SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 27, 1997 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 October 9, 1997, 9,630,830 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:
Consolidated Balance Sheets - September 27, 1997
(Unaudited)and June 28, 1997 (Audited) 3-4
Consolidated Statements of Income (Unaudited)
First Quarters Ended September 27, 1997
and September 28, 1996 5
Consolidated Statements of Cash Flows (Unaudited)
First Quarters Ended September 27, 1997
and September 28, 1996 6
Notes to Consolidated Financial Statements (Unaudited) 7-10
Item 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations 11-16
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Events 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 27, June 28,
1997 1997
- ------------------------------------------------------------------------------------
(Unaudited) (Audited)
(in thousands)
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ASSETS
Current Assets:
Cash and cash equivalents $ 1,855 $ 2,812
Trade receivables, less allowance for doubtful
accounts of $905 and $905 26,155 26,989
Inventories 21,156 21,481
Real estate held for sale 2,243 2,243
Deferred income tax asset - current 1,320 1,444
Customer tooling 4,584 3,016
Other 1,950 3,860
------ ------
Total current assets 59,263 61,845
------ ------
Property, Plant and Equipment - at cost 99,463 97,155
Less accumulated depreciation 67,447 65,135
------ ------
Total property, plant and equipment 32,016 32,020
------ ------
Other Assets:
Deferred income tax asset, net 4,081 3,857
Other, (net of accumulated amortization
of $122 and $81) 1,048 1,030
Goodwill (net of accumulated amortization 1,371 1,403
of $415 and $383) ------ ------
$97,779 $100,155
======= ========
See accompanying notes to consolidated financial statements.
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KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
September 27, June 28,
1997 1997
- ------------------------------------------------------------------------------------
(Unaudited) (Audited)
(in thousands)
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations $ 1,615 $ 1,379
Accounts payable 15,988 14,319
Accrued compensation and vacation 2,921 3,033
Accrued taxes other than income taxes 1,435 1,142
Interest payable 135 166
Other 3,247 3,289
------ ------
Total current liabilities 25,341 23,328
------ ------
Long-term Obligations, less current portion 22,514 27,010
------ ------
Commitments and Contingencies (Note 2)
Shareholders' Equity:
Common stock, no par value, authorized
25,000 shares; issued and outstanding
9,611 and 9,611 shares 38,165 38,165
Retained earnings 11,371 11,228
Foreign currency translation adjustment 388 424
------ ------
Total shareholders' equity 49,924 49,817
------ ------
$97,779 $100,155
======= ========
See accompanying notes to consolidated financial statements.
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KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
First Quarter Ended
September 27, September 28,
- ------------------------------------------------------------------------------------
(in thousands, except per share amounts)
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Net Sales $40,257 $45,337
Cost of sales (including warranty
provision of $608 and $427) 34,554 38,558
------ ------
Gross Profit on Sales 5,703 6,779
Operating Expenses:
Research, development and engineering 884 1,575
Selling 1,973 1,750
General and administrative 2,095 2,530
------ ------
Operating Income 751 924
------ ------
Interest Expense 531 672
Other income (18) (50)
------ ------
Earnings before federal taxes on income 238 302
------ ------
Income Tax Provision 95 95
------ ------
Net Income $143 $207
======= =======
Earnings Per Share
Primary Earnings Per Common Share $0.01 $ 0.02
Fully Diluted Earnings Per Common Share $0.01 $ 0.02
Primary Shares Outstanding 9,611 9,422
Fully Diluted Shares Outstanding 9,611 9,598
See accompanying notes to consolidated financial statements.
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KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
First Quarter Ended
September 27, September 28,
1997 1996
- ------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Increase (decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Net income $ 143 $ 207
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Depreciation and amortization 2,405 2,068
Provision for obsolete inventory 470 100
Provision for doubtful receivables 0 25
Provision for warranty 608 427
Gain on disposal of property and equipment 0 (11)
Deferred income tax asset (100) (105)
Changes in Operating Assets and Liabilities:
Trade receivables 834 (4,901)
Inventories 25 151
Other assets 149 (174)
Accounts payable 1,669 676
Employee compensation and accrued vacation (112) 77
Other liabilities (388) (2,154)
------ ------
Cash provided (used) by operating activities 5,703 (3,614)
------ ------
Cash Flows from Investing Activities:
Proceeds from sale of property and equip. 0 20
Purchase of property and equipment (2,328) (1,984)
------ ------
Cash used in investing activities (2,328) (1,964)
------ ------
Cash Flows from Financing Activities:
Other financing fees (36) (50)
Issuance of common stock 0 27
Proceeds from long-term obligations 0 5,036
Payments on long-term obligations (4,260) 0
------ ------
Cash used in financing activities (4,296) (5,013)
------ ------
Effect of exchange rate changes on cash (36) 8
------ ------
Net decrease in cash and cash equivalents (957) (557)
Cash and cash equivalents, beginning of year 2,812 2,569
------ ------
Cash and cash equivalents, end of quarter $1,855 $2,012
====== ======
See accompanying notes to consolidated financial statements.
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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. 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 June 28,
1997.
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1. INVENTORIES
September 27, June 28,
1997 1997
- ------------------------------------------------------------------------------------
(Unaudited) (Audited)
(in thousands)
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Finished goods $10,320 $9,119
Work-in-process 1,914 2,053
Raw materials and supplies 10,757 13,247
Reserve for obsolescence (1,835) (2,938)
------ ------
$21,156 $21,481
======= =======
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2. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The amount of firm commitments to contractors and suppliers for capital
expenditures was approximately $1,507,000 at September 27, 1997.
In September of 1997, the Company signed a five year operating lease with
a local company for real estate held for sale in Cheney, Washington. The lease
terms include an option to buy the property upon notice at any time during the
course of the lease.
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 5 year performance monitoring program
commenced in the Spring of 1995. 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 PRPs and PLPs. 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. At the end of the first fiscal quarter of 1998
and at fiscal year end 1997, 1996 and 1995, respectively, the accrued balance
for probable legal costs was $900,000. 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 PRPs and PLPs , 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 PRPs and PLPs, 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 two
years after the closing date relating to environmental matters and five years
after the closing date with respect 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. 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 probable at this time. No
environmental claims have been asserted as of the end of the first quarter of
fiscal 1998. 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 currently has ninety-three suits by computer keyboard users
which are in State or Federal Courts in Connecticut, Illinois, New Jersey, New
York, Pennsylvania and Texas. 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. A total of fifty-three suits have been dismissed in California,
Florida, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Michigan, New
Jersey, New York, Pennsylvania and Texas. Six of the fifty-three dismissed
suits are on appeal, all in New York. 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 $.9 million as of September 27, 1997,
June 28, 1997, and September 28, 1996.
Between 1975 and 1980, the Company deposited certain waste material at the
Colbert area landfill. The area landfill was put on the National Priority List
and the Company was named in suits brought upon by Colbert area landowners. The
Company settled all suits with the landowners and contributed to remediation at
the landfill. The Company subsequently filed suits against the insurance
companies to recover legal costs associated therewith and for reimbursement of
payments to landowners. Settlements have been reached with all of the insurers
(see Note 10 in the Company's Form 10-K Report filed September 23, 1997).
3. LONG-TERM OBLIGATIONS
On December 31, 1996, the Company entered into a secured financing
agreement with General Electric Capital Corporation (GECC). The agreement
contains an $11 million term note and a revolving loan for up to $30 million.
The agreement is secured by the assets of the Company. This agreement replaced
a secured revolving credit agreement for up to $28 million and a note payable
for up to $12 million to CIT Group/Business Credit, Inc. (CIT) which was entered
into on October 24, 1994. At September 27, 1997, the Company was in compliance
with all debt covenants and restrictions.
Details of the GECC agreement are more fully reported on Form 8-K dated
January 14, 1997.
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Long-term obligations consist of:
September 27, June 28,
1997 1997
- ------------------------------------------------------------------------------------
(in thousands)
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Note Payable - GECC $10,500 $10,750
Revolving Line 12,101 16,095
Litigation Reserve 900 900
Deferred compensation obligation 618 618
Capital lease obligations 10 26
------ ------
24,129 28,389
Less current portion (1,615) (1,379)
------ ------
$22,514 $27,010
======= =======
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4. SUPPLEMENTAL CASH FLOW INFORMATION
First Quarter Ended
September 27, September 28,
1997 1996
- ------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Interest payments $562 $757
Income tax payments 0 0
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Operating activities provided $5.7 million of cash during the first quarter
of fiscal 1998 versus $3.6 million of cash used in operating activities during
the same period of the prior year.
During the first quarter of 1998, $2.3 million was expended in capital
additions, which was a slight increase over the $2.0 million expended for
capital additions during the first quarter of 1997. The Company anticipates
capital expenditures of approximately $5.7 million through the remainder of the
current fiscal year ending June 27, 1998. Actual capital expenditures may vary
from anticipated expenditures depending upon future results of operations. See
RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS, pages 14-15. Capital
expenditures are expected to be financed with the combination of internally
generated funds and operating leases.
The Company has a secured financing agreement which contains an $11,000,000
term note and a revolving loan for up to $30,000,000. The agreement is secured
by the assets of the corporation. The agreement contains financial covenants
that relate to maximum capital expenditures, minimum debt service coverage,
minimum earnings before interest expense, income tax, depreciation, and
amortization, and maximum leverage percentages. In addition to these financial
covenants, the financing agreement restricts investments, disposition of assets,
and payment of dividends. At September 27, 1997 and June 28, 1997, the Company
was in compliance with all debt covenants.
The term note is payable in quarterly installments of principal, each in
the amount of $250,000, commencing in March 1997 and ending in December 1997.
Thereafter, the quarterly installment payments of principal will be $500,000
commencing in March 1998 and maturing in December 2002. If debt service coverage
is greater than 1.4, this note bears interest at one and three-quarters percent
(1.75%) in excess of the applicable London Interbank Offered Rate (LIBOR). If
debt service coverage is less than or equal to 1.4, this note bears interest at
two percent (2.00%) in excess of the applicable LIBOR rate. At September 27,
1997, the applicable LIBOR rate was 5.6563%, and the applicable interest rate
was 7.6563%.
The revolving loan with GECC is renewable and covers an initial period of
five years expiring on December 31, 2001. If debt service coverage is greater
than 1.4, the applicable interest rate is one and one-half percent (1.5%) in
excess of the applicable LIBOR rate. If debt service coverage is less than or
equal to 1.4, the applicable interest rate is one and three-quarters percent
(1.75%) in excess of the applicable LIBOR rate. At September 27, 1997, the
applicable LIBOR rate was 5.6563%, and the applicable interest rate was 7.4063%.
At September 27, 1997, there was $12.1 million borrowed on the revolving loan
and approximately $6.5 million available for use under the revolving loan. The
Company is required to pay fees on the unused revolving loan balance.
The revolving loan balance decreased $4.0 million over the first quarter
due mainly to increased controls on outgoing cash along with increased payments
from the Company's subsidiary in Ireland coupled with the Company's success in
exceeding collection goals thus making additional cash available to pay down the
revolving loan.
Real estate held for sale is carried at the lower of cost or net realizable
value. In September of 1997, the Company signed a five year operating lease
with a local company for this property. The lease terms include an option to
buy the property upon notice at any time during the course of the lease.
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 1998 first quarter, which ended September 27,
1997, were $40.3 million compared to $45.3 million for the first quarter of the
previous year. The decrease in revenue is a result of decreased sales to
existing customers.
Keyboard shipments decreased 4.0% from the first quarter of the prior year
while the average selling price decreased approximately 10.3%. The decrease in
units shipped is due primarily to decreased customer orders. The decrease in
average selling price is due primarily to the sale of new lower cost, lower
margin products. Non-keyboard revenue accounted for 22.9% of total revenue in
the first quarter versus 20.4% in the first quarter of the prior year.
COST OF SALES
Cost of sales were 85.8% of revenue in the first quarter of 1998 compared
to 85.0% for the first quarter of 1997. The cost of sales percentage increased
as a result of lower sales prices and lower level sales volume. The Company
continues to emphasize cost reductions whenever feasible by increasing
manufacturing activity in its Juarez, Mexico facility. The facility in Juarez
was expanded during fiscal 1997 to increase available manufacturing and molding
capacity.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses were $.9 million in the
first quarter of fiscal 1998 and $1.6 million for the same period of fiscal
1997. As a percentage of sales, R, D & E expenditures were 2.2% in the first
quarter of 1998 compared to 3.5% in the first quarter of 1997. The decrease in
spending is primarily due to increased recovery of engineering design costs
which are reflected in gross profit on sales.
SELLING EXPENSES
Selling expenses were $2.0 million in the first quarter of 1998 compared to
$1.8 million in the first quarter of 1997. Selling expenses as a percentage of
revenue were 4.9% for the quarter compared to 3.9% in the same quarter of fiscal
1997. Selling expenses increased in dollars due primarily to an aggressive
retail marketing plan that includes additional sales people and various customer
incentive programs related to sales volume. As a percentage of revenue, selling
expenses increased due to a combination of the decrease in revenue and the
increase in expenses as previously stated.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $2.1 million in the first quarter
of 1998 compared to $2.5 million in the first quarter of fiscal 1997. As a
percent of revenue G&A expenses were 5.2% in the first quarter compared to 5.6%
during the first quarter of the prior year. As a percent of revenue the
decrease is primarily due to the decreased spending previously noted. The
decrease in dollar spending is primarily due to decreased hiring costs and an
insurance premium refund in the current quarter.
INTEREST
Interest expense was $531,000 in the first quarter of 1998 compared to
$672,000 for the first quarter of 1997. This decrease is due to lower interest
rates as a result of the debt refinancing and additional payments of the GECC
term note as well as tighter cash controls making additional cash available to
pay down the revolving line of credit.
INCOME TAXES
Income taxes provision was $95,000 for the first quarters of 1998 and 1997.
In the first quarter of 1998, $146,000 of this provision and $67,000 of 1997's
first quarter provision relate to taxes on earnings of foreign subsidiaries.
The remaining ($51,000) of the first quarter 1998 provision relates to tax
benefits on U.S. earnings. The Company has tax loss carryforwards of
approximately $27.2 million which expire in varying amounts in the years 2003
through 2010.
ESOP
No contributions to the Employee Stock Ownership Plan (ESOP) were made
during the first quarter of fiscal years 1998 and 1997.
BACKLOG
The Company's backlog at the end of the first fiscal quarter of 1998 was
$15.9 million compared to $18.4 million at the end of the 1997 fiscal year and
$27.7 million at the end of the first quarter of fiscal 1997. The decrease in
the backlog from fiscal year end is attributable primarily to a major OEM
customer expanding its Just-In-Time (JIT) inventory system, so that orders are
not placed in advance but are pulled from a stock location maintained by Key
Tronic Corporation.
RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS
The following risks and uncertainties could affect the Company's actual
results and could cause results to differ materially from past results or those
contemplated by the Company's forward-looking statements. When used herein, the
words "expects", "believes", "anticipates" and similar expressions are intended
to identify forward-looking statements.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS The Company's quarterly operating
results have varied in the past and may vary in the future due to a variety of
factors, including changes in overall demand for computer products, success of
customers' programs, timing of new programs, new product introductions or
technological advances by the Company, its customers and its competitors and
changes in pricing policies by the Company, its customers and its competitors.
For example, the Company relies on customers' forecasts to plan its business.
If those forecasts are overly optimistic, the Company's revenues and profits may
fall short of expectations. Conversely, if those forecasts are too
conservative, the Company could have an unexpected increase in revenues and
profits.
COMPETITION The keyboard and other input device industry is intensely
competitive. Most of the Company's principal competitors are headquartered in
Asian countries that have a low cost labor force. Those competitors may be able
to offer customers lower prices on certain high volume programs. This could
result in price reductions, reduced margins and loss of market share, all of
which would materially and adversely affect the Company's business, operating
results and financial condition. In addition, competitors can copy the
Company's non-proprietary designs after the Company has invested in development
of products for customers, thereby enabling such competitors to offer lower
prices on such products due to savings in development costs.
CONCENTRATION OF MAJOR CUSTOMERS At present, the Company's customer base is
highly concentrated, and there can be no assurance that its customer base will
not become more concentrated. Three of the Company's OEM customers accounted
for 34%, 7% and 11% individually, of net sales during fiscal 1997. In 1996,
these same customers accounted for 34%, 17% and 0% of the Company's net sales.
There can be no assurance that the Company's principal customers will continue
to purchase products from the Company at current levels. Moreover, the Company
typically does not enter into long-term volume purchase contracts with its
customers, and the Company's customers have certain rights to extend or delay
the shipment of their orders. The loss of one or more of the Company's major
customers or the reduction, delay or cancellation of orders from such customers
could materially and adversely affect the Company's business, operating results
and financial condition.
DEPENDENCE ON KEY PERSONNEL The Company's future success depends in large part
on the continued service of its key technical, marketing and management
personnel and on its ability to continue to attract and retain qualified
employees. The competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. The loss of key employees could have a material adverse effect on
the Company's business, operating results and financial condition.
LITIGATION The Company currently is a party to ninety-three lawsuits brought by
computer keyboard users in state and federal courts. These lawsuits allege that
specific keyboard products manufactured by the Company were sold with
manufacturing, design and warning defects which caused or contributed to the
claimants' alleged injuries, generally referred to as repetitive stress injuries
(RSI) or cumulative trauma disorders (CTD). The Company believes it has valid
defenses to these claims, and it will vigorously defend them. These lawsuits
are in the early stages of discovery. At this time, management believes that it
is not likely that the ultimate outcome of these lawsuits will have a material
adverse effect on the Company's financial position. However, given the limited
information currently available, the complexity of the litigation, the inherent
uncertainty of litigation and the ultimate resolution of insurance coverage
issues, management's position will change if warranted by facts and
circumstances.
TECHNOLOGICAL CHANGE AND NEW PRODUCT RISK The market for the Company's products
is characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and relatively short product life cycles.
The introduction of products embodying new technologies or the emergence of new
industry standards can render existing products obsolete or unmarketable. The
Company's success will depend upon its ability to enhance its existing products
and to develop and introduce, on a timely and cost-effective basis, new products
that keep pace with technological developments and emerging industry standards
and address evolving and increasingly sophisticated customer requirements.
Failure to do so could substantially harm the Company's competitive position.
There can be no assurance that the Company will be successful in identifying,
developing, manufacturing and marketing products that respond to technological
change, emerging industry standards or evolving customer requirements.
DILUTION AND STOCK PRICE VOLATILITY As of September 27, 1997, there were
outstanding options and warrants for the purchase of approximately 1,400,000
shares of common stock of the Company ("Common Stock"), of which options and
warrants for approximately 900,000 shares were vested and exercisable. Holders
of the Common Stock will suffer immediate and substantial dilution to the extent
outstanding options and warrants to purchase the Common Stock are exercised. The
stock price of the Company may be subject to wide fluctuations and possible
rapid increases or declines over a short time period. These fluctuations may be
due to factors specific to the Company such as variations in quarterly operating
results or changes in analysts' earnings estimates, or to factors relating to
the computer industry or to the securities markets in general, which, in recent
years, have experienced significant price fluctuations. These fluctuations
often have been unrelated to the operating performance of the specific companies
whose stocks are traded.
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
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
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/ Jack W. Oehlke _____________
Jack W. Oehlke Date:
(Director, President and
Chief Executive Officer)
/s/ Ronald F. Klawitter _____________
Ronald F. Klawitter Date:
Principal Financial Officer
/s/ Keith D. Cripe _____________
Keith D. Cripe Date:
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> SEP-27-1997
<CASH> 1855
<SECURITIES> 0
<RECEIVABLES> 27060
<ALLOWANCES> 905
<INVENTORY> 21156
<CURRENT-ASSETS> 59263
<PP&E> 99463
<DEPRECIATION> 67447
<TOTAL-ASSETS> 97779
<CURRENT-LIABILITIES> 25341
<BONDS> 0
0
0
<COMMON> 38165
<OTHER-SE> 11759
<TOTAL-LIABILITY-AND-EQUITY> 97779
<SALES> 40257
<TOTAL-REVENUES> 40257
<CGS> 34554
<TOTAL-COSTS> 34554
<OTHER-EXPENSES> 4934
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 531
<INCOME-PRETAX> 238
<INCOME-TAX> 95
<INCOME-CONTINUING> 143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
