UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
---------------------------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 1997
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
---- ----
Commission File No. 0-21820
--------------------------------------------
KEY TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
Oregon 93-0822509
(State of Incorporation) (I.R.S. Employer Identification No.)
150 Avery Street, Walla Walla, Washington 99362
(Address of principal executive offices) (Zip Code)
(509) 529-2161
(Registrant's telephone number, including area code)
----------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
--- ---
The number of shares outstanding of the Registrant's common stock, no par
value, on July 31, 1997 was 4,682,594 shares.
<PAGE>
14
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Condensed consolidated balance sheets, June 30, 1997
(unaudited) and September 30, 1996...........................3
Condensed unaudited consolidated statements of earnings
for the three months ended June 30, 1997 and 1996............4
Condensed unaudited consolidated statements of earnings
for the nine months ended June 30, 1997 and 1996 ............5
Condensed unaudited consolidated statements of cash
flows for the nine months ended June 30, 1997 and 1996.......6
Notes to condensed unaudited consolidated financial
statements...................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................13
SIGNATURES..................................................................14
EXHIBIT INDEX...............................................................16
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 (UNAUDITED) AND SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
---------------------- ----------------------
(in thousands)
<S> <C> <C>
Assets
- ---------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 3,522 $ 3,458
Short-term investments - 6,070
Trade accounts and notes receivable, net 7,950 8,824
Inventories:
Raw materials 6,489 5,728
Work-in-process and sub-assemblies 5,504 5,322
Finished goods 3,335 2,436
------- -------
Total inventories 15,328 13,486
Other current assets 2,253 1,632
------- -------
Total current assets 29,053 33,470
Property, plant and equipment, net 9,421 8,703
Other assets 2,875 3,079
------- -------
Total $41,349 $45,252
======= =======
Liabilities and Shareholders' Equity
- ---------------------------------------------------------------
Current liabilities:
Accounts payable $ 3,031 $ 4,797
Accrued payroll liabilities and commissions 2,548 3,251
Income tax payable 54 1,300
Other accrued liabilities 2,546 2,471
Customer deposits 2,583 2,992
Short-term borrowings and debt 676 923
------- -------
Total current liabilities 11,438 15,734
Long-term debt 1,954 1,467
Other long-term liabilities 406 468
Total shareholders' equity 27,551 27,583
------- -------
Total $41,349 $45,252
======= =======
</TABLE>
See notes to condensed unaudited consolidated financial statements.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------------- ----------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $13,951 $17,304
Cost of sales 9,607 9,632
-------- --------
Gross profit 4,344 7,672
Operating expenses:
Selling 1,866 1,986
Research and development 1,215 1,006
General and administrative 1,198 878
-------- --------
Total operating expenses 4,279 3,870
-------- --------
Income from operations 65 3,802
Other income 87 97
-------- --------
Earnings before income taxes 152 3,899
Income tax expense (58) (1,120)
-------- --------
Net earnings $ 94 $ 2,779
======== ========
Net earnings per share $ .02 $ .60
======== ========
Weighted average common and common equivalent
shares outstanding 4,679 4,653
======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------------- ----------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $42,654 $34,498
Cost of sales 29,660 20,842
-------- ---------
Gross profit 12,994 13,656
Operating expenses:
Selling 5,966 5,367
Research and development 3,386 3,076
General and administrative 3,852 2,360
--------- ---------
Total operating expenses 13,204 10,803
Income (loss) from operations (210) 2,853
Other income 223 546
--------- ---------
Earnings before income taxes 13 3,399
Income tax expense (11) (912)
--------- ---------
Net earnings $ 2 $ 2,487
========= =========
Net earnings per share $ .00 $ .54
========= =========
Weighted average common and common equivalent
shares outstanding 4,671 4,651
========= =========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
(in thousands)
<S> <C> <C>
Net cash provided by (used in) operating activities $ (4,102) $ 694
Cash flows from investing activities:
Proceeds from short-term investments 6,070 2,709
Additions to property, plant and equipment, net (2,360) (1,740)
--------- ---------
Net cash provided by investing activities 3,710 969
--------- ---------
Cash flows from financing activities:
Proceeds from (repayment of) short-term borrowings (114) -
Proceeds from (repayment of) long-term debt 354 (437)
Proceeds from issuance of common stock 216 60
--------- ---------
Net cash provided by (used in) financing activities 456 (377)
--------- ---------
Net increase in cash and cash equivalents 64 1,286
Cash and cash equivalents, beginning of the year 3,458 5,323
--------- ---------
Cash and cash equivalents, end of period $3,522 $6,609
========= =========
Supplemental information:
Cash paid during the period for interest $ 169 $ 36
Cash paid during the period for income taxes $ 1,318 $ 253
Equipment obtained through lease financing $ - $ 274
========= =========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Condensed unaudited consolidated financial statements
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted from these condensed unaudited consolidated
financial statements. These condensed unaudited consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-K for the fiscal year ended
September 30, 1996. The results of operations for the three- and nine-month
periods ended June 30, 1997 are not necessarily indicative of the operating
results for the full year.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals, have been made to present fairly the Company's
financial position at June 30, 1997 and the results of its operations for
the three- and nine-month periods ended June 30, 1997 and 1996 and its cash
flows for the nine-month periods ended June 30, 1997 and 1996.
The balance sheet at September 30, 1996 has been condensed from the audited
balance sheet as of that date.
2. Income taxes
The provision for income taxes is based on the estimated effective income
tax rate for the year.
3. Earnings per share
Earnings per share are based on the weighted average number of common
shares outstanding during the period after adjusting for the dilutive
effect of outstanding stock options. During periods of net loss, the effect
of outstanding stock options is anti-dilutive and excluded from the
calculation of loss per share.
4. Accounting pronouncement
In October 1995, the Financial Accounting Standards Board issued SFAS NO.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires
expanded disclosures of stock-based compensation arrangements with
employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," which recognized compensation cost based on the intrinsic value
of the equity instrument awarded. The Company will continue to apply APB
Opinion No. 25 to its stock-based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings per share
in its financial statements for the year ended September 30, 1997.
<PAGE>
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." SFAS 128 changes the standards for computing and
presenting earnings per share (EPS) and supersedes APB Opinion No. 15,
"Earnings per Share." SFAS 128 simplifies the standards for computing
earnings per share and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. This Statement requires
restatement of all prior-period EPS data presented. In the opinion of
management, the effect of adopting SFAS No. 128 on earnings per share for
all periods reported will be immaterial.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments
of an Enterprise and Related Information, which will be effective for the
Company beginning October 1, 1998. SFAS No. 131 redefines how operating
segments are determined and requires qualitative disclosure of certain
financial and descriptive information about a company's operating segments.
The Company has not yet completed its analysis of which operating segments
it will report on.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Comments included in this document may include "forward-looking statements"
within the meaning of federal securities laws, including statements as to
anticipated future results that are based on current expectations and subject to
a number of risks and uncertainties. The following factors, among others, could
cause actual results or outcomes to differ materially from current expectations:
the ability of the Tegra product line to rebound and sustain an improved level
of customer acceptance, achievement of product performance specifications and
related product upgrade or warranty expenses, the ability of new products to
compete successfully in either existing or new markets, product development
activities, future costs of materials and other operating expenses, competitive
factors, the potential impact of technology advances on inventory obsolescence,
the performance and needs of industries served by the Company and the financial
capacity of customers in these industries to purchase capital equipment.
Results of Operations
- ---------------------
For the three-month period ended June 30, 1997, net earnings were $94,000 or
$.02 per share on net sales of $14.0 million compared to net earnings $2.8
million or $.60 per share on net sales of $17.3 million for the corresponding
period in fiscal 1996. For the nine months ended June 30, 1997, the Company's
net earnings were $2,000 or $.00 per share on net sales of $42.7 million
compared to net earnings $2.5 million or $.54 per share on net sales of $34.5
million for the corresponding period in fiscal 1996.
THREE MONTHS. The decrease in net sales of approximately $3.4 million or 19% in
the more recent three-month period compared to the corresponding period in
fiscal 1996 resulted principally from decreased sales of automated inspection
systems partially offset by increased sales of specialized conveying systems
and, to a lessor degree, by increased sales of processing equipment and service
revenues. The decreased sales volume of automated inspection systems,
principally for the Company's Tegra(TM) sorting systems, was due partially to
certain customers deferring orders for additional systems pending the results of
the Company's completion of certain field upgrades to improve performance of
installed systems. The technical modifications to previously shipped Tegras,
which the Company considers as a long-term investment in its customer base, have
now been substantially completed. The Company believes these modifications have
resulted in significant improvements in performance and reliability and has
modified its current product design accordingly.
Sales to European customers during the third quarter increased by nearly 470%
over the corresponding quarter in 1996 due principally to increased sales of
both specialized conveying systems and automated inspection systems. Sales of
specialized conveying systems to European customers by the Company's Dutch
subsidiary, Superior B.V., was a significant factor contributing to this
increase. Sales of each of the Company's three primary product groups to
international markets other than Europe decreased in the fiscal quarter ended
June 30, compared to the corresponding prior period.
<PAGE>
Backlog at the end of the most recent quarter was approximately $9.0 million
compared to backlog of $18.4 million at June 30, 1996. The decrease in backlog
was principally the result of decreased orders for automated inspection systems,
primarily for Tegra systems, during the nine-month period ended June 30, 1997
compared to the corresponding period in fiscal 1996. The backlog level at the
corresponding date one year ago had principally resulted from a high volume of
orders for the Company's Tegra automated inspection system following its
introduction during the first quarter of fiscal 1996.
Gross profit decreased by $3.3 million or 43% to $4.34 million in the three
months ended June 30, 1997 compared to $7.67 million for the corresponding
period in fiscal 1996. While gross profit margin contribution rates within each
product line improved in the more recent period compared to the third quarter of
fiscal 1996, the decreased sales of Tegra systems resulted in a shift in product
mix to lower margined systems and was a principal contributing factor to the
decrease in overall gross profit. Warranty expenses, principally related to the
technical modifications of previously installed Tegra systems upgraded in the
field, increased by 130% to $1.07 million in the third quarter of fiscal 1997
compared to the corresponding period last year. While these costs have been
somewhat higher than earlier estimated, management believes that the unfavorable
impact has been substantially accounted for in our operating results for the
nine-month period ended June 30, 1997.
Operating expenses were $4.3 million compared to $3.9 million for the
three-month periods ended June 30, 1997 and 1996, respectively. General and
administrative expenses increased by 36% to $1.2 million in the more recent
quarter and principally reflected the effect of increased expense and staffing
levels resulting from the reorganization of the Company into two separate
business units. Certain of these increased general and administrative expenses
had been classified as manufacturing overhead expenses in the comparable period
in fiscal 1996. General and administrative expenses also increased as a result
of expenses associated with the Company's new European subsidiaries which were
not included in the comparable period of fiscal 1996. Management expects that
almost all such increased general and administrative expenses will also be
incurred in future periods. The expense levels in research and development
increased by 21% to $1.2 million reflecting an increase in overall R&D spending
as certain improvements to the Tegra product line were completed during the
quarter. Management expects that, over the next several quarters, expenditures
for research and development activities will continue at levels near those
incurred in the more recent quarterly period. Selling and marketing expenses
decreased by 6% to $1.9 million in the more recent period principally due to
decreased sales commissions and other incentive compensation resulting from the
decreased volume of shipments and decreased trade show and advertising expenses
compared to the higher levels of such expenses incurred in the third quarter of
fiscal 1996, which were associated with the market introduction of Tegra. These
reductions to selling and marketing expenses were offset somewhat by increased
staffing associated with the business unit reorganization and development of the
pharmaceutical inspection system market. For the reasons outlined above,
operating expenses, including research and development, selling and marketing
and general and administrative costs, increased by 22% to $13.2 million in the
nine-month period ended June 30, 1997 from $10.8 million in the comparable
period in the previous fiscal year.
<PAGE>
NINE MONTHS. Net sales for the nine-month period ended June 30, 1997 increased
24% to $42.7 million from $34.5 million in the corresponding period last year.
Increased sales of specialized conveying systems, both in Europe and
domestically, followed by increased sales of processing systems, were the
principal contributors to the increase in revenues. Sales of automated
inspection systems were nearly equal between the two periods.
For the nine months ended June 30, 1997, gross profit contribution decreased by
$662,000 or 5% to $13.0 million from $13.7 million in the nine months ended June
30, 1996. A shift in product mix to an increased sales volume of specialized
conveying systems relative to the higher margined automated inspection systems
resulted in a decrease in gross margin as a percentage of sales. Additionally,
increased Tegra-related warranty expenses and increased manufacturing labor and
overhead expenses as percentages of sales also contributed to the decrease in
gross profit contribution.
For the nine-month period ended June 30, 1997, other income was $223,000
compared to $546,000 for the corresponding period in fiscal 1996. Decreased
interest income on reduced invested cash balances combined with increased
interest expense on increased short- and long-term borrowings were significant
contributors to the decrease in other income. In the more recent period, other
income benefited from moderately improved scrap and royalty income.
Net earnings for the nine months ended June 30, 1997 were $2,000 compared to net
earnings of $2.5 million for the corresponding period in fiscal 1996. Net
earnings were 0.0% and 7.2% of net sales in the two periods, respectively.
Liquidity and Capital Resources
- -------------------------------
For the nine-month period ended June 30, 1997, net cash used in operating
activities totaled $4.1 million compared to net cash provided by operating
activities totaling $694,000 in the corresponding period in fiscal 1996. Upon
their maturity, short-term investments in a net amount of $6.1 million were
utilized to partially fund these operating requirements during the nine-month
period ended June 30, 1997. The Company used $3.6 million in cash to decrease
trade accounts payable balances and pay accrued income taxes and certain accrued
payroll liabilities, including profit sharing and incentive compensation
expenses, which had been accrued in the previous fiscal year. Additionally,
operating activities resulted in the use of $1.8 million to fund an increase in
inventories. Net cash resources totaling $2.4 million were also used to fund the
acquisition of capital equipment. At June 30, 1997, the Company had no material
commitments for capital expenditures.
<PAGE>
The Company's cash flows from financing activities for the nine months ended
June 30, 1997 was affected by the repayment of $114,000 in borrowings under the
Company's operating lines of credit. As a result of previously disclosed
financing activities by the Company's Dutch subsidiaries and repayment of debt,
total consolidated long-term debt increased by $354,000 for the nine months
ended June 30, 1997. Proceeds from the issuance of common stock during the
nine-month period under the Company's employee stock option and stock purchase
plans totaled $216,000.
During the nine-month period ended June 30, 1997, working capital decreased by
$121,000 to $17.6 million from the amount at September 30, 1996. Trade accounts
receivable decreased $874,000 as a result of a lower level of shipments during
the third quarter of fiscal 1997. Inventory increased $1.8 million principally
as a result of forecasted orders for Tegra systems, including ten Tegra systems
which were provided to customers on a trial basis as of the end of the period,
and the increased level of orders for specialized conveying systems. The Company
is attempting to achieve a better balance of its inventory to sales ratio and
expects its investment in inventories to decrease in the fourth quarter of
fiscal 1997. Other current assets increased $621,000 as a result of deposits
paid to third-parties and prepaid income taxes. Short-term borrowings decreased
by $247,000.
The Company's facility with a domestic commercial bank provides for an operating
line of credit up to $4.0 million. At June 30,1997, the Company had no
borrowings under this credit facility.
The Company also maintains a credit facility with a Dutch bank which provides
for operating lines of credit totaling 1.5 million guilders, or approximately
$765,000, to the Company's subsidiaries in the Netherlands. At June 30,1997, the
Company had no borrowings under this credit facility.
The Company's operating, investing and financing activities resulted in a
$64,000 increase in cash and cash equivalents during the nine-month period. At
the end of the period, the balance of cash and cash equivalents totaled $3.5
million. The Company believes that its cash and cash equivalents, cash generated
from operations and available borrowings under its operating lines of credit
will be sufficient to provide for its working capital needs and to fund future
growth.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Report on Form 8-K
No Current Reports on Form 8-K were filed
during the three months ended June 30, 1997.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
SIGNATURES
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY TECHNOLOGY, INC.
(Registrant)
Date: August 14, 1997 /s/ THOMAS C. MADSEN
--------------------
Thomas C. Madsen,
President and Chief Executive Officer
Date: August 14, 1997 /s/ STEVEN D. EVANS
-------------------
Steven D. Evans,
Vice President of Finance and
Administration and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q FOR PERIOD ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
EXHIBIT INDEX
Exhibit Page
- ------- ----
27 Financial Data Schedule 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KEY
TECHNOLOGY, INC.'S CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,522
<SECURITIES> 0
<RECEIVABLES> 8,280
<ALLOWANCES> (330)
<INVENTORY> 15,328
<CURRENT-ASSETS> 29,053
<PP&E> 17,539
<DEPRECIATION> (8,118)
<TOTAL-ASSETS> 41,349
<CURRENT-LIABILITIES> 11,438
<BONDS> 1,954
0
0
<COMMON> 8,946
<OTHER-SE> 18,605
<TOTAL-LIABILITY-AND-EQUITY> 41,349
<SALES> 42,654
<TOTAL-REVENUES> 43,082
<CGS> 29,660
<TOTAL-COSTS> 29,660
<OTHER-EXPENSES> 13,129
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 205
<INCOME-PRETAX> 13
<INCOME-TAX> 11
<INCOME-CONTINUING> 2
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
