UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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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 December 31, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
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Commission File No. 0-21820
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KEY TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
Oregon 93-0822509
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(State of Incorporation) (I.R.S. Employer Identification No.)
150 Avery Street, Walla Walla, Washington 99362
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(Address of principal executive offices) (Zip Code)
(509) 529-2161
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(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 January 31, 1997 was 4,673,207 shares.
<PAGE>
KEY TECHNOLOGY, INC.
FORM 10-Q FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Condensed consolidated balance sheets, December 31, 1996
(unaudited) and September 30, 1996................................3
Condensed unaudited consolidated statements of operations for the
three months ended December 31, 1996 and 1995.....................4
Condensed unaudited consolidated statements of cash flows for
the three months ended December 31, 1996 and 1995.................5
Notes to condensed unaudited consolidated financial statements......6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................10
SIGNATURES...................................................................11
<PAGE>
KEY TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 (UNAUDITED) AND SEPTEMBER 30, 1996
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December 31, September 30,
1996 1996
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(in thousands)
Assets
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Current assets:
Cash and cash equivalents $ 1,039 $ 3,458
Short-term investments 4,991 6,070
Trade accounts and notes receivable, net 8,000 8,824
Inventories:
Raw materials 6,329 5,728
Work-in-process and sub-assemblies 7,085 5,322
Finished goods 1,614 2,436
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Total inventories 15,028 13,486
Other current assets 2,142 1,632
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Total current assets 31,200 33,470
Property, plant and equipment, net 9,449 8,703
Other assets 3,010 3,079
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Total $43,659 $45,252
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Liabilities and Shareholders' Equity
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Current liabilities:
Accounts payable and accrued liabilities $ 8,855 $11,819
Customer deposits 2,044 2,992
Short-term borrowings 2,984 923
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Total current liabilities 13,883 15,734
Long-term debt 2,468 1,467
Other long-term liabilities 402 468
Total shareholders' equity 26,906 27,583
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Total $43,659 $45,252
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See notes to condensed unaudited consolidated financial statements
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KEY TECHNOLOGY, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
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1996 1995
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(in thousands,
except per share data)
Net sales $13,416 $9,110
Cost of sales 9,878 5,480
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Gross profit 3,538 3,630
Total operating expenses 4,750 3,457
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Income (loss) from operations (1,212) 173
Other income 21 264
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Earnings (loss) before income taxes (1,191) 437
Income tax benefit (expense) 409 (109)
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Net earnings (loss) $ (782) $ 328
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Net earnings (loss) per share $ (.17) $ .07
======= ======
Weighted average common and common equivalent
shares outstanding 4,660 4,648
======= ======
See notes to condensed unaudited consolidated financial statements
<PAGE>
KEY TECHNOLOGY, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
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1996 1995
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(in thousands)
Net cash provided by (used in)
operating activities $(5,490) $ (868)
Cash flows from investing activities:
Proceeds from short-term investments 1,079 1,422
Additions to property, plant and
equipment, net (1,179) (534)
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Net cash provided by (used in)
investing activities (100) 888
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Cash flows from financing activities:
Proceeds from short-term borrowings 2,111 -
Proceeds from issuance of long-term debt 951 -
Proceeds from issuance of common stock 109 16
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Net cash provided by financing activities 3,171 16
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Net increase (decrease) in cash and cash
equivalents (2,419) 36
Cash and cash equivalents, beginning of the year 3,458 5,323
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Cash and cash equivalents, end of period $ 1,039 $ 5,359
======= =======
Supplemental information:
Cash paid during the period for interest $ 77 $ 15
Cash paid during the period for income taxes $ 1,020 $ 32
See notes to condensed unaudited consolidated financial statements
<PAGE>
KEY TECHNOLOGY, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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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-month period
ended December 31, 1996 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 December 31, 1996 and the results of its operations
and its cash flows for the three-month periods ended December 31, 1996 and
1995.
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.
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 recognizes 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>
KEY TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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This Quarterly Report on Form 10-Q may include "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
including, without limitation, statements as to expectations, beliefs and future
financial performance, that are based on current expectations and are subject to
a number of risks and uncertainties. Actual results or outcomes could differ
materially from current expectations due to a number of factors, including, but
not limited to, economic conditions, competitive factors and pricing pressures,
the failure of new products to compete successfully in either existing or new
markets, the potential that the Company might incur substantial warranty
expenses with respect to either new products or established products, the
inability of the Company's products to meet performance specifications, actual
future costs of materials and other operating expenses, the performance and
needs of industries served by the Company or the financial capacity of customers
in those industries to purchase capital equipment.
Results of Operations
- ---------------------
For the three-month period ended December 31, 1996, the Company's net loss was
$782,000 or $.17 per share on net sales of $13.4 million compared to net
earnings of $328,000 or $.07 per share on net sales of $9.1 million for the
corresponding period in fiscal 1996. Net sales increased approximately 47% due
principally to increased sales of products in the automated inspection system
and specialized conveying system product groups. The increased sales in these
product groups were spread across the various market segments to which the
Company sells. Sales of automated inspection systems resulted principally from
shipments of the Company's Tegra(TM) sorting systems. Sales to European and
other international customers increased by 133% in the first quarter of fiscal
1996 over the same period last year. Sales of specialized conveying systems to
European customers by the Company's recently acquired Dutch subsidiary, Superior
B.V., was a significant factor contributing to this increase.
Backlog at the end of the most recent quarter was $16.0 million compared to
$15.3 million at December 31, 1995 and $14.7 million at September 30, 1996. The
increase in backlog over these prior periods resulted principally from increased
orders for the Company's specialized conveying systems and other processing
equipment. The Company has experienced a strong and sustaining customer demand
for these products, which is seasonally atypical.
Gross profit decreased by $92,000 to $3.5 million in the three months ended
December 31, 1996 compared to $3.6 million for the corresponding period in
fiscal 1996. Gross profit contribution decreased as a percentage of sales during
the quarter principally as a result of a shift in the mix of products sold
during the period. Sales of monochromatic Tegra systems, which typically carry
lower gross profit margins than other product lines within the automated
inspection system group, increased as did sales of vibratory conveying systems
in a niche market unfavorably affected by pricing factors. Gross profit for the
period was also unfavorably affected by an increased level of charges to
warranty expense. The Company expects that its warranty expenses will continue
at a somewhat higher level than it has experienced in prior periods due
primarily to the extended warranties that it offers on newer products.
Management believes that gross profit margins on Tegra systems will improve as a
result of cost reduction and value engineering activities. The decreased gross
profit as a percentage of sales for specialized conveying systems also reflected
an increased contribution to sales volume from lower margined products sold by
the Company's Dutch subsidiary. Gross profit was also unfavorably affected by
one-time costs associated with the relocation and startup of the new Specialized
Conveying Systems manufacturing facility in Walla Walla and the reconfiguration
of certain manufacturing processes for the Tegra product line. These relocation,
startup and reconfiguration activities also resulted in decreases in production
efficiency and increases to manufacturing variances and overhead expenses during
the period.
<PAGE>
KEY TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Operating expenses were $4.7 million compared to $3.5 million for the
three-month periods ended December 31, 1996 and 1995, respectively. Selling and
marketing expenses increased by 25% to $2.3 million principally due to increased
product promotion and trade show expenses, increased staffing and consulting
expenses associated with the business unit reorganization, development of the
pharmaceutical inspection system market and other activities related to
expanding the Company's presence in new markets and product applications. The
expense levels in research and development increased by 21% to $1.1 million
primarily due to increased staffing levels and product development activities
undertaken to improve the field performance of the Tegra sorting system in
certain existing market niches, to extend Tegra's capabilities to address new
applications and to continue the development of the recently acquired I-300
pharmaceutical inspection system. General and administrative expenses increased
by 93% to $1.3 million 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 had not been included in the comparable period of fiscal
1996. For the fiscal quarter ended December 31, 1995, other income was $21,000
compared to $264,000 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 most recent period, other
income also decreased from the corresponding period in fiscal 1996 due to a gain
on the sale of a product line which benefited the first quarter of fiscal 1996.
As a result of the decrease in gross profit margins and the increase in
operating expenses, the results of operations for the three months ended
December 31, 1996 was a net loss of $782,000 compared to net earnings of
$328,000 for the three months ended December 31, 1995. Net earnings (loss) were
(5.8%) and 3.6% of net sales in the two periods, respectively. The Company
expects that pricing pressures affecting gross margins and the lower margin
product mix are likely to continue into the second quarter of fiscal 1997.
<PAGE>
KEY TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Financial Condition
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During the first three months of fiscal 1997, net cash used in operating
activities totaled $5.5 million. Working capital during this period decreased by
$419,000 to $17.3 million. The major factors affecting the decrease in working
capital were a decrease in trade accounts receivable of $824,000 and an increase
in short-term borrowings of $2.1 million. These factors were offset by an
increase in inventory of $1.5 million and decreases in accounts payable and
accrued liabilities of $3.0 million and a decrease in customer deposits of
$948,000. The decrease in accounts receivable was the result of an increased
level of cash collections early in the period which, in turn, resulted from the
record level of sales in the fourth quarter of fiscal 1996. The increase in
short-term borrowings was principally the result of payments against the higher
than normal level of accounts payable and accrued liabilities existing at the
beginning of the period and the timing of the maturity dates of the short-term
investments which generally extended beyond the end of the quarter, making these
invested balances unavailable to fund operating requirements. The increase in
inventory resulted principally from forecasted orders for Tegra systems and the
increased level of orders for specialized conveying systems. The decrease in
accounts payable and accrued liabilities resulted principally from the payment
of trade accounts payable balances, accrued income taxes and profit sharing and
incentive compensation expenses which had been accrued in the previous fiscal
year. The decrease in customer deposits was principally the result of timing
differences between the receipt of orders during the quarter and the actual
receipt of deposit payments from customers. Additionally, net cash resources
totaling approximately $1.0 million were used to fund the acquisition of capital
equipment. The Company's operating activities, expenditures for capital
equipment and reduction in accounts payable and accrued liabilities and customer
deposits, resulted in a $3.5 million decrease in cash and cash equivalents and
short-term investments. At the end of the period, the balance of cash and cash
equivalents totaled $1.0 million and short-term investments totaled $5.0
million.
The Company has a domestic operating line with a commercial bank which provides
for an operating line of credit up to $4.0 million. At December 31,1996
outstanding borrowings under this line of credit totaled $2.25 million. The line
of credit is subject to an annual renewal and was renewed subsequent to the end
of the period in January 1997. The line of credit under the most recent renewal
remains unsecured with terms at one-quarter percent below the bank's prime rate
of interest.
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
$860,000, to the Company's subsidiaries in the Netherlands. At December 31,
1996, the Company had no borrowings under this credit facility.
<PAGE>
KEY TECHNOLOGY, INC.
PART II. OTHER INFORMATION
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Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Report on Form 8-K
No Current Reports on Form 8-K were filed during the three months
ended December 31, 1996.
<PAGE>
KEY TECHNOLOGY, INC.
SIGNATURES
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SIGNATURES
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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: February 12, 1997 /s/ THOMAS C. MADSEN
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Thomas C. Madsen,
President and Chief Executive Officer
Date: February 12, 1997 /s/ STEVEN D. EVANS
---------------------------------------
Steven D. Evans,
Vice President of Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
<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 DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
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<CASH> 1,039
<SECURITIES> 4,991
<RECEIVABLES> 8,273
<ALLOWANCES> (273)
<INVENTORY> 15,028
<CURRENT-ASSETS> 31,200
<PP&E> 16,700
<DEPRECIATION> (7,251)
<TOTAL-ASSETS> 43,659
<CURRENT-LIABILITIES> 13,883
<BONDS> 2,468
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<COMMON> 8,839
<OTHER-SE> 18,067
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<SALES> 13,416
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