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 March 31, 2000
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 April 30, 2000 was 4,722,514 shares.
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2000
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Condensed consolidated balance sheets, March 31, 2000 (unaudited)
and September 30, 1999...........................................3
Condensed unaudited consolidated statements of earnings for the
three months ended March 31, 2000 and 1999.......................4
Condensed unaudited consolidated statements of earnings for the
six months ended March 31, 2000 and 1999.........................5
Condensed unaudited consolidated statements of cash flows for
the six months ended March 31, 2000 and 1999.....................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 4. Submission of Matters to a Vote of Security Holders.................15
Item 6. Exhibits and Reports on Form 8-K....................................15
SIGNATURES....................................................................17
EXHIBIT INDEX.................................................................18
2
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 (UNAUDITED) AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
March 31, September 30,
2000 1999
---------------------- ----------------------
(in thousands)
Assets
- ----------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,351 $ 5,419
Short-term investments 2,485 984
Trade accounts receivables, net 11,939 10,762
Inventories:
Raw materials 4,694 6,202
Work-in-process and sub-assemblies 5,625 5,332
Finished goods 2,753 3,084
------ ------
Total inventories 13,072 14,618
Other current assets 1,935 2,231
------ ------
Total current assets 35,782 34,014
Property, plant and equipment, net 8,073 8,582
Other assets 2,125 1,824
------ ------
Total $45,980 $44,420
====== ======
Liabilities and Shareholders' Equity
- ----------------------------------------------------------------
Current liabilities:
Accounts payable $ 3,166 $ 2,753
Accrued payroll liabilities and commissions 3,191 3,801
Income tax payable 1,058 507
Other accrued liabilities 1,989 2,141
Customers' deposits 2,559 1,535
Short-term borrowings and debt 291 304
------ ------
Total current liabilities 12,254 11,041
Long-term debt 510 722
Total shareholders' equity 33,216 32,657
------ ------
Total $45,980 $44,420
====== ======
See notes to condensed unaudited consolidated financial statements
</TABLE>
3
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
2000 1999
---------------- ----------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $17,081 $15,676
Cost of sales 10,637 9,924
------ ------
Gross profit 6,444 5,752
Operating expenses:
Selling 2,791 2,368
Research and development 1,199 1,246
General and administrative 1,353 1,422
------ ------
Total operating expenses 5,343 5,036
------ ------
Income from operations 1,101 716
Other income 144 97
------ ------
Earnings before income taxes 1,245 813
Income tax expense 411 266
Net earnings $ 834 $ 547
====== ======
Net earnings per common share - basic $ .18 $ .12
====== ======
Net earnings per common share - diluted $ .18 $ .12
====== ======
Shares used in per share calculation - basic 4,721 4,705
====== ======
Shares used in per share calculation - diluted 4,721 4,706
====== ======
See notes to condensed unaudited consolidated financial statements
</TABLE>
4
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
2000 1999
---------------- ----------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $32,160 $30,495
Cost of sales 20,285 19,353
------ ------
Gross profit 11,875 11,142
Operating expenses:
Selling 5,739 4,731
Research and development 2,404 2,081
General and administrative 2,632 2,997
------ ------
Total operating expenses 10,775 9,809
------ ------
Income from operations 1,100 1,333
Other income 279 123
------ ------
Earnings before income taxes 1,379 1,456
Income tax expense 455 485
------ ------
Net earnings $ 924 $ 971
====== ======
Net earnings per common share - basic $ .20 $ .21
====== ======
Net earnings per common share - diluted $ .20 $ .21
====== ======
Shares used in per share calculation - basic 4,717 4,703
====== ======
Shares used in per share calculation - diluted 4,720 4,703
====== ======
See notes to condensed unaudited consolidated financial statements
</TABLE>
5
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
2000 1999
--------------- --------------
(in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 3,573 $ 683
Cash flows from investing activities:
Sale of short-term investments 1,000 -
Purchase of short-term investments (2,501) -
Additions to property, plant and equipment (771) (586)
----- -----
Net cash used in investing activities (2,272) (586)
----- -----
Cash flows from financing activities:
Repayments of long-term debt (145) (201)
Proceeds from issuance of common stock 63 39
----- -----
Net cash used in financing activities (82) (162)
----- -----
Effect of exchange rates on cash (287) 15
----- -----
Net increase (decrease) in cash and cash equivalents 932 (50)
Cash and cash equivalents, beginning of the period 5,419 6,333
----- -----
Cash and cash equivalents, end of period $ 6,351 $6,283
===== =====
Supplemental information:
Cash paid during the period for interest $ 39 $ 68
Cash paid (refunded) during the period for income taxes ($ 46) $ 503
See notes to condensed unaudited consolidated financial statements
</TABLE>
6
<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 accounting principles generally
accepted in the United States of America 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, 1999 and the Company's
reports on Form 8-K filed since that date. The results of operations for
the three- and six-month periods ended March 31, 2000 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 March 31, 2000 and the results of its operations for
the three- and six-month periods ended March 31, 2000 and 1999 and its cash
flows for the six-month periods ended March 31, 2000 and 1999.
The balance sheet at September 30, 1999 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. Comprehensive income
The Company's consolidated comprehensive income was $604,000 and $308,000
for the three months ended March 31, 2000 and 1999, respectively, and
$496,000 and $743,000 for the six months ended March 31, 2000 and 1999,
respectively. The differences between the net earnings reported in the
consolidated statement of earnings and the consolidated comprehensive net
income for the periods consisted of changes in foreign currency translation
adjustments.
4. Future accounting changes
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The
implementation of this statement has been postponed by SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
7
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
HEDGING ACTIVITIES-DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO.
133. SFAS No. 137, has postponed implementation of SFAS No. 133 until
fiscal year ending September 30, 2002. Currently, this statement is not
applicable to the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS,
which the Company is required to adopt in the third quarter of fiscal year
2000. The Company believes that the effect, if any, of the adoption of this
standard will not be material to the Company's consolidated financial
position, results of operations or cash flows.
5. Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
6. Acquisition
On February 15, 2000, the Company announced an Agreement and Plan of Merger
with Advanced Machine Vision Corporation ("AMVC") under which AMVC will
become a wholly-owned subsidiary of Key Technology. Consideration in the
merger consists of cash, newly issued Series B and Series C convertible
preferred stock and warrants to purchase Company common stock. The issuance
of the new Company securities is subject to approval by the Company's
shareholders and the merger agreement is subject to approval by the holders
of AMVC's common and preferred stock, which will be solicited at special
shareholder meetings expected to be held in July 2000. On March 3, 2000,
the Company filed a Form 8-K with the Securities and Exchange Commission
related to this merger. On April 24, 2000, the Company filed a Form 8-K
with the Securities and Exchange Commission related to an agreement with
the holder of AMVC preferred stock. Reference is made to the these reports
for additional information related to the merger and agreement.
8
<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 THE FEDERAL SECURITIES LAWS. THESE STATEMENTS AS TO
ANTICIPATED FUTURE RESULTS ARE BASED ON CURRENT EXPECTATIONS AND ARE SUBJECT TO
A NUMBER OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED OR DISCUSSED HERE. SUCH RISKS AND UNCERTAINTIES
ARE DETAILED IN EXHIBIT 99.1 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED
WITH THE SEC IN DECEMBER 1999 AND ARE INCORPORATED HEREIN BY REFERENCE. THE
COMPANY CAUTIONS READERS NOT TO PLACE UNDUE RELIANCE UPON ANY SUCH
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
DISCLAIMS ANY OBLIGATION SUBSEQUENTLY TO REVISE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS OR TO REFLECT
THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS.
ACQUISITION OF ADVANCED MACHINE VISION CORPORATION
- --------------------------------------------------
On February 15, 2000, Key Technology (the "Company") announced an Agreement and
Plan of Merger with Advanced Machine Vision Corporation ("AMVC") wherein KTC
Acquisition Corp, an Oregon corporation and wholly-owned subsidiary of the
Company, will merge with and into AMVC, after which AMVC will become a
wholly-owned subsidiary of the Company. AMVC is comprised of two
subsidiaries--SRC VISION, Inc. and Ventek, Inc. SRC VISION, located in Medford,
Oregon and Eindhoven, the Netherlands, designs and manufactures machine vision
systems for the food, agricultural, plastics, tobacco, and pulp wood industries.
Ventek, located in Eugene, Oregon, designs and assembles machine vision systems
for automated inspection and process control in the plywood and wood panel
industries. Consideration in the merger consists of cash, newly issued Series B
and Series C convertible preferred stock and warrants to purchase Company common
stock. The issuance of the new Company securities is subject to approval by the
Company's shareholders and the merger agreement is subject to approval by the
holders of AMVC's common and preferred stock, which will be solicited at special
shareholder meetings expected to be held in July 2000. On March 3, 2000, the
Company filed a Form 8-K with the Securities and Exchange Commission related to
this merger. On April 24, 2000, the Company filed a Form 8-K with the Securities
and Exchange Commission related to an agreement with the sole holder of AMVC
preferred stock. Reference is made to the these reports for additional
information related to the merger and agreement.
The Company expects that the transaction will be accretive to earnings in fiscal
2001. The Company anticipates that approximately $4-5 million in direct cost
reductions can be achieved after the merger through reductions in combined
manufacturing costs, combined sales and marketing efforts, elimination of
redundancies in research and development, and reduction of general and
administrative expenses.
The AMVC merger is consistent with the Company's strategy for growth through
acquisitions of companies which bring complementary products which can be
exploited through the application of the Company's core skills in distribution,
marketing, new product development, manufacturing and business systems.
9
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
For the three-month period ended March 31, 2000, net earnings increased by 53%
to $834,000 or $.18 per share on net sales of $17.1 million compared to net
earnings of $547,000 or $.12 per share on net sales of $15.7 million for the
comparable period in fiscal 1999. Net earnings were 4.9% and 3.5% of net sales
in the two periods, respectively. For the six months ended March 31, 2000, the
Company's operating activities resulted in net income of $924,000, or $.20 per
share, on net sales of $32.2 million compared to net income of $971,000, or $.21
per share, on net sales of $30.5 million for the corresponding period in fiscal
1999.
THREE MONTHS. Net sales increased approximately $1.4 million or 9% in the
three-month period ended March 31, 2000 compared to the corresponding period in
fiscal 1999. The increase in net sales between the two periods resulted
principally from increased sales in the automated inspection system, parts and
service and specialized conveying system product groups, partially offset by
decreased sales of processing equipment. The Company continues to receive
requests to supply turn-key processing lines which include automated inspection
systems and significant components of the Company's specialized conveying
systems and processing equipment, together with other third-party supplied
equipment. Sales of automated inspection systems resulted principally from
shipments of the Company's Tegra(R) sorting systems.
Orders for the second quarter of fiscal 2000 totaled $18.6 million, a decrease
of 20% from the record $23.1 for the corresponding period in fiscal 1999. The
orders and resulting backlog of the fiscal 1999 second quarter included an order
of approximately $7 million from one customer.
The order receipt activity in the most recent quarter was well-rounded, with
systems order volume being essentially equal between automated inspection
systems and specialized conveying systems. Orders for the Tegra product line
were quite strong compared with the same period of last year, while orders for
the ADR product line were well off of fiscal 1999 activity. During the second
quarter of fiscal 2000, the Company introduced the ADR(R)4, an automated
inspection system designed to remove defects and optimize fry length in frozen
french fry processing. The first production unit of the ADR4 has been installed
at a major North American potato processor and is running with excellent results
and positive feedback from the customer. It is anticipated that as a result of
proven field performance, customer orders for this new product will be received
during the third and fourth quarters of fiscal 2000.
As a result of comparatively lower orders and stronger shipment activity,
backlog at the end of the second quarter was $12.6 million, a 15% decrease from
the $14.9 million in backlog of the corresponding point one year ago. Automated
inspection system backlog represented about 36% of the total backlog at the more
recent quarter-end, somewhat higher than one year ago. The backlog at March 31,
1999 included an order of approximately $7 million from one customer.
Gross profit contribution for the three-month period ended March 31, 2000
increased to $6.4 million compared to $5.8 million in last year's second quarter
as a result of increased sales volume between the periods. The gross profit rate
as a percentage of sales increased slightly to 38% of sales
10
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
in the more recent period from 37% of sales in the corresponding fiscal quarter
last year. The increase in gross margin as a percentage of sales was due
principally to the shift in product mix to an increased volume of higher margin
automated inspection equipment. Gross profit margins for the period were
negatively affected by the sale of third-party supplied equipment which carries
lower "pass-through" margins and increased installation and warranty costs for
the increased volume of automated inspection units sold.
Operating expenses were $5.3 million in the three-month period ended March 31,
2000 compared to $5.0 million for the three-month period ended March 31, 1999.
Selling expenses increased by 18%, or $423,000 to $2.8 million in the more
recent period due principally to increased investment in new product promotions,
commissions and expanded sales coverage in Europe and Latin America. The
increase in commission expense related to the higher level of product sales,
combined with an increased volume of those sales sold through outside
representatives to whom the Company pays higher commission rates. General and
administrative expenses were $1.4 million in both quarters. Research and
development expenses were also approximately level at $1.2 million in both
quarters. Management expects that expenditures for research and development and
for general and administrative expenses over the next several quarters will
generally remain consistent with the levels experienced in the second quarter of
the current fiscal year. For the fiscal quarter ended March 31, 2000, other
income was $144,000 compared to $97,000 for the corresponding period in fiscal
1999.
SIX MONTHS. Net sales for the six-month period ended March 31, 2000 increased 6%
to a record $32 million from $30.5 million in the comparable period last year.
The increase in net sales resulted principally from increased sales of parts and
service, and automated inspection products. Decreased sales of specialized
conveying systems products in the European market offset increases in that
product line in other parts of the world. Based upon the results of the most
recent six-month period, current sales expectations and the acquisition of AMVC,
the Company expects to achieve its objective of 15% to 20% growth in net sales
for fiscal 2000 over fiscal 1999.
For the six months ended March 31, 2000, gross profit increased by $733,000, or
7%, to $11.9 million, or 36.9% of net sales, compared to $11.1 million, or 36.5%
of net sales, in the six months ended March 31, 1999. Gross profit contribution
during the six-month period ended March 31, 2000 increased over the
corresponding period in 1999 due principally to the shift in product mix to
higher margin optical inspection systems, somewhat offset by sales of lower
margined third-party equipment provided through turn-key projects. Gross margin
for the six-month period ended March 31, 2000 benefited from a 18% decrease in
warranty costs compared to the corresponding period in fiscal 1999, even though
sales increased between the respective periods. This benefit was offset by the
effect of the lower margin third-party supplied equipment, increased
installation costs and increased inventory write-off due to anticipated
inventory obsolescence for phased-out products or components when compared to
the same period a year ago.
The results of operations of the Company are affected by changes in the relative
value of the U.S. dollar in international markets, as well as other factors,
when competing with suppliers of similar
11
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
equipment, both in the U.S. and abroad. During the six-month period ended March
31, 2000, the relative strength of the U.S. dollar was most notable in European
markets. As measured against the dollar, the euro and the Dutch guilder have
each lost nearly 12% of their value respectively during the six-month period. As
a result of the stronger dollar, the Company's products have become more
expensive on a relative basis to foreign customers. Additionally, foreign
competitors doing business in the United States can compete on a price basis
more aggressively without eroding their own profit margins.
The Company has been successful in price competitive situations with U.S. dollar
denominated sales throughout its served markets. However, the continued strength
of the dollar has limited the Company's ability to offer competitive pricing
while maintaining target margins for sales denominated in currencies other than
dollars. Additionally, certain competitors have offered unusual pricing and
terms to selected customers in an effort to recapture market share gained by the
Company in previous quarters. Total European bookings for the six-month period
ended March 31, 2000 decreased 5% when compared to the same period of last year,
with a larger decrease in automated inspection systems offset by an increase in
specialized conveying systems being manufactured by the Company's European
subsidiary.
While the long-term view of the Company looks toward success of its products
through superior performance, reliability and other product differentiation, the
Company is committed to maintaining market share in Europe in the short term.
The result may be an erosion of margins on product sales into that market. For
fiscal 2000, the Company's objective is to achieve a gross profit margin of at
least 39% of net sales compared to 37.8% in fiscal 1999. The expected
improvement in gross profit margin is due principally to increased manufacturing
efficiencies anticipated from increased sales for the remainder of fiscal 2000
compared to fiscal 1999.
Total operating expenses increased by $966,000 to $10.8 million in the six-month
period ended March 31, 2000 from $9.8 million in the comparable period of the
previous fiscal year. The increase in operating expenses was principally as a
result of increased selling costs, followed by increased research and
development expenses, which were partially offset by decreased general and
administrative expenditures. The Company continues to maintain as its objective
for fiscal 2000 to invest approximately 29% to 32% of net sales in operating
expenses compared to 34% invested in such expenses during the first six months
of fiscal 2000 and 32% invested in such expenses for the comparable period last
year. The Company expects operating expenses for the remainder of fiscal 2000 to
be lower as a percentage of anticipated higher sales for the second half of the
year. For the six-month period ended March 31, 2000, other income was $279,000
compared to other income of $123,000 for the corresponding period in fiscal 1999
principally as a result of increased net interest income. Interest income
increased as a result of increased cash, cash equivalents and short term
investments, while interest expense decreased between the corresponding periods.
Net income for the six months ended March 31, 2000 was $924,000 compared to a
net income of $971,000 for the corresponding period in fiscal 1999. The
principal reason for the decrease in net income for the more recent period was
the increase in operating expense described above. Net income was 2.9% and 3.2%
of net sales in the two periods, respectively.
12
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities during the six-month period ended
March 31, 2000, totaled $3.6 million compared to net cash provided by operating
activities totaling $683,000 in the corresponding period in fiscal 1999. During
the six-month period ended March 31, 2000, working capital increased by $555,000
to $23.5 million. Trade accounts receivable increased by the net amount of $1.4
million, principally as a result of a high level of shipments at the end of the
period. Inventories decreased by $1.5 million, again primarily as a result of
the increased product sales late in the second fiscal quarter. Trade accounts
payable increased by $413,000 as the result of the timing of payments for
general operating commitments during the period. Accrued payroll and commission
liabilities decreased by $610,000 due principally to payment of commissions on a
large project which had been accrued prior to the period, and deposits from
customers increased by $1 million.
Cash flows from investing activities for the six-month period ended March 31,
2000 included the use of cash to purchase net short-term investments of $1.5
million and to fund the acquisition of capital equipment of $771,000 compared to
$586,000 expended for capital equipment in the corresponding period last year.
At March 31, 2000, the Company had no material commitments for capital
expenditures.
The Company's cash flows from financing activities for the six months ended
March 31, 2000 were principally affected by repayments of $145,000 in long-term
debt compared to a net decrease of $201,000 in total consolidated long-term debt
during the first six months of fiscal 1999. Proceeds from the issuance of common
stock during the most recent six-month period under the Company's employee stock
option and stock purchase plans totaled $63,000.
The Company's facility with a domestic commercial bank provides for an operating
line of credit up to $4.0 million. At March 31, 2000, the Company had no
borrowings under this credit facility. The line of credit is subject to an
annual renewal and was extended in January 2000, in March 2000 and again in
April 2000 pending approval of a larger borrowing arrangement to facilitate the
pending acquisition of AMVC. The line of credit under the most recent extension
of terms remains unsecured and provides for interest at one-quarter percent
below the bank's prevailing 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
$625,000, to the Company's subsidiaries in the Netherlands. At March 31, 2000,
the Company had no borrowings under this credit facility.
The Company's operating, investing and financing activities resulted in a
$932,000 increase in cash and cash equivalents during the six-month period ended
March 31, 2000. At the end of the period, the balance of cash and cash
equivalents totaled $6.4 million. The Company believes that its cash and cash
equivalents, cash generated from operations, available borrowings under its
operating lines
13
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KEY TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
of credit and pending borrowing arrangements will be sufficient to provide for
its working capital needs and to fund its planned acquisition and future growth.
THE EURO CONVERSION
- -------------------
On January 1, 1999, certain member countries of the European Union, including
the Netherlands, established fixed conversion rates between their existing
sovereign (legacy) currencies and the euro, leading to the adoption of the euro
by these countries as their common legal currency. Key Technology's European
subsidiary's information system currently accommodates multiple currency
transactions
The terms of sales to European customers are either denominated in euros,
dollars, Dutch guilders or the respective legacy currencies of the customer. For
sales transactions between international customers and Key Technology's domestic
operations which are denominated in currencies other than U.S. dollars, Key
Technology assesses its currency exchange risk and may enter into a currency
hedging transaction to minimize such risk. At March 31, 2000, Key Technology was
not a party to any currency hedging transaction.
14
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
SIGNATURES
- --------------------------------------------------------------------------------
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Shareholders on February 23,
2000. Voting common shareholders took the following actions at the
meeting:
1. The shareholders voted to elect the following nominees to the
Company's Board of Directors:
Votes Votes
For Abstaining
---------------- ----------------
Harold R. Frank 4,137,984 9,584
Michael L. Shannon 3,960,928 186,640
There were no broker non-votes.
Other directors whose terms of office as a director continue after
the meeting are as follows:
John E. Pelo
Peter H. van Oppen
Thomas C. Madsen
Gordon Wicher
2. The shareholders voted to ratify management's selection of
independent auditors for the 2000 fiscal year by the affirmative
vote of 4,137,389 shares, with 6,070 shares voting against the
proposal and 4,109 shares abstaining. There were no broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27.1) Financial Data Schedule for the six-month period ended
March 31, 2000.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed.
1. Registrant's Form 8-K dated February 15, 2000 and filed with
the Securities and Exchange Commission on March 3, 2000
disclosing the Agreement and Plan of Merger among the Company,
KTC Acquisition Corp, an Oregon corporation and wholly-owned
subsidiary of the Company, and Advanced Machine Vision
Corporation, a California corporation.
15
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
SIGNATURES
- --------------------------------------------------------------------------------
2. Registrant's Form 8-K dated April 24, 2000 and filed with the
Securities and Exchange Commission on May 5, 2000 disclosing
an agreement with FMC Corporation, the sole holder of AMVC's
preferred stock.
16
<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: May 15, 2000 By /s/ THOMAS C. MADSEN
--------------------------------------------
Thomas C. Madsen,
President and Chief Executive Officer
Date: May 15, 2000 By /s/ TED R. SHARP
--------------------------------------------
Ted R. Sharp,
Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2000
- --------------------------------------------------------------------------------
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C>
27.1 Financial Data Schedule for the six-month period ended March 31, 2000...........19
</TABLE>
18
<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 MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 6,351
<SECURITIES> 2,485
<RECEIVABLES> 12,265
<ALLOWANCES> (326)
<INVENTORY> 13,072
<CURRENT-ASSETS> 35,782
<PP&E> 21,290
<DEPRECIATION> (13,217)
<TOTAL-ASSETS> 45,980
<CURRENT-LIABILITIES> 12,254
<BONDS> 510
0
0
<COMMON> 9,246
<OTHER-SE> 23,970
<TOTAL-LIABILITY-AND-EQUITY> 45,980
<SALES> 32,160
<TOTAL-REVENUES> 32,472
<CGS> 20,285
<TOTAL-COSTS> 20,285
<OTHER-EXPENSES> 10,775
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 1,379
<INCOME-TAX> 455
<INCOME-CONTINUING> 924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 924
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
</TABLE>
