown the waste disposed of by the Company at Mica
to be a source of pollution or contamination. Prior to 1989 certain third
parties were designated PRP's and PLP's . The Company made a provision prior to
the beginning of fiscal year 1992 based on information then currently available
to it and the Company's prior experience in connection with another NPL landfill
site where the Company disposed of a similar type of waste which it disposed of
at Mica, for its estimate of probable legal costs to be associated with this
matter. No provision has been made for probable liability for remedial action,
because management does not believe a range of probable or reasonably possible
costs is estimable at this time based upon the fact that the Company to date has
not been named a PRP or PLP and the uncertainty as to what additional pollution
or contamination will be disclosed over the course of the County's 5 year
monitoring and testing program. The accrued balance was $900,000 at the end of
the second fiscal quarter of 1995, the end of fiscal 1994 and the end of the
second quarter of fiscal year 1994. Management does not believe there to be any
reasonably possible losses for legal costs beyond the existing accrual for
probable losses which could be material to future financial position or results
of operations. No provision has been made to cover any future costs to the
Company of any remedial action or clean-up activities because those costs, if
any, can not be determined at this time. Given the inherent uncertainty in
environmental matters, limited information available with respect to any future
remedial measures, uncertainty of the results of future monitoring tests,
limited information as to the number of PRP's and PLP's , the uncertainty as to
whether the Company will be designated a PRP or PLP with respect to the site and
the complexity of the circumstances surrounding this matter, management's
estimate is subject to and will change as facts and circumstances warrant.
Based upon publicly available cost estimates of remediation and clean-up at the
site and the contributions to date of designated PRP's and PLP's, management
believes that insurance coverage is probable for any reasonably possible future
remedial or clean-up costs to the Company.
Pursuant to the Amended and Restated Purchase and Sale Agreement between
Honeywell, Inc. and Key Tronic Corporation, dated as of July 30, 1993 (the
"Agreement"), the Company assumed known and unknown product liabilities and
unknown but potentially incurred environmental liabilities for a portion of any
pre-existing claims against Honeywell, Inc. ("Honeywell") which are asserted
after the closing date relating to environmental matters and to product
liability matters associated with products manufactured by Honeywell prior to
its ceasing manufacture of those products on the closing date of the Agreement.
Honeywell retained responsibility for unasserted claims not assumed by the
Company as follows: Honeywell retained responsibility for environmental and
product liability claims, incurred but not reported as of the closing date, in
excess of $1,000,000 in the aggregate which 1) in the case of environmental
claims are asserted within two years following the closing date or which 2) in
the case of product liability claims are asserted within five years following
the closing date. Management estimated on the closing date of the acquisition
that it was probable that $1.0 million of incurred but not reported product
liability claims would be recorded during the 5 year period following the
closing of the Agreement and the Company recorded this liability as part of the
acquisition costs. The accrued balance for these product liability claims was
$830,000 at the end of the second fiscal quarter of 1995 versus $950,000 at the
end of fiscal year 1994 and $1,000,000 at the end of the second quarter of
fiscal year 1994. The reduction in the accrued balance reflects charges for
expenses. Management does not believe there to be any reasonably possible
product liability losses beyond the existing accrual for probable losses which
could be material to future financial position or results of operations. The
Company has not made a provision for Honeywell environmental claims which may be
discovered and asserted after the closing date or product liability claims which
may be asserted five or more years after the closing date, because management
does not believe such potential liabilities are reasonably possible at this
time. No environmental claims have been asserted as of fiscal year end 1994.
Given the inherent uncertainty in litigation, in environmental matters and in
contract interpretation, the inherently limited information available with
respect to unasserted claims and the complexity of the circumstances surrounding
these matters, management's estimates are subject to and will change or be
established as facts and circumstances warrant.
The Company has assumed certain obligations under the Agreement related to
a patent infringement claim associated with Honeywell products. The Company made
a provision in 1994 in the amount of $455,000, based upon information which
became available to it after the closing date, for its estimate of probable
costs to be associated with this patent infringement claim. These matters are
in the early stages of investigation. Management does not believe there to be
any reasonably possible losses beyond the existing accrual for probable losses
which could be material to future financial position or results of operations.
The Company currently has one hundred suits by computer keyboard users
which are in State or Federal Courts in California, Florida, Kentucky,
Pennsylvania, New Jersey and New York. These suits allege that specific
keyboard products manufactured by the company were sold with manufacturing,
design and warning defects which caused or contributed to their injuries. The
alleged injuries are not specifically identified but are referred to as
repetitive stress injuries (RSI) or cumulative trauma disorders (CTD). These
suits seek compensatory damages and some seek punitive damages. It is more
likely than not that compensatory damages, if awarded, will be covered by
insurance, however the likelihood that punitive damages, if awarded, will be
covered by insurance is remote. The Florida, one New Jersey and the
Pennsylvania suits were removed from New York. A total of eight suits have been
dismissed from New York, California and Texas, the dismissal of one California
suit was recently reversed on appeal. The Company believes it has valid
defenses and will vigorously defend these claims. These claims are in the early
stages of discovery. Given the early stage of litigation, the complexity of the
litigation, the inherent uncertainty of litigation and the ultimate resolution
of insurance coverage issues, the range of reasonably possible losses in
connection with these suits is not estimable at this time. Therefore no
provision has been made to cover any future costs. Management's position will
change if warranted by facts and circumstances.
The Company's total accrual for litigation related matters, including
compensatory damages, and legal costs, was $2.3 million, $2.4 million and $2.5
million as of December 31, 1994, July 2, 1994 and January 1, 1994,
respectively.
4. LONG TERM OBLIGATIONS
On October 24, 1994 the Company entered into a secured financing agreement
with the CIT Group/Business Credit, Inc. (CIT). The agreement contains a $12
million term note and a revolving loan for up to $28 million. The agreement is
secured by the assets of the Company. This agreement replaces a $5.0 million
secured revolving credit agreement and a $20.9 million note payable to a
financial institution. At December 31, 1994 and July 2, 1994, the Company was
in compliance with all debt covenants and restrictions.
Details of this transaction are more fully reported on Form 8-K dated
October 31, 1994.
Long-term obligations consist of:
December 31, July 2,
1994 1994
------------ -------
(in thousands)
Note payable - CIT $ 12,000 $ 0
Revolving loan - CIT 14,733 0
Note payable - financial institution 0 22,000
Revolving line - financial institution 0 3,715
Note payable - Honeywell, Inc. 3,649 3,649
Deferred compensation obligation 676 698
Capital lease obligations 374 321
Installment contracts 3 34
------------ -------
31,435 30,417
Less current portion (2,609) (4,721)
------------ -------
$ 28,826 $25,696
============ =======
5. INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes," as of July 4, 1993. The
standard changes the method of accounting for income taxes to the asset and
liability method. The result of this accounting change, recorded cumulatively
in the first quarter of 1994, was to increase net earnings for the year ended
July 2, 1994, by $8,750,000 or $1.16 per primary common share. This change did
not have a material effect on the income tax provision recorded in 1994.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Second Quarter Ended
December 31, January 1,
1994 1994
------------ -----------
(in thousands)
Interest payments $ 521 $ 447
Income tax payments 0 0
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Company used cash flows of $.7 million in operating activities over the
first two quarters of fiscal 1995 versus $.5 million of cash provided by
operating activities during the same period of the prior year. During the first
two quarters of 1995, $2.9 million was expended in capital additions.
During the first two quarters of the prior year, $3.5 million was expended
in capital additions. The Company anticipates capital expenditures of
approximately $5.0 million through the remainder of the current fiscal year
ending July 1, 1995. Capital expenditures are expected to be financed with the
combination of internally generated funds, capital leases, and limited amounts
of secured indebtedness.
On October 24, 1994 the Company entered into a secured financing agreement
with The CIT Group/Business Credit, Inc. (CIT) (see note 4 to the financial
statements). The agreement contains covenants that relate to minimum net worth,
minimum working capital, income statement and balance sheet ratios and restricts
investments, disposition of assets, and payment of dividends. The agreement
contains a $12,000,000 term note and a revolving loan for up to $28,000,000.
The agreement is secured by the assets of the corporation. At December 31, 1994
and July 2, 1994, the Company was in compliance with all debt convenants and
restrictions.
The term note is payable in quarterly installments of principal, each in
the amount of $500,000, commencing in November 1995 and maturing in November
2001. This note bears interest at one and three quarters percent (1.75%) in
excess of the Chemical Bank Rate, which approximates prime (8.50% at December
31, 1994).
The revolving loan is renewable and covers an initial period of
approximately three years expiring on the first business day of November 1997.
This loan bears interest at one and one half percent (1.50%) in excess of the
Chemical Bank Rate, which approximates prime. Borrowings outstanding under this
agreement at December 31, 1994 amounted to $14,733,000.
This agreement replaces a $5.0 million secured revolving credit agreement
and $20.9 million note payable to a financial institution.
As a result of the acquisition of substantially all of the assets and
liabilities of the Honeywell Keyboard Division (HKD) (see note 1 to the
financial statements), the Company issued a $3.6 million note to Honeywell, Inc.
This note is payable in four installments of principal and interest on the last
business day of July and October of 1995 and January and April of 1996. This
note bears interest at the prime rate.
Real estate held for investment and sale is carried at net realizable value
based upon appraisals and management's intentions for sale or investment.
Management is actively marketing the properties through real estate brokers and
has obtained independent appraisals. The property is recorded at the lower of
cost or net realizable value.
During the first six months of fiscal year 1995 "other current assets" increased
by $1.7 million. This increase is due to approximately $300,000 for insurance
premium renewals, $550,000 for a workers compensation insurance deposit,
$200,000 for prepaid royalties, and $650,000 for reimbursable tooling costs
incurred.
During the first six months of fiscal year 1995 "other (non-current) assets"
increased by $1.1 million. This increase is due to refinancing charges
incurred. These charges will be amortized over the life of the financing
agreement.
The Company believes that cash, cash equivalents, funds available under the
line of credit, and internally generated funds can satisfy cash requirements for
a period in excess of 12 months.
NET SALES
Net sales for the fiscal 1995 second quarter, which ended December 31,
1994, were $48.7 million compared to $41.3 million for the second quarter of the
previous year. The increase in revenue is a result of additional revenue from
new customers and product lines. For the six months ended December 31, 1994,
sales were $94.2 million compared to $77.3 for the same period of the previous
year. The increase in revenue is a result of an increased revenue base realized
from the acquisition of HKD coupled with additional revenue from new customers
and product lines.
Keyboard shipments increased 19.8% over the second quarter from the prior year
while the average selling price declined approximately 4.3%. The increase in
units shipped is due primarily to the sale of new products. . For the six months
ended December 31, 1994, unit shipments increased 27.6% over the same period of
the prior year while the average selling price declined approximately 5.7%. The
increase in units shipped is due primarily to the addition of operations from
HKD, new customer sales, and the sale of new products. Non-keyboard revenue
accounted for 9.1% of total revenue in the second quarter versus 7.6% in the
second quarter of the prior year. For the six months ended December 31, 1994,
non-keyboard revenue accounted for 9.1% of total revenue versus 8.0% for the
same period of the prior year.
COST OF SALES
Cost of sales were 84.5% of revenue in the second quarter of 1995 compared
to 89.0% for the second quarter of 1994. The cost of sales percentage decreased
due to increased margins resulting from cost reductions, higher margins in new
products, and manufacturing efficiencies gained due to the redeployment of
production from the company's Cheney WA plant to other locations (details of
this transaction were more fully reported on Form 10-Q dated April 2, 1994).
Cost of sales were 85.2% of revenue for the six months ended December 31, 1994,
compared to 88.2% for the same period of the prior year. The cost of sales
percentage decreased due to increased margins resulting from cost reductions,
higher margins in new products, and manufacturing efficiencies gained due to the
redeployment of production from the company's Cheney WA plant to other
locations. This decrease in cost of sale percentage was also aided by a
favorable change in fixed cost absorption as a result of the increased volume in
units and dollars.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses were $1.5 million in the
second quarter of fiscal 1995 and $1.6 million for the same period of fiscal
1994. As a percentage of sales, R, D & E expenditures were 3.0% in the second
quarter of 1995 compared to 4.0% in the second quarter of 1994. As a percent of
revenue the decrease is due primarily to the increase in the revenue base.
Research, development and engineering expenses were $2.8 million for the six
months ended December 31, 1994 and $2.9 million for the same period of the prior
year. As a percentage of sales, R, D & E expenditures were 3.0% during this
period compared to 3.8% for the same period of the prior year. As a percent of
revenue the decrease is due primarily to the increase in the revenue base.
SELLING EXPENSES
Selling expenses were $1.4 million in the second quarter of 1995 compared
to $2.1 million in the second quarter of 1994. Selling expenses as a percentage
of revenue were 2.8% for the quarter compared to 5.2% in the same quarter of
fiscal 1994. Selling expenses decreased, both in dollars and as a percentage of
revenue, due to efficiencies gained upon combining with HKD operations and
decreased commissions. Commissions decreased due to the company's decision to
discontinue the use of outside sales representatives. Selling expenses were $2.6
million for the six months ended December 31, 1994 compared to $4.0 million for
the same period of the prior year. Selling expenses as a percentage of revenue
were 2.8% for the quarter compared to 5.2% in the same quarter of fiscal 1994.
Selling expenses decreased, both in dollars and as a percentage of revenue, due
to efficiencies gained upon combining with HKD operations and decreased
commissions. Commissions decreased due to the company's decision to discontinue
the use of outside sales representatives.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $2.6 million in the second quarter
of 1995 compared to $2.7 million in the second quarter of fiscal 1994. As a
percent of revenue G&A expenses were 5.4% in the second quarter compared to 6.5%
during the second quarter of the prior year. As a percent of revenue the
decrease is primarily due to the increased revenue base. General and
administrative expenses were $5.2 for the six months ended December 31, 1994
compared to $5.4 million for the same period of the prior year. As a percent of
revenue G&A expenses were 5.6% in the second quarter compared to 7.0% during the
second quarter of the prior year. As a percent of revenue the decrease is
primarily due to the increased revenue base.
INTEREST
Interest expense was $764,000 in the second quarter of 1995 compared to
$446,000 for the second quarter of 1994. For the six months ended December 31,
1994 interest expense was $1,434,000 compared to $781,000 for the same period
of the prior year. These increases are due to a combination of increased
borrowings and higher interest rates.
INCOME TAXES
Income taxes provision (benefit) was $473,000 and ($42,000) for the second
quarters of 1995 and 1994, respectively. In the second quarter of 1995 $48,000
of this provision and $35,000 of 1994's second quarter benefit relate to taxes
on earnings of foreign subsidiaries. The remaining $425,000 of the second
quarter 1995 provision relates to taxes on U.S. earnings. For the six months
ended December 31, 1994 income taxes provision was $679,000 compared to $29,000
for the same period of the prior year. $75,000 of this provision and $109,000
of the prior year provision relate to taxes on earnings of foreign subsidiaries.
The balance of the provision relates to taxes on U.S. earnings. The Company has
tax loss carryforwards of approximately $27.7 million which expire in varying
amounts in the years 2003 through 2009.
ESOP
No contributions to the Employee Stock Ownership Plan (ESOP) were made
during the first six months of fiscal years 1995 and 1994.
BACKLOG
The Company's backlog at the end of the second fiscal quarter of 1995 was
$32.1 million compared to $35.5 million at the end of the 1994 fiscal year and
$29.1 million at the end of the second quarter of fiscal 1994.
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Events
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
Exhibit 99 - Pro Forma Statement of Operations for the second
quarters ended December 31, 1994 and January 1, 1994
Notes to Pro Forma Financial Statements
(b) Reports on Form 8-K
Form 8-K dated October 31, 1994 reporting the secured financing
agreement with The CIT Group/Business Credit, Inc.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY TRONIC CORPORATION
----------------------- -----------
Thomas W. Cason Date
President &
Chief Operating Officer
----------------------- -----------
Ronald F. Klawitter Date
Principal Financial &
Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY TRONIC CORPORATION
/s/ Thomas W. Cason 5/19/95
----------------------- -----------
Thomas W. Cason Date
President &
Chief Operating Officer
/s/ Ronald F. Klawitter 5/19/95
----------------------- -----------
Ronald F. Klawitter Date
Principal Financial &
Accounting Officer
<TABLE>
<S><C>
Exhibit 11
KEY TRONIC CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited) SECOND QUARTER ENDED TWO QUARTERS ENDED
December 31, January 1, December 31, January 1,
1994 1994 1994 1994
------------ ----------- ---------- -----------
Primary
Earnings
Net Income NOT NOT NOT $4,806
Add after tax interest expense APPLICABLE APPLICABLE APPLICABLE
applicable to term debt * 252
Add after tax interest income
applicable to short term paper * 0
-----------
Income applicable to common stock $5,058
===========
Shares **
Weighted average shares outstanding 8,192
Assuming exercise of options reduced
by the number of shares which could
have been purchased with the proceeds
from exercise of such options * 1,052
-----------
Adjusted common stock outstanding 9,244
===========
Primary earnings per common share $0.55
===========
Assuming full dilution
Earnings
Net Income NOT NOT NOT $4,806
Add after tax interest expense APPLICABLE APPLICABLE APPLICABLE
applicable to term debt *** 260
Add after tax interest income
applicable to short term paper *** 0
-----------
Income applicable to common stock $5,066
===========
Shares **
Weighted average shares outstanding 8,192
Assuming exercise of options reduced
by the number of shares which could
have been purchased with the proceeds
from exericse of such options *** 1,052
-----------
Adjusted common stock outstanding 9,244
===========
Fully diluted earnings per common share $0.55
===========
ADDITIONAL FISCAL 1994 COMPUTATIONAL INFORMATION:
Net loss before cumulative effect of change
in accounting ($3,944)
Weighted average shares outstanding 8,192
Net loss per common share before cumulative
effect of change in accounting ($0.48)
* Proceeds calculated using average market price for the quarter.
** Application of modified treasury stock method of calculating common stock
equivalents due to potential dilution exceeding 20% (APB Opinion No. 15).
*** Proceeds calculated using higher of average or ending market price for the
quarter.
</TABLE>
<TABLE>
<S><C>
Exhibit 99
KEY TRONIC CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
For the two quarters ended December 31, 1994 and January 1, 1994
Two Quarters Ended
January 1, 1994 December 31, 1994
Honeywell
Keyboard Key Tronic Key Tronic
Division Corporation Combined Corporation
(in thousands, except per share amounts)
(unaudited)
Net sales $ 5,539 $ 77,332 $ 82,871 $ 94,184
Cost of sales 5,296 68,244 73,540 80,281
---------- ---------- ---------- ----------
Gross profit on sales 243 9,088 9,331 13,903
Operating Expenses:
Research, development and engineering 383 2,927 3,310 2,779
Selling 417 3,983 4,400 2,607
General and administrative 324 5,346 5,670 5,194
---------- ---------- ---------- ----------
Operating Income (Loss) (881) (3,168) (4,049) 3,323
Net Interest Income (Expense) & Other 46 (747) (701) (1,467)
---------- ---------- ---------- ----------
Income (Loss) before federal taxes on
income and cumulative effect of change
in accounting (835) (3,915) (4,750) 1,856
Provision (Benefit) for Income Taxes 0 29 29 679
---------- ---------- ---------- ----------
Earnings (Loss) before cumulative
effect of change in accounting (835) (3,944) (4,779) 1,177
Cumulative effect to July 4, 1993, of
change in accounting for income taxes 0 8,750 8,750 0
---------- ---------- ---------- ----------
Net Income (Loss) ($835) $ 4,806 $ 3,971 $ 1,177
========== ========== ========== ==========
Earnings (Loss) Per Share:
Before cumulative effect of change in
accounting N.A. ($0.48) ($0.58) N.A.
Net Income per weighted average share N.A. N.A. N.A. $0.14
Primary Earnings Per Common Share net of
cumulative effect of change in accounting N.A. $0.55 $0.45 N.A.
Fully Diluted Earnings Per Common Share
net of cumulative effect of change in
accounting N.A. $0.55 $0.46 N.A.
Weighted Average Shares Outstanding N.A. N.A. N.A. 8,294
Primary Shares Outstanding N.A. 9,244 9,290 N.A.
Fully Diluted Shares Outstanding N.A. 9,244 9,290 N.A.
</TABLE>
See accompanying notes to pro forma finanical statements
Exhibit 99
NOTES TO PRO FORMA FINANCIAL STATEMENTS
NOTE 1 - General
The objective of the Pro Forma Statement of Operations is to show what the
significant effects on the historical financial information might have been had
the Company acquired the Keyboard Division of Honeywell, Inc. on July 5, 1992.
The amounts are based upon certain assumptions and estimates which Key Tronic
Corporation believes are reasonable.
NOTE 2 - Pro Forma Statement of Operations
As required by APB Opinion No. 16, pro forma information on results of
operations is presented for the years ended July 2, 1994 and July 3, 1993. The
results of operations is being reported as if the companies had combined at the
beginning of each respective fiscal year.
For year July 3, 1993 the information reported is actual results of
operations for both companies. Adjustments to the Pro Forma Statement of
Operations primarily give effect to the elimination of corporate allocations
from Honeywell, Inc., the recognition of interest expense on the acquisition
debt, and the effect on per share earnings as a result of the additional shares
issued in the acquisition. The corporate allocations were predominately charged
as a percentage of division revenues for general corporate overhead and do not
represent specific costs incurred on behalf of the division.
For the year ended July 2, 1994 the information reported is one month of
results of operations for the Honeywell Keyboard Division and the actual results
of operations for Key Tronic Corporation, as Key Tronic Corporation's actual
results include eleven months of operations of the former Honeywell Keyboard
Division.
NOTE 3 - Allocations
Corporate allocations for services provided by Honeywell headquarters for
the Keyboard Division were eliminated. These services were for payroll
processing, employee benefit administration, treasury and banking services and
in-house legal services. Key Tronic already performs these functions and does
not anticipate increased costs in these areas.
The following pro forma information represents the results of operations of
the Company and HKD for the years ended July 2, 1994 and July 3, 1993, on an
individual as well as combined basis. The pro forma results do not necessarily
indicate the actual results that would have been obtained, nor are they
necessarily indicative of the future operations of the combined companies. The
unaudited pro forma results of operations were as follows:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Key
Tronic Corporation 2nd Quarter Form 10-Q/A for 1995 and is qualified in its
entirety by reference to such Form 10-Q/A.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-01-1995
<PERIOD-END> DEC-31-1994
<CASH> 2417
<SECURITIES> 0
<RECEIVABLES> 28291
<ALLOWANCES> (1225)
<INVENTORY> 24874
<CURRENT-ASSETS> 62869
<PP&E> 84912
<DEPRECIATION> 51597
<TOTAL-ASSETS> 104787
<CURRENT-LIABILITIES> 29305
<BONDS> 0
<COMMON> 36693
0
0
<OTHER-SE> 9963
<TOTAL-LIABILITY-AND-EQUITY> 104787
<SALES> 48748
<TOTAL-REVENUES> 48748
<CGS> 41188
<TOTAL-COSTS> 41188
<OTHER-EXPENSES> 5313
<LOSS-PROVISION> 161
<INTEREST-EXPENSE> 764
<INCOME-PRETAX> 1322
<INCOME-TAX> 473
<INCOME-CONTINUING> 849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 849
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
