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 October 2, 1999 Commission File Number
Number 0-11559
KEY TRONIC CORPORATION
Washington 91-0849125
(State of Incorporation) (I.R.S. Employer
Identification Number)
---------------------
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 4, 1999, 9,634,830 shares of Common Stock, no par value (the
only class of common stock), were outstanding.
<PAGE>
KEY TRONIC CORPORATION
Index
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets - October 2, 1999 (Unaudited)
and July 3, 1999 3-4
Consolidated Statements of Income (Unaudited)
First Quarters Ended October 2, 1999 and September 26, 1998 5
Consolidated Statements of Cash Flows (Unaudited)
First Quarters Ended October 2, 1999 and September 26, 1998 6
Notes to Consolidated Financial Statements (Unaudited) 7-8
Item 2. Management's Discussion and Analysis of the Financial
Condition and Results of Operations 8-12
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Events 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
<PAGE>
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
October 2, July 3,
1999 1999
- ----------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,599 $1,866
Trade receivables, less allowance for
doubtful Accounts of $551 and $542 34,295 31,285
Inventories 26,217 24,896
Real estate held for sale 1,952 1,988
Deferred income tax asset - current, 710 1,033
net
Customer tooling 2,698 2,449
Other 5,808 6,720
- ----------------------------------------------------------------------
Total current assets $73,279 70,237
Property, plant and equipment - at 102,378 102,681
cost Less accumulated depreciation 78,994 78,159
- ----------------------------------------------------------------------
Total property, plant and 23,384 24,522
equipment
Other assets:
Deferred income tax asset, net 3,645 3,604
Other (net of accumulated
amortization of $645 and $540) 1,385 1,436
Goodwill (net of accumulated
amortization of $671 and $639) 1,116 1,148
- ----------------------------------------------------------------------
$102,809 $100,947
======================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued, in thousands)
October 2, July 3,
1999 1999
- ----------------------------------------------------------------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
obligations $2,379 $2,105
Accounts payable 17,730 18,720
Accrued compensation and vacation 2,583 3,269
Accrued taxes other than income taxes 1,023 1,099
Interest payable 41 27
Other 2,386 3,227
- ----------------------------------------------------------------------
Total current liabilities 26,142 28,447
Long-term obligations, less current 24,540 20,596
portion
Commitments and contingencies (Note 2)
Shareholders' equity:
Common stock, no par value,
authorized 25,000 shares;
issued and outstanding
9,635 and 9,631 shares 38,286 38,273
Retained earnings 13,596 13,386
Accumulated other comprehensive
income 245 245
- ----------------------------------------------------------------------
Total shareholders' equity 52,127 51,904
$102,809 $100,947
======================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
First Quarters Ended
October 2, September 26,
1999 1998
- -------------------------------------------------------------------------
(in thousands, except per share amounts)
Net sales $41,775 $42,304
Cost of sales 35,807 35,308
- -------------------------------------------------------------------------
Gross profit on sales 5,968 6,996
Operating expenses:
Research, development and engineering 880 1,494
Selling 2,183 2,191
General and administrative 2,243 2,068
- -------------------------------------------------------------------------
Operating income 662 1,243
Interest expense 495 528
Other income (118) (56)
- -------------------------------------------------------------------------
Earnings before income tax provision 285 771
Income tax provision 75 278
Net income $210 $493
=========================================================================
Earnings per share:
Earnings per common share - basic $0.02 $0.05
Earnings per common share - diluted $0.02 $0.05
Weighted average shares outstanding 9,633 9,631
Diluted shares outstanding 9,935 9,631
See accompanying notes to consolidated financial statements.
<PAGE>
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
First Quarters Ended
October 2, September 26,
1999 1998
(in thousands)
Increase (decrease) in cash and cash
equivalents:
Cash flows from operating activities:
Net income $210 $493
Adjustments to reconcile net income to
Cash provided by operating activities:
Depreciation and amortization 1,678 1,947
Provision for obsolete inventory (210) 575
Provision for doubtful receivables 25 78
Provision for warranty (50) 328
Gain on disposal of property and (25) 0
equipment
Deferred income tax asset 282 123
Changes in operating assets and
liabilities:
Trade receivables (3,036) (3,238)
Inventories (1,111) 111
Customer tooling (249) 1,864
Other assets 921 (1,061)
Accounts payable (990) 623
Employee compensation and accrued
vacation (686) (464)
Other liabilities (854) 372
- -------------------------------------------------------------------------
Cash provided (used) by operating
activities (4,095) 1,751
Cash flows from investing activities:
Proceeds from sale of property and
equip. 33 0
Purchase of property and equipment (437) (374)
- -------------------------------------------------------------------------
Cash used in investing activities (404) (374)
Cash flows from financing activities:
Proceeds from issuance of common stock 13 0
Proceeds from long-term obligations 4,782 0
Payments on long-term obligations (563) (1,497)
- -------------------------------------------------------------------------
Cash provided (used) by financing 4,232 (1,497)
activities
Net decrease in cash and cash
equivalents (267) (120)
Cash and cash equivalents, beginning of
period 1,866 288
- -------------------------------------------------------------------------
Cash and cash equivalents, end of
period $1,599 $168
=========================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
KEY TRONIC CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments of a normal and recurring nature 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 July 3, 1999.
1. INVENTORIES
Components of inventories were as follows:
October 2, July 3,
1999 1999
- -------------------------------------------------------------------------
(in thousands)
Finished goods $10,872 $13,008
Work-in-process 2,853 2,134
Raw materials and supplies 15,316 12,820
Reserve for obsolescence (2,824) (3,066)
- -------------------------------------------------------------------------
$26,217 $24,896
=========================================================================
2. COMMITMENTS
The amount of firm commitments to contractors and suppliers for capital
expenditures was approximately $565,000 at October 2, 1999.
3. LONG-TERM OBLIGATIONS
Long-term obligations consist of:
October 2, July 3,
1999 1999
- -------------------------------------------------------------------------
(in thousands)
Note payable _ GECC $4,996 $5,559
Revolving line 20,781 16,524
Other 524 0
Deferred compensation obligation 618 618
- -------------------------------------------------------------------------
$26,919 $22,701
Less current portion (2,379) (2,105)
- -------------------------------------------------------------------------
$24,540 $20,596
- -------------------------------------------------------------------------
4. SUPPLEMENTAL CASH FLOW INFORMATION
First Quarter Ended
- -------------------------------------------------------------------------
October 2, September 26, 1998
1999
(in thousands)
Interest payments $481 $532
Income tax payments 57 175
<PAGE>
5. INCOME TAXES
The income tax provisions were $75,000 for the first quarter of fiscal 2000 and
$278,000 for the first fiscal quarter of 1999. $207,000 of benefit contained in
the fiscal 2000 provision relates to losses of foreign subsidiaries. $132,000
of expenses in the fiscal 1999 provision relates to taxes on earnings. The
Company has tax loss carryforwards of approximately $26.7 million that expire
in varying amounts in the years 2006 through 2019.
6. ADOPTION OF FINANCIAL ACCOUNTING STANDARDS NO. 128
Financial Accounting Standards No. 128 requires the presentation of "basic EPS"
and "diluted EPS." The objective of basic EPS is to measure the performance of
an entity over the reporting period. Basic EPS is computed by dividing income
available to common shareholders (the numerator) by the weighted-average number
of common shares outstanding (the denominator) during the period. Diluted EPS
is computed by dividing income available to common shareholders by the weighted-
average number of common shares and common share equivalents outstanding during
the period. Key Tronic uses the treasury stock method in calculating the
dilutive effect of common stock equivalents.
There are no adjustments to the income available to common shareholders for the
first quarters ended October 2, 1999 and September 26, 1998. The following
table presents the Company's calculations of weighted average shares (number of
shares):
Adjustments For
For The Quarters Weighted Avg. Potential Common Total
Ended: Shares Shares
- -------------------------------------------------------------------------
October 2, 1999 9,634,830 301,817 9,935,047
September 26, 1998 9,630,830 0 9,630,830
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements in addition to
historical information. Forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those reflected in the forward-looking statements. Risks and uncertainties that
might cause such differences include, but are not limited to those outlined in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Risks and Uncertainties that May Affect Future Results." Readers are
cautioned not to place undue reliance on forward-looking statements, which
reflect management's opinions only as of the date hereof. The Company
undertakes no obligation to revise or publicly release the results of any
revision to forward-looking statements. Readers should carefully review the
risk factors described in other documents the Company files from time to time
with the Securities and Exchange Commission, including Quarterly Reports on Form
10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Operating activities used $4.1 million of cash during the first quarter of
fiscal 2000 versus $1.8 million of cash provided by operating activities during
the same period of the prior year. This change in available cash is due
primarily to increased inventories to support anticipated sales that did not
materialize in the quarter and decreased accounts payable.
During the first quarters of fiscal 1999 and 2000, $0.4 million was spent in
capital additions each quarter. The Company anticipates capital expenditures of
approximately $4.1 million through the remainder of the current fiscal year
ending July 1, 2000. Actual capital expenditures may vary from anticipated
expenditures depending upon future results of operations. See RISKS AND
UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS, pages 11-12. Capital expenditures
are expected to be financed with internally generated funds.
On December 31, 1996, the Company entered into a secured financing agreement
with General Electric Capital Corporation (GECC). This agreement contains a
term note for up to $11 million and a revolving loan for up to $30 million.
During the second quarter of fiscal year 1998, the Company entered into an
operating lease agreement with GECC, which reduced the borrowing limit on the
revolving loan by $4.2 million. The revolving loan agreement and the term note
<PAGE>
are secured by the assets of the Company. 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 October 2, 1999 and July 3, 1999, the
Company was in compliance with all debt covenants.
The term note is payable in quarterly installments of principal, each in the
amount of $500,000 commencing in March 1998 and maturing in December 2002. In
addition to these scheduled payments, the Company is also paying $21,000 per
month against the term note to GECC under a separate agreement with GECC
resulting from the Company's lease of its Cheney facility. 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
October 2, 1999, the applicable LIBOR rate was 5.38%, and the applicable
interest rate was 7.13%.
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 October 2, 1999, the applicable LIBOR
rate was 5.38%, and the applicable interest rate was 6.88%. At October 2, 1999,
approximately $5.0 million was available for use under the revolving loan. The
Company is required to pay fees of three and three-quarters of one percent
(.375%) on the unused revolving loan balance.
The revolving loan balance has increased $4.2 million since the Company's
fiscal year end at July 3, 1999. This increase can be attributed primarily to
increased inventories and accounts receivable and decreased accounts payable.
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.
YEAR 2000 MATTERS
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000.
The Company has an internal committee made up of representatives from seven
strategic areas that have been dedicated to the Year 2000 issue, and the
committee met on a regular basis to discuss the Company's progress on any
remaining projects that were considered potential problem areas. The Company
started its Y2000 readiness program in 1993 with the upgrade of its business
systems. Total budgeted cost associated with this upgrade was $500,000 and this
project was completed as scheduled in 1993. Other costs associated with
upgrades of PC's and other communication equipment, security systems, software,
facilities, and equipment was budgeted at less than $1.5 million. The costs
have been expensed as incurred over fiscal years 2000, 1999, 1998 and 1997. The
committee, at this time, has determined that its readiness programs are
virtually complete.
The Company contacted all suppliers by survey regarding their year 2000
readiness several months ago. All suppliers responded to the survey, but not
all of the responses were sufficient to confirm their readiness, so the
committee requested test data from some of the Company's suppliers and has
reviewed some of the Company's more critical suppliers in order to confirm their
compliance. The Company has also communicated with its banks and other external
agencies that provide critical services to the company. Assurances and
documentation have been received to indicate full compliance. Production and
test equipment as well as production facilities have been evaluated for
compliance and, at this time, are considered to be compliant. These statistics
include the Company's foreign subsidiaries. Any embedded systems have been
identified and remediated as a part of the production facilities evaluation.
The Company believes that completed modifications and conversions of its
internal systems and equipment allow it to be Year 2000 compliant. The Company
can give no guarantee that the systems of other companies on which the Company's
systems rely will be converted on time or a failure to convert by another
company or a conversion that is incompatible with the Company's systems would
not have a material adverse effect on the Company. There can also be no
<PAGE>
assurance that contingency plans will mitigate the effects of any non-
compliance. It is believed that the most reasonably likely worst case scenario
for Year 2000 non-compliance to the Company will be that the supply of goods and
services by third parties to the Company would be interrupted or delayed
resulting in interruption or delay in the Company's manufacture of products.
All interruptions or delays could interfere with the Company's ability to make
shipments and therefore impact sales and cash flows. As of October 2, 1999, the
Company's Year 2000 committee has discussed and evaluated contingency plans in
the event that outside firms fail to mitigate their Year 2000 compliance issues
and has determined that there are sufficient plans in place to cover the
Company's operations should this occur.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. The Company's major market risk relates to its secured
debt. A portion of the Company's accounts receivable and inventories are used
as collateral for its term and revolving debt. The interest rates applicable to
the Company's debt fluctuate with the London Interbank Offered Rate (LIBOR).
Over the past fiscal quarter the highest LIBOR rate was 5.38% at October 2,
1999. LIBOR rates fluctuate on a daily basis.
The Company does not enter into derivative transactions or leveraged swap
agreements.
Although the Company does have international operations, the functional currency
for all active subsidiaries is the U.S. dollar. The Company imports for its own
use raw materials that are used in its manufacturing operations. Such purchases
are denominated in U.S. dollars and are paid for under normal trade terms.
NET SALES
Net sales for the fiscal 2000 first quarter, which ended October 2, 1999, were
$41.8 million compared to $42.3 million for the first quarter of the previous
year. The slight decrease in revenue is a result of decreased keyboard sales
volume and average selling prices. Keyboard shipments decreased 12.8% from the
first quarter of the prior year while the average selling price decreased
approximately 8.9%. 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 products by competitors. The decrease in keyboard
revenues was offset in part by the increase in contract manufacturing/contract
design (CM/CD) revenue. CM/CD sales accounted for 45.9% of total revenue in the
first quarter versus 15.7% in the first quarter of the prior year.
COST OF SALES
Cost of sales were 85.7% of revenue in the first quarter of 2000 compared to
83.5% for the first quarter of 1999. The cost of sales percentage increased in
part as a result of lower sales volume. The Company continues to emphasize cost
reduction whenever feasible by increasing capacity in its Juarez, Mexico
facility. This facility was expanded during fiscal 1997 to increase available
manufacturing and molding capacity. Continued emphasis was placed on material
cost reductions through negotiations with major suppliers, as well as, changes
to product designs that were conducive to lower costs.
During fiscal 1999 much of the Company's keyboard products were produced by a
subcontractor in mainland China. It is anticipated that over half of the
keyboard production for fiscal 2000 will be in China. The Company continues to
use its facility in Mexico to increase available capacity for new and existing
CM/CD products. This facility, in conjunction with a newly organized subsidiary
in Shanghai, China, which began activity in the third quarter of fiscal 1999,
will enable the Company to increase its presence in this growing market.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses were $.9 million in the first
quarter of fiscal 2000 and $1.5 million for the same period of fiscal 1999. As
a percentage of sales, R, D & E expenditures were 2.1% in the first quarter of
2000 compared to 3.5% in the first quarter of 1999. The decrease in spending is
primarily due to project delays and cost controls during the first quarter of
fiscal 2000.
SELLING EXPENSES
Selling expenses in dollars and as a percentage of revenue remain fairly
consistent. Selling expenses were $2.2 million in the first quarter of fiscal
2000 and fiscal 1999. Selling expenses as a percentage of revenue were 5.2% for
<PAGE>
the first quarter of both fiscal years.
GENERAL AND ADMINISTRATIVE
General and administrative expenses in dollars remained fairly consistent.
These expenses were $2.2 million in the first fiscal quarter of 2000 compared to
$2.1 million in the first quarter of 1999. As a percent of revenue, G&A
expenses were 5.4% in the first quarter compared to 4.9% during the first
quarter of the prior year
INTEREST
Interest expense was $495,000 in the first quarter of 2000 compared to $528,000
for the first quarter of 1999. The level of long-term debt has decreased due to
scheduled term loan payments and the revolving line has increased. This term
debt carries a higher interest rate than the revolving debt, resulting in a
minor reduction in interest expense.
INCOME TAXES
The income tax provisions were $75,000 for the first quarter of fiscal 2000 and
$278,000 for the first fiscal quarter of 1999. $207,000 of benefit contained in
the fiscal 2000 provision relates to losses of foreign subsidiaries. $132,000
of expenses in the fiscal 1999 provision relates to taxes on earnings. The
Company has tax loss carryforwards of approximately $26.7 million that expire
in varying amounts in the years 2006 through 2019.
ESOP
No contributions to the Employee Stock Ownership Plan (ESOP) were made during
the first quarter of fiscal years 2000 and 1999.
BACKLOG
The Company's backlog at the end of the first fiscal quarter of 2000 was $11.5
million compared to $11.2 million at the end of the 1999 fiscal year and $14.5
million at the end of the first quarter of fiscal 1999. The increase in the
backlog from fiscal year end is attributable in part to increased customer
orders for CM/CD products.
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 24%, 13% and 11% of net sales during fiscal year 1999. In 1998, these same
customers accounted for 31%, 8% and 13% of net sales. In fiscal year 1997,
another customer accounted for 11% of net sales; however, in fiscal year 1998,
this customer accounted for only 2% of net sales. There can be no assurance
<PAGE>
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 has eighteen lawsuits by computer keyboard
users which are in state or federal court in Illinois, New Jersey, New York, and
Pennsylvania. These suits allege that specific keyboard products manufactured
by the Company were sold with manufacturing, design and warning defects which
caused or contributed to injury. 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 120
lawsuits have been dismissed in California, Connecticut, Florida, Illinois,
Kansas, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New York,
Pennsylvania and Texas. One of the 120 dismissed lawsuits is on appeal in New
York.
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 October 2, 1999, there were
outstanding options and warrants for the purchase of approximately 2,000,000
shares of common stock of the Company ("Common Stock"), of which options and
warrants for approximately 1,500,000 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.
Year 2000 Matters. The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar formal business activities.
Many of the Company's systems include hardware and packaged software purchased
from vendors who have represented that these systems are already Year 2000
compliant. The Company has also initiated a conversion from existing software
to programs that are represented to be Year 2000 compliant.
The Company has communicated with all of its significant suppliers and other
external agencies to determine the extent to which the Company is vulnerable to
those third parties' failure to remedy their Year 2000 issues. The Company can
give no guarantee that the systems of other companies on which the Company's
systems rely will be converted on time, or a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have a material adverse effect on the Company.
<PAGE>
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
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 November 15, 1999
Jack W. Oehlke Date
(Director, President and
Chief Executive Officer)
/s/ Ronald F. Klawitter November 15, 1999
Ronald F. Klawitter Date
Principal Financial Officer
/s/ Keith D. Cripe November 15, 1999
Keith D. Cripe Date
Principal Accounting Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRTY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 1599
<SECURITIES> 0
<RECEIVABLES> 34846
<ALLOWANCES> 551
<INVENTORY> 26217
<CURRENT-ASSETS> 73279
<PP&E> 102378
<DEPRECIATION> 78994
<TOTAL-ASSETS> 102809
<CURRENT-LIABILITIES> 26142
<BONDS> 0
0
0
<COMMON> 38286
<OTHER-SE> 13841
<TOTAL-LIABILITY-AND-EQUITY> 102809
<SALES> 41775
<TOTAL-REVENUES> 41775
<CGS> 35807
<TOTAL-COSTS> 35807
<OTHER-EXPENSES> 5188
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 495
<INCOME-PRETAX> 285
<INCOME-TAX> 75
<INCOME-CONTINUING> 210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
