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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended September 30, 1996
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
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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)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's common stock held by
non-affiliates on December 4, 1996 (based on the last sale price of such shares)
was approximately $115,318,517.
The number of shares of the Registrant's common stock outstanding on
December 4, 1996 was 4,659,334 shares of common stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Registrant's Proxy Statement dated January 6, 1997 prepared in
connection with the Annual Meeting of Shareholders to be held on February 5,
1997 are incorporated by reference into Part III of this Report.
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KEY TECHNOLOGY, INC.
FORM 10-K
TABLE OF CONTENTS
PART I PAGE
----
Item 1. BUSINESS...................................................... 1
Item 2. PROPERTIES.................................................... 9
Item 3. LEGAL PROCEEDINGS ............................................ 9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 9
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 10
Item 6. SELECTED FINANCIAL DATA....................................... 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................... 12
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 16
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... 32
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 32
Item 11. EXECUTIVE COMPENSATION........................................ 32
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ............................................ 32
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 32
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K...................................................... 33
SIGNATURES .............................................................. 36
EXHIBIT INDEX.............................................................. 37
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PART I
ITEM 1. BUSINESS.
GENERAL
Key Technology, Inc. (the "Company") was incorporated in 1982 to acquire a
vegetable processing equipment business founded in 1948. The Company designs,
manufactures, sells and services process automation systems for the food
processing industry and other industries that process product streams of
discrete pieces. These systems integrate electro-optical automated inspection
and sorting systems, specialized conveying systems and product preparation
systems.
Effective July 1, 1996, the Company acquired all of the outstanding common
stock of Suplusco Holding B.V. and its subsidiary, Superior B.V., a manufacturer
of specialized conveying systems, both located in The Netherlands. As a result
of this acquisition, the Company believes it will be a more effective competitor
in the European market due to a local sales and manufacturing presence, reduced
product delivery cycles and reduced shipping costs.
In the first quarter of fiscal 1997, the Company expects to complete a
reorganization of its domestic operations into business units comprised of the
Company's two major product groups: Specialized Conveying Systems (SCS) and
Automated Inspection Systems (AIS). The SCS business unit will be relocated into
a 100,000 square foot manufacturing facility which was leased in fiscal 1996 and
is near the Company's present facility in Walla Walla, Washington. The AIS
business unit, which includes the Tegra(TM) product line, will remain in the
Company's present 150,000 square foot facility. The Company believes that this
reorganization will provide increased manufacturing capacity and improved
capability to meet customer requirements.
INDUSTRY BACKGROUND
FOOD PROCESSING INDUSTRY
Food processors must process large quantities of raw product through
different stages, including sorting to remove defective pieces and inspection
for quality. The frequency and severity of defects in the raw product is highly
variable depending upon local factors affecting crops.
Historically, defect removal and quality control in the food processing
industry have been labor intensive and dependent upon and limited by the
variability of the work force. These functions are performed by a seasonal work
force that is frequently unskilled, subject to a high turnover rate and
decreasing in its availability to perform this type of manual labor. Large
numbers of individual workers stand along a conveyor and visually identify and
manually remove defective pieces from the stream of moving product. These manual
methods cause inconsistent defect removal, as well as limited throughput that
varies based upon the number and abilities of the workers. Manual methods also
usually cause excessive amounts of good product to be discarded along with
defective product. The industry has sought to replace these manual methods with
automated systems that achieve higher yield, better quality and reduced cost
while operating around the clock without the need for breaks, vacations or
benefits.
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Although the technology for automating sorting and removal of individual
defective pieces has progressed, the method of product sampling and analysis to
determine quality remains to be automated. Today, quality analysis usually
involves the manual removal of a sample of product from the processing line at
periodic intervals (typically every 15 to 30 minutes). Such samples are then
analyzed in the plant's laboratory for color, length, width, area, perimeter,
shape and defects. These imprecise sampling techniques and the potential for
human error in performing the laboratory analysis are sources of error in
generating statistical quality control data. The delay between taking the sample
and completing the laboratory analysis may also result in large amounts of
product being produced that do not meet quality specifications.
The Company's strategy is to solve processing industry problems of high
labor costs, inadequate yields and inconsistent quality by providing automated
inspection systems, real-time quality analysis systems and specialized conveying
systems. The Company's automated inspection systems use advanced optical
inspection technology to improve product yield (more of the good product
recovered) and quality (higher percentage of defective product being removed)
over the manual sorting and defect removal methods historically used by food
processors. In a typical application, a single automated inspection system can
replace 25 to 75 processing line employees, resulting in labor cost savings and
improved yield sufficient to pay for the system in less than one year, as well
as providing significant improvements in product quality.
NON-FOOD PROCESSING INDUSTRIES
The Company believes that certain other non-food processing industries
might also benefit from the application and use of its automated inspection and
specialized conveying system technologies. Accordingly, it has sought to
identify such markets and either develop or acquire systems that inspect and
convey high-value products. The Company believes that examples of such potential
markets are pharmaceuticals and mineral processing.
PRODUCTS
The Company has developed a modular family of product lines that can be
configured in a variety of ways and integrated to provide complete solutions for
specific applications. Advances in any one module can therefore benefit a number
of the Company's products that incorporate optical scanning and image analysis.
Despite the incorporation of sophisticated technology, the Company's products
can be operated by plant personnel with minimal specialized training and are
built to withstand the harsh environments found in processing plants.
The following table sets forth sales by product category for the periods
indicated:
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------
1996 1995 1994
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(IN THOUSANDS)
Automated inspection systems ...... $27,699 $17,454 $12,266
Specialized conveying systems ..... 17,108 14,954 10,544
Parts, service and other processing
equipment ..................... 9,534 10,245 8,325
------- ------- -------
Net sales ......................... $54,341 $42,653 $31,135
======= ======= =======
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AUTOMATED INSPECTION SYSTEMS
Automated inspection systems are used in processing applications to detect
and eliminate defects during raw product processing. The Company's systems
within this group include the ADR(R) and Tegra systems, representing the
Company's third and fourth generation, respectively, of automated inspection
systems.
All systems in this group use proprietary linear array charged coupled
device ("CCD") mono-chromatic (black and white) or color cameras. Each of the
cameras scan the product streams, which move at five or ten feet per second, at
the rate of 1,500 or 4,000 times per second and can identify defects as small as
1/16 of an inch (1.5 mm) in diameter. Systems with monochromatic cameras are
less expensive and are most effective for product that has a marked disparity in
shade between the defect and the good product. Systems with color cameras are
required when a variety of defect and product colors occur simultaneously or
when the difference in shade between the defect and the good product is more
subtle.
Tegra. In the first quarter of fiscal 1996, the Company introduced its
fourth generation of automated inspection system sorters. Named Tegra, this new
generation of automated inspection systems incorporates a number of
technological and mechanical advances that result in significant improvements to
processing efficiency and product throughput with higher recovery and
defect-removal rates. Tegra was designed to replace the Company's third
generation ColorSort(R)II and Opti-Sort(R)II systems while providing a
technology platform for future product development and potential entry into
applications and markets not currently served by the Company. Certain present
and potential applications for Tegra systems include potato products, green
beans, dried beans, corn, carrots, peas, peaches, pears, peppers and nuts.
Tegra incorporates object-specific IntelliSort(TM) technology. IntelliSort
sorting technology recognizes not only color and size, but also shape. This
capability provides a solution to previously difficult sorting problems, such as
differentiation between green beans and green bean stems. Tegra cameras are
capable of 24 bit color-image processing to scan product at a rate of over 4,000
times per second and detect over 16.7 million colors, offering a sensitivity to
color subtleties beyond human vision. Advances in spatial resolution and
refinement of defect removal techniques result in a significant improvement in
the specificity of defect removal and increased product recovery rates in the
Tegra line.
Tegra also incorporates KeyWare(TM) software that substantially reduces
operational complexity. KeyWare consists of application packages, each
specifically designed for a single product category that, together with the
system's EISA/ISA/PCI computer bus hardware capability and networking software,
support all standard factory control and automation interfaces. These features
allow Tegra to establish data connectivity and communication with a processing
plant's computer, a programmable logic controller or the Internet.
Tegra includes several advances in mechanical design over previous
automated inspection system product generations, resulting in improved
reliability, sanitation, speed and stabilization of food products for more
precise rejection of defects while increasing the yield of in-grade product.
ADR Systems. The Company's ADR systems are used to transport, inspect and
remove defects from potato french fries. The Company believes its ADR system is
the principal optical inspection and defect removal system used in the french
fry processing market. The Company's full capacity ADR systems can process up to
26,000 pounds of product per hour.
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ADR systems incorporate proprietary specialized conveyors made up of dozens
of individual urethane belts of alternating profiles that align french fries
into 44 "lanes." Cameras locate defects on the french fries as they travel at
five feet per second on the conveyor belts. Upon detection of a defect,
computers that analyze the image data from the cameras actuate knives mounted in
two rotary cutter wheels to cut the defect from the individual french fry.
AccuScan Quality Control Monitor. AccuScan uses sophisticated optical
scanning technology for automated inspection of products. AccuScan is a
high-definition, true-color optical scanning system that samples and analyzes
product streams on a moving conveyor belt for various quality attributes.
AccuScan consists of an on-line scanner connected to a remote UNIX workstation.
AccuScan uses proprietary color image processing software to provide an
automated analysis of product quality. Data are obtained by analysis of product
images that are captured approximately every 7 seconds from a slip stream of
product on the conveyor belt. Information regarding customer-defined product
variables such as color, length, width, area, perimeter, shape and defects are
statistically analyzed to produce accurate, real-time information about product
quality. By contrast, conventional quality analysis is typically done
approximately once every 15 to 30 minutes in an adjacent laboratory. The Company
believes that AccuScan has the potential to eliminate delays and inaccuracies
inherent in manual quality monitoring programs that involve subjective human
perceptions of product variables.
The AccuScan's workstation analyzes the image data and provides real-time
quality analysis information in graphical form. The system distributes this
information simultaneously to multiple process locations, allowing correction of
process trends before the process yields large quantities of out-of-tolerance
product. Historical quality data may also be presented to determine trends,
review process limits and provide customer documentation of product quality.
In 1996, the Company was issued a patent covering the combined use of the
AccuScan and Tegra systems in closed-loop process control applications. In this
application, the AccuScan simultaneously monitors product quality and adjusts
sorter operation to ensure product quality meets final specifications,
regardless of incoming product condition.
AgriVision. In fiscal 1995, the Company completed the purchase of certain
assets from AgriVision Engineering, Inc. and a related party. The AgriVision
product lines acquired in this purchase provided the Company with specialized
sorting systems and technologies used in the nut, coffee, fruit and olive
processing industries, all of which are new markets for the Company. These
product lines add sophistication in shape and defect sorting at bulk processing
rates and infrared scanning technology capable of detecting density variations
in food products.
Pharmaceutical Inspection System. Effective July 15, 1996, the Company also
purchased certain inventory, trademarks and patents related to a pharmaceutical
inspection product line, the I-300 Pharmaceutical Inspection System, from the
Imaging Division of Oncor, Inc. Using patented spatial color analysis
technology, this product line inspects solid-dose pharmaceuticals, including
tablets, capsules and softgels for broken or missing pieces, foreign products,
discoloration or coating defects, as well as the integrity of capsules. The
pharmaceutical inspection system also verifies labels and the presence of
printing and detects color, size, location and shape defects at processing rates
over one million parts per hour.
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SPECIALIZED CONVEYING SYSTEMS
Conveying systems are utilized throughout the food industry, as well as
other industries, to move large quantities of product within a processing plant,
The Company's specialized conveying systems include the Iso-Flo(R) vibratory
conveyor systems, food pumping systems and belt conveyors. The acquisition of
Superior B.V. in fiscal 1996 added electromagnetic conveyor and spiral elevator
technologies to the Companies conveying systems product line.
Iso-Flo. The Company's principal specialized conveying system is its
patented Iso-Flo vibratory conveyor system, which was introduced in 1978. The
Iso-Flo conveyor is a type of pan conveyor. Pan conveyors are common throughout
industries that process product streams of discrete pieces, especially the food
processing industry. Pan conveyors move product pieces by vibrating the pan at
high frequency along a diagonal axis, upward and forward. This action propels
the product ahead in small increments and distributes it evenly for close
control of movement and presentation.
A conventional vibratory conveyor is driven by a vibrator that is connected
directly to the pan. Traditionally designed conveyors transmit unwanted
vibration into floors and support structures, often causing damage to
surrounding equipment and buildings. Traditional vibratory conveyors also suffer
from short service lives because of the effects of vibration inherent in their
design.
The Company's patented Iso-Flo "excited frame" design is a significant
innovation. In Iso-Flo systems, the vibrator is attached to the frame rather
than the pan. The design of the frame is "tuned" to the specific masses and
dimensions of the system. The inherent physical properties of the tuned frame
transmit the motive energy to the conveying pan and the product instead of to
the support structures and plant floor. Iso-Flo conveyors thus can be lighter
and can be installed with less independent support in a wider variety of
configurations than conventional vibratory conveyers.
Iso-Flo conveyor systems use the Company's patented Iso-Drive(R) vibrators
that provide balanced, uniform energy generation. The Company believes Iso-Drive
vibrators are quieter, simpler, more efficient and easier to maintain than
competitive designs. They are modular in design for easy configuration of
different conveyor sizes and loads.
Most Iso-Flo conveyors are custom designed and engineered by the Company to
customer specifications. Iso-Flo systems are used in a variety of processing
applications, including potato products, vegetables and fruits (green beans,
peas, carrots, corn, peaches, pears and apples), snack foods, cereals, pet
foods, poultry, seafood and certain nonfood products.
Food Pumping Systems and Belt Conveyors. The Company's hydro food pumping
systems are used to transport food items over distances and elevations in
processing plants. A typical pumping system consists of a stainless steel
contoured tank and food pump to propel the product, lengths of piping to reach
the destination, and a water removal/product spreading subsystem at the
destination. The systems can be configured so that food processing functions,
such as blanching, cooling and cutting, can also occur during pumping. The
Company also designs and manufactures belt conveyors using a variety of belt
materials.
RAW FOOD PREPARATION SYSTEMS
The Company designs and manufactures raw food preparation systems to
prepare vegetables prior to freezing, canning or other processing. Products in
this group include blanchers, air cleaners, air coolers, froth flotation
cleaners, vegetable metering systems, and bulk handling equipment. These
products
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represent the Company's most mature product line. Sales of these products over
the years have formed a customer base for sales of other Company products and
are also establishing a customer base in developing country markets.
CUSTOMERS AND MARKETS
The Company's primary market is the food processing industry. The largest
market segments for the Company's products have been potatoes (principally
french fries), vegetables and snack foods. The Company has also penetrated other
food market segments, including fruits, cereals and pet foods as well as a
variety of others. The Company believes many additional applications for its
systems exist in both food and nonfood markets.
The principal potato market served by the Company's systems is french
fries. French fries comprise approximately 85% of the over eight billion pounds
of frozen potato products processed annually in the United States. The expansion
of American-style fast food chains in foreign countries is resulting in parallel
development of the frozen french fry market overseas.
The Company's products are used in the fruit and vegetable processing
market where field-harvested products are cleaned, graded, automatically sorted,
blanched and processed prior to freezing, canning or packaging for sale to
institutional and retail markets. Principal fruit and vegetable market segments
for the Company are green beans, corn, carrots, onions, apples, pears and
peaches. The Company's prospects for sales in the vegetable and fruit industry
benefit from its recent development of reliable and accurate color automated
inspection systems, since defect detection in most fruit and vegetable segments
requires color analysis. The Company's sales to the fruit and vegetable market
segments have also increased as a result of the introduction of the Tegra
automated inspection system which more accurately detects the subtle defects
typically found in vegetables and fruits.
The acquisition of Superior B.V. in fiscal 1996 provides the Company with a
manufacturing base from which it can more rapidly manufacture and deliver
conveying systems to European customers. With 30% of Superior's business outside
of the food industry in mining, automotive and foundry applications, the
acquisition also positions the Company for further market diversification. The
Company also advanced its diversification strategy in fiscal 1996 by acquiring
the pharmaceutical inspection system which the Company expects to continue to
develop to address the needs of major pharmaceutical manufacturers in the United
States, Puerto Rico and Europe.
Export and foreign sales for the fiscal years ended September 30, 1996,
1995 and 1994 accounted for 34%, 27% and 28% of net sales in each such year,
respectively. Nearly all export sales of products manufactured in the United
States have been denominated in U.S. dollars. Sales in Europe of spare parts and
service, as well as products manufactured in Europe, are generally denominated
in European currencies. In its export and foreign sales, the Company is subject
to the risks of conducting business internationally, including unexpected
changes in regulatory requirements; fluctuations in the value of the U.S.
dollar, which could increase the sales prices in local currencies of the
Company's products in international markets; tariffs and other barriers and
restrictions; and the burdens of complying with a variety of international laws.
Additional information regarding export and foreign sales is set forth in Note
13 to the Company's Consolidated Financial Statements for the year ended
September 30, 1996.
The Company does not rely on annual recurring sales to particular
customers. However, the Company's customers often make periodic large purchases
of complete systems. Therefore, while in any given fiscal year sales to a single
customer might represent 10 percent or more of the Company's consolidated
revenues, the Company believes the loss of such customer would not have a
material
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adverse effect on the Company. The Company sold equipment to one nonaffiliated
customer, a distributor, totaling 12% of net sales in fiscal 1996.
The Company markets its products directly and through independent sales
representatives. In North America, the Company operates sales offices in Walla
Walla, Washington, Rockville, Maryland, and Beaver Dam, Wisconsin. The Company
also has two subsidiaries in The Netherlands, a sales and service office in
Rijssen and a manufacturing facility in Beusichem. Sales are made in Australia
and New Zealand through an independent distributor to whom the Company also
licenses the manufacture of certain of its products.
ENGINEERING, RESEARCH AND DEVELOPMENT
At September 30, 1996, the Company's engineering department had 76
technical and support employees who conduct new product research and
development, sustaining engineering for released products and project
engineering for custom systems. The department includes electronic, mechanical
and software engineers, mathematicians and technical support personnel.
The Company's project engineering teams are responsible for engineering and
designing the details of each custom order. A document control team maintains
and controls product documentation and the product modeling database for the
development engineering and project engineering teams as well as the
manufacturing department.
In fiscal 1996, the Company's engineering, research and development
expenses were approximately $4.3 million, compared to $4 million and $2.7
million in 1995 and 1994, respectively.
MANUFACTURING
The Company's current manufacturing facility, constructed in 1990, was
designed to integrate CAE, CAD, CAM and CIM technologies. Manufacturing
activities include process engineering; cutting, welding, fabrication and
assembly of custom designed stainless steel systems; camera and electronics
assembly; subsystem assembly; and system test and integration. The Company
expects to continue to manufacture products for its AIS business unit in this
facility. In response to increased market demand for its products, the Company
increased its manufacturing capacity by leasing another 100,000 square foot
facility in Walla Walla in early 1996. The Company expects to initiate
full-scale production operations for its SCS business unit in this facility
during early fiscal 1997. The Company further increased its manufacturing
capacity as a result of the acquisition in July 1996 of Superior B.V.
The Company has adopted Total Quality Management practices, which it
believes have enhanced its manufacturing capabilities and efficiencies. The
Company manufactures certain of its products to Underwriters Laboratories,
United States Department of Agriculture and Occupational Safety and Health
Administration standards and became qualified in January 1995 for certification
to the ISO-9001 quality management and assurance standards that have been
promulgated within the international community. The Company's products also
comply with the Canadian CSA and European CE (Conformite Europeene) safety
standards.
Certain components and subassemblies included in the Company's products are
obtained from single-source or sole-source suppliers. The Company attempts to
ensure that adequate supplies are available to maintain manufacturing schedules.
Although the Company seeks to reduce its dependence on sole and limited source
suppliers, the partial or complete loss of certain sources of supply could have
an adverse effect on the Company's results of operations and relations with
customers.
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BACKLOG
The Company's backlog as of September 30, 1996 and September 30, 1995 was
approximately $14.7 million and $8.1 million, respectively. Orders exceeded
gross shipments by $6.6 million in fiscal 1996, resulting in a corresponding
increase in backlog from the closing backlog in fiscal 1995. The Company
schedules production based on firm customer commitments and forecasted
requirements. The Company includes in backlog only those customer orders for
which it has accepted purchase orders. However, the Company believes that
backlog is not necessarily a meaningful indicator of future financial results as
it typically ships products ordered within eight to thirteen weeks from the date
of receipt of the order. Large multiple-unit system orders or orders for systems
in high demand may result in longer delivery times.
COMPETITION
The markets for automated inspection systems and specialized conveying
systems are highly competitive. Important competitive factors include price,
performance, reliability, and customer support and service. The Company believes
that it currently competes effectively with respect to these factors, although
there can be no assurance that existing or future competitors will not introduce
comparable or superior products at lower prices. Most of the company's
competitors are small, privately held companies located in the United States and
Europe that serve specialized market segments. Certain of the Company's
competitors may have substantially greater financial, technical, marketing and
other resources. The Company's principal competitors are believed to be the SRC
Vision and Pulsarr Holding B.V. subsidiaries of ARC Capital, Inc., Sortex Inc.,
Elbicon N.V., Allen Machinery Co. and FMC Corporation.
PATENTS AND TRADEMARKS
The Company currently owns nineteen outstanding United States patents
issued from 1982 through 1996 and seven outstanding patents issued by foreign
countries, the first of which expires in 1999. The Company considers the patents
issued for its Iso-Flo excited frame, Iso-Drive, ADR cutter wheel, ADR alignment
conveying apparatus, integrated food sorting and analysis apparatus, AccuScan
Quality Monitoring System and spatial color analysis software to be valuable
Company assets. As of December 4, 1996, fourteen United States and foreign
patent applications had been filed and are pending. Additional information
regarding royalties received by the Company as a result of holding certain
patents is set forth in Note 14 to the Company's Consolidated financial
Statements for the year ended September 30, 1996.
The Company has nine registered trademarks and applications pending for
seven trademarks. The Company also attempts to protect its trade secrets and
other proprietary information through proprietary information agreements with
employees and consultants and other security measures. The laws of certain
countries in which the Company's products are or may be manufactured or sold may
not protect the Company's products and intellectual property rights to the same
extent as the laws of the United States.
EMPLOYEES
At September 30, 1996, the Company had 461 full-time employees, including
270 in manufacturing, 76 in engineering, research and development, 81 in
marketing, sales and service and 34 in general administration and finance. None
of the Company's employees in the United States are represented by a
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labor union. The Company has never experienced a work stoppage, slowdown or
strike. The Company considers its employee relations to be excellent.
ITEM 2. PROPERTIES.
The Company's headquarters, manufacturing and research and development
facilities are in a 150,000 square foot building located on a 20-acre site in
Walla Walla, Washington. This modern and efficient facility was custom designed
and built for the Company, with construction completed in October 1990. The
Company occupies the facility under a lease expiring in 2010. The Company has
the option to purchase the facility and related real property during the lease
term at any time after 1995. This facility serves as the Company's corporate
headquarters and is dedicated to the manufacture of its AIS products. In
response to increased market demand for its products, the Company increased its
manufacturing capacity by occupying another 100,000 square foot facility in
Walla Walla beginning in 1996 under a lease expiring in 2005. The Company may
extend the lease until 2010. The Company plans to manufacture most of its SCS
products in this facility. The Company further increased its manufacturing
capacity as a result of the acquisition in July 1996 of Suplusco Holding B.V.
which owns a 18,000 square foot facility occupied by Superior B.V., its
subsidiary, located in Beusichem, The Netherlands. The Company will also
manufacture SCS products in this facility. The Company also leases office space
in the United States in Rockville, Maryland and Beaver Dam, Wisconsin and in
Rijssen, The Netherlands.
ITEM 3. LEGAL PROCEEDINGS.
From time-to-time, the Company is named as a defendant in legal proceedings
arising out of the normal course of its business. As of December 4, 1996,
however, the Company was not party to any material pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Shares of the Company's common stock are quoted on the NASDAQ National
Market System and the following table shows the high and low trading prices per
share of the Company's common stock for the two most recent fiscal years:
Fiscal 1995
1st Quarter $ 6.75 $ 5.00
2nd Quarter 8.875 6.50
3rd Quarter 11.75 8.125
4th Quarter 18.625 9.25
Fiscal 1996
1st Quarter $15.50 $ 9.75
2nd Quarter 18.00 12.25
3rd Quarter 27.25 16.75
4th Quarter 28.50 20.25
The Company had approximately 2,500 beneficial owners of its common stock,
of which 158 are of record, as of December 4, 1996.
The Company has not historically paid dividends on its common stock. The
Board of Directors does not anticipate payment of any dividends in the
foreseeable future and intends to continue its present policy of retaining
earnings for reinvestment in the operations of the Company. The current credit
facility with the Company's principal bank restricts the payment of dividends on
its common stock.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial information set forth below for each of
the five years in the period ended September 30, 1996 has been derived from the
audited consolidated financial statements of the Company. The financial data for
fiscal years ended September 30, 1992 and 1993 has been derived from
consolidated financial statements not included herein. The information below
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Company's Consolidated
Financial Statements and Notes thereto as provided in Item 7 and Item 8,
respectively.
FISCAL YEAR ENDED SEPTEMBER 30,
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1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF EARNINGS DATA:
Net sales ........................... $54,341 $42,653 $31,135 $35,293 $26,658
Cost of sales ....................... 33,050 25,063 19,500 20,730 15,816
------- ------- ------- ------- -------
Gross profit ........................ 21,291 17,590 11,635 14,563 10,842
Total operating expenses ............ 15,226 13,638 10,814 10,194 8,703
------- ------- ------- ------- -------
Income from operations .............. 6,065 3,952 821 4,369 2,139
Other income (expense) .............. 1,061 1,175 613 (56) 94
------- ------- ------- ------- -------
Earnings before income taxes ........ 7,126 5,127 1,434 4,313 2,233
Income tax expense .................. (2,252) (1,589) (488) (1,434) (637)
------- ------- ------- ------- -------
Net earnings ........................ $ 4,874 $ 3,538 $ 946 $ 2,879 $ 1,596
======= ======= ======= ======= =======
Net earnings per share .............. $ 1.05 $ .76 $ .20 $ .79 $ .44
======= ======= ======= ======= =======
Weighted average common and
common equivalent shares
outstanding......................... 4,652 4,639 4,635 3,645 3,635
======= ======= ======= ======= =======
SEPTEMBER 30,
---------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments ....................... $ 9,528 $13,699 $10,008 $ 8,085 $ 1,381
Working capital ..................... 17,736 18,783 16,371 15,249 4,338
Property, plant and equipment, net .. 8,703 4,096 3,845 4,316 4,085
Total assets ........................ 45,252 31,556 28,981 26,912 16,029
Short-term borrowings ............... 923 415 385 355 345
Long-term debt, less current
portion ........................... 1,467 825 1,240 1,625 1,743
Shareholders' equity ................ 27,583 22,760 19,202 18,207 7,328
11
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Annual Report on Form 10-K includes "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 fiscal years ended September 30, 1996, 1995 and 1994, the Company's
net sales were $54.3 million, $42.7 million, and $31.1 million, respectively.
Net sales in fiscal 1996 increased by 27% over fiscal 1995. The increased
revenues in 1996 resulted principally from a 59% increase in sales of automated
inspection systems which, in turn, resulted principally from a substantial
volume of shipments of Tegra(TM) systems, the Company's latest generation of
electro-optical sorting systems. The Tegra product line was introduced first to
the U.S. market during the first fiscal quarter of 1996 and subsequently to the
European market during the third fiscal quarter. Initial deliveries of these
systems began in the second quarter, with delivery of systems in full production
quantities beginning in the third fiscal quarter. Net sales in fiscal 1995
increased by 37% over fiscal 1994. Sales of automated inspection systems and
specialized conveying systems both increased by 42% from fiscal 1994, resulting
primarily from a broad-based demand created by increased expenditures for
process automation capital equipment by domestic food processing customers.
Export and foreign sales accounted for 34%, 27% and 28% of total net sales in
fiscal 1996, 1995 and 1994, respectively. While sales to European customers
increased by 27% over the prior year, sales to customers in other foreign
markets were the principal contributors to an overall increase of 60% in export
and foreign sales in fiscal 1996 over 1995. Export and foreign sales in fiscal
1995, primarily to customers in Europe, increased by 31% over such sales in
fiscal 1994.
The Company expects that new and repeat orders for the Tegra product line
will continue to provide a significant source of the growth in revenues in
fiscal 1997 as the advantages of this product line become more widely known and
customers of earlier generation products may switch to the new Tegra systems,
sustaining sales increases in the near term. In the first quarter of fiscal
1997, the Company expects to complete a reorganization of its domestic
operations into business units comprised of the Company's two major product
groups: Specialized Conveying Systems (SCS) and Automated Inspection Systems
(AIS). The SCS business unit will be relocated into a new 100,000 square foot
leased manufacturing facility in Walla Walla. The AIS business unit, which
includes the Tegra product line, will remain in the Company's present 150,000
square foot facility. The Company expects that this reorganization will provide
increased manufacturing capacity and improved capability to meet customer
requirements. However, there can be no assurance that the relocation of a
portion of its manufacturing operations, as well as the realignment and staffing
of its organizational structure, will not result in a near-term adverse effect
on the Company's manufacturing efficiency, its ability to meet shipment
requirements and expense levels, resulting in a reduction in net earnings.
12
15
Gross profit was 39%, 41% and 37% of sales in fiscal 1996, 1995 and 1994,
respectively. The reduced profit margins, as a percentage of net sales, in
fiscal 1996 compared to fiscal 1995 resulted principally from increased
production costs, manufacturing variances and warranty reserves for Tegra
systems relative to the cost structures of the Company's third generation
electro-optical sorting systems which Tegra replaced. The Company offers a
two-year warranty on Tegra systems compared to a one-year warranty on its other
products. Management believes that gross profit margins on Tegra systems will
improve as a result of cost reduction and value engineering activities, which
the Company is currently undertaking. Higher margins across all product
categories in fiscal 1995 resulted primarily from higher volume and increased
labor productivity that reduced manufacturing overhead as a percentage of net
sales compared to fiscal 1994. Also in fiscal 1995, product mix shifted slightly
toward higher margined products.
Operating expenses increased to $15.2 million in fiscal 1996 from $13.6
million in fiscal 1995 and from $10.8 million in fiscal 1994 and represented
28%, 32% and 35% of net sales in each such year, respectively. The Company
expects that, as a percentage of net sales, total operating expenses in fiscal
1997 may increase slightly over fiscal 1996 due to anticipated increases in
selling and general and administrative expenses resulting from the Company's
reorganization into business units, the added expense levels resulting from the
acquisition of Suplusco Holding B.V. and its subsidiary, Superior B.V., a
manufacturer of specialized conveying systems, both located in The Netherlands,
and other factors. As a result of this acquisition, the Company believes it will
be a more effective competitor in the European market due to a local sales and
manufacturing presence, reduced product delivery cycles and reduced shipping
costs.
Selling and marketing expenses increased to $7.4 million in fiscal 1996
from $6.8 million in fiscal 1995 and $5.7 million in fiscal 1994 and represented
14%, 16% and 18% of net sales in each such year, respectively. In fiscal 1996,
selling and marketing expenses increased as a result of several factors,
including increased commission expenses 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. Increased
marketing and product promotion expenditures related to the introduction of
Tegra also contributed to higher selling and marketing expenses. Generally,
those same factors, combined with increased staffing levels and related
expenses, also contributed to the increases to selling and marketing expenses in
fiscal 1995 compared to fiscal 1994. The Company expects to continue devoting
additional resources in fiscal 1997 to expand its selling efforts and market
presence, both domestically and internationally.
Research and development expenses increased in fiscal 1996 to $4.3 million
from $4.0 million in fiscal 1995 and $2.7 million in fiscal 1994, and
represented 8%, 9% and 9% of net sales in each such year, respectively. The
majority of the research and development expenses in fiscal 1996, and the 9%
increase in those expenses compared to fiscal 1995, resulted principally from
expenditures associated with the new product development activities for the
Tegra product line. An increase of 47% in research and development expenses in
fiscal 1995 over fiscal 1994 also resulted principally from expenditures
associated with the Tegra-related new product development. Research and
development expenses also increased in 1995 as a result of the purchase of the
operations and certain assets of AgriVision Engineering, Inc. early in the first
quarter of that fiscal year. The Company expects that research and development
expenses in fiscal 1997 may increase somewhat compared to fiscal 1996 due to an
increased focus on extending the capabilities and applications of the
technologies contained in Tegra and on the development of its pharmaceutical
product line.
General and administrative expenses increased to $3.5 million in fiscal
1996 from $2.9 million in fiscal 1995 and $2.5 million in fiscal 1994, and
represented 6%, 7% and 8% of net sales in each such
13
16
year, respectively. The increased general and administrative expenses in fiscal
1996 compared to 1995 resulted from increased staffing levels and related
expenses, as well as expenses associated with the acquisition of Suplusco
Holding B.V. The higher general and administrative expenses in fiscal 1995 as
compared to fiscal 1994 resulted from increased personnel-related expenses
associated with the purchase of the AgriVision business unit, combined with
increased incentive compensation and phantom stock expenses related to the
Company's increased profitability.
Other income and expense includes interest income and expense, royalty
income and other income from miscellaneous sources. The Company received
payments of $400,000 in each of the fiscal years of 1996, 1995 and 1994 related
to the settlement of patent litigation in fiscal 1992. The final installment of
these settlement payments was received in fiscal 1996. Net interest income in
fiscal 1996 was $546,000 compared to $539,000 in 1995. Increased interest
earnings on higher balances of funds invested in cash equivalents and short-term
investments in fiscal 1995 and reduced long-term debt resulted in net interest
income of $539,000 in fiscal 1995 compared to net interest income of $266,000 in
fiscal 1994.
The Company's effective income tax rate was 31.6%, 31.0%, and 34.0% for
fiscal 1996, 1995 and 1994, respectively. The effective income tax rate for
fiscal 1995 benefited from the effect of an increased research and development
tax credit.
Net earnings were $4.9 million in fiscal 1996 compared to $3.5 million in
fiscal 1995 and $946,000 in fiscal 1994. Net earnings per share were $1.05,
$0.76 and $0.20 in fiscal years 1996, 1995 and 1994, respectively. The increase
in net earnings in fiscal 1996 compared to fiscal 1995 resulted principally from
increased sales volume, increases in gross margin resulting from the effect of
increased volume, offset by increased production costs, increased warranty
reserve expenses and increased operating expenses. The increase in net earnings
in fiscal 1995 resulted principally from increased sales volume, increases in
gross margin resulting from both the effect of increased volume upon reduced
manufacturing overhead costs as a percentage of sales and a shift in product mix
to higher margined products and a reduction in the effective income tax rate,
offset by increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had cash, cash equivalents and
short-term investments of $9.5 million, a decrease of $4.2 million from the
balance of $13.7 million at September 30, 1995. This decrease resulted
principally from cash utilized to fund acquisitions and expenditures for capital
equipment. The Company continues to actively evaluate growth alternatives and
strategies, including acquisitions, which may require the utilization of some of
its cash or short-term investment resources in fiscal 1997.
Trade accounts receivable increased by $5.9 million to $8.8 million from
$2.9 million in fiscal 1995, a result of a high level of revenues late in the
fourth quarter of fiscal 1996. Investment in inventories increased by $4.7
million or 53% to $13.5 million in response to an increase of 52% in net sales
in the second half of fiscal 1996 compared to the second half of fiscal 1995.
Additionally, inventories increased as the result of the acquisition of Superior
B.V. Accounts payable increased by $3.0 million to $4.8 million due to increased
expenditures for capital equipment and increased inventory purchases. Accrued
payroll liabilities increased in fiscal 1996 by $479,000 to $3.3 million due
primarily to increased staffing levels and increased incentive compensation and
profit sharing accruals resulting from the increased profitability and improved
operating performance. Accrued customer support and warranty costs increased by
$924,000 to $1.4 million due to the high volume of Tegra shipments. An increase
of $1.9 million in customer deposits to $3.0 million during fiscal 1996 resulted
from the effect of increased orders in the fourth quarter of fiscal 1996 and the
corresponding 82% increase in backlog, which was
14
17
$14.7 million at the close of fiscal 1996 compared to $8.1 million at the close
of fiscal 1995. Income taxes payable increased by $1.3 million principally due
to the increased level of profitability.
Expenditures for property and equipment were $3.3 million in fiscal 1996,
primarily as a result of equipping the new 100,000 square foot manufacturing
facility which was leased in fiscal 1996. Other than with respect to potential
acquisitions, the Company expects that expenditures for property and equipment
in fiscal 1997 will materially decrease from the level incurred in fiscal 1996.
At September 30, 1996, the Company had no material commitments for capital
expenditures.
Effective July 1, 1996, the Company acquired all of the outstanding common
stock of Suplusco Holding B.V. and its subsidiary, Superior B.V. The purchase
price was $3.1 million subject to certain adjustments. Effective July 15, 1996,
the Company also purchased certain inventory, trademarks and patents related to
a pharmaceutical inspection product line from the Imaging Division of Oncor,
Inc. for $377,000. Although the Company expects to generate revenues from the
pharmaceutical inspection product line in fiscal 1997, further development of
this product line is expected to require additional research and development as
well as selling and marketing expenses during the year.
The Company has a domestic operating line with a commercial bank which
provides for an unsecured operating line of credit up to $4 million, at the
bank's prime interest rate less 1/4%. The accommodation also provides for a
letter of credit of $2,020,000 for an Industrial Revenue Bond. Collateral for
the letter of credit is primarily manufacturing equipment financed by the
Industrial Revenue Bond. At September 30, 1996, the Company had no borrowings
under the domestic operating line.
In conjunction with the acquisition of Suplusco Holding B.V. and its
subsidiary, the Company maintains a credit facility with a Netherlands bank
which provides an operating line up to $400,000 at an interest rate of 8.5%.
Collateral for the credit facility is certain land, buildings and receivables.
At September 30, 1996, borrowings of $110,000 were outstanding under this credit
facility.
15
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Title Page
----- ----
Independent Auditors' Report............................................ 17
Consolidated Balance Sheets at September 30, 1996 and 1995.............. 18
Consolidated Statements of Earnings for the three years ended
September 30, 1996.................................................. 19
Consolidated Statements of Shareholders' Equity for the three years
ended September 30, 1996............................................ 20
Consolidated Statements of Cash Flows for the three years ended
September 30, 1996.................................................. 21
Notes to Consolidated Financial Statements.............................. 22
16
19
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Key Technology, Inc.
We have audited the accompanying consolidated balance sheets of Key Technology,
Inc. and Subsidiaries as of September 30, 1996 and 1995, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended September 30, 1996. The consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Key Technology, Inc. and
Subsidiaries as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Portland, Oregon
November 6, 1996
17
20
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
(In Thousands, Except Share Data)
- --------------------------------------------------------------------------------
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 3,458 $ 5,323
Short-term investments 6,070 8,376
Trade accounts and notes receivable, net 8,824 2,929
Inventories 13,486 8,789
Prepaid expenses 714 428
Prepaid income taxes 918 412
------- -------
Total current assets 33,470 26,257
PROPERTY, PLANT, AND EQUIPMENT, NET 8,703 4,096
PROPERTY HELD FOR SALE, NET 650 646
GOODWILL, NET 1,883 --
PATENTS AND OTHER ASSETS, NET 546 557
------- -------
TOTAL $45,252 $31,556
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,797 $ 1,842
Accrued payroll liabilities and commissions 3,251 2,772
Accrued customer support and warranty costs 1,368 444
Income tax payable 1,300 --
Other accrued liabilities 1,103 894
Customers' deposits 2,992 1,107
Current portion of long-term debt 813 415
Notes payable 110 --
------- -------
Total current liabilities 15,734 7,474
LONG-TERM DEBT 1,467 825
OTHER LIABILITIES 121 188
DEFERRED INCOME TAXES 347 309
SHAREHOLDERS' EQUITY:
Preferred stock - no par value; 5,000,000 shares
authorized; none issued and outstanding -- --
Common stock - no par value; 15,000,000 shares
authorized; 4,657,822 and 4,647,650 issued
and outstanding 8,730 8,634
Retained earnings 19,062 14,188
Cumulative foreign currency translation adjustment (209) (62)
------- -------
Total shareholders' equity 27,583 22,760
------- -------
TOTAL $45,252 $31,556
======= =======
See notes to consolidated financial statements.
18
21
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED SEPTEMBER 30, 1996
(In Thousands, Except Per Share Data)
- --------------------------------------------------------------------------------
1996 1995 1994
NET SALES $54,341 $42,653 $31,135
COST OF SALES 33,050 25,063 19,500
------- ------- -------
Gross profit 21,291 17,590 11,635
------- ------- -------
OPERATING EXPENSES:
Selling 7,430 6,799 5,654
Research and development 4,312 3,956 2,688
General and administrative 3,484 2,883 2,472
------- ------- -------
Total operating expenses 15,226 13,638 10,814
------- ------- -------
INCOME FROM OPERATIONS 6,065 3,952 821
------- ------- -------
OTHER INCOME (EXPENSE):
Royalty income (Note 14) 400 400 400
Interest income 616 606 327
Interest expense (70) (67) (61)
Other, net 115 236 (53)
------- ------- -------
Total other income (expense) 1,061 1,175 613
------- ------- -------
Earnings before income taxes 7,126 5,127 1,434
Income tax expense 2,252 1,589 488
------- ------- -------
NET EARNINGS $ 4,874 $ 3,538 $ 946
======= ======= =======
NET EARNINGS PER SHARE (Note 2) $ 1.05 $ 0.76 $ 0.20
======= ======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,652 4,639 4,635
======= ======= =======
See notes to consolidated financial statements.
19
22
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED SEPTEMBER 30, 1996
(In Thousands, Except Share Data)
- --------------------------------------------------------------------------------
CUMULATIVE
FOREIGN
COMMON STOCK CURRENCY
---------------------- RETAINED TRANSLATION
SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL
---------------------------------------------------------------
Balance at October 1, 1993 4,628,400 $8,503 $ 9,704 $-- $18,207
Issuance of common stock upon
exercise of stock options (Note 11) 9,200 49 -- -- 49
Net earnings -- -- 946 -- 946
--------- ------ ------- ----- -------
Balance at September 30, 1994 4,637,600 8,552 10,650 -- 19,202
Issuance of common stock upon
exercise of stock options (Note 11) 10,050 82 -- -- 82
Foreign currency translation
adjustment -- -- -- (62) (62)
Net earnings -- -- 3,538 -- 3,538
--------- ------ ------- ----- -------
Balance at September 30, 1995 4,647,650 8,634 14,188 (62) 22,760
Issuance of common stock upon
exercise of stock options (Note 11) 8,467 59 -- -- 59
Issuance of stock for Employee
Stock Purchase Plan (Note 11) 1,705 37 -- -- 37
Foreign currency translation
adjustment -- -- -- (147) (147)
Net earnings -- -- 4,874 -- 4,874
--------- ------ ------- ----- -------
Balance at September 30, 1996 4,657,822 $8,730 $19,062 $(209) $27,583
========= ====== ======= ===== =======
See notes to consolidated financial statements.
20
23
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED SEPTEMBER 30, 1996
(Amounts In Thousands)
- --------------------------------------------------------------------------------
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,874 $ 3,538 $ 946
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,327 1,049 996
Deferred income taxes, net (468) 159 (75)
Bad debt expense 90 35 114
Changes in, net of effects of acquisitions:
Trade accounts and notes receivable (5,090) 2,703 (262)
Inventories (3,820) (1,169) (425)
Prepaid expenses (286) 116 121
Patents and other assets (35) (499) 2
Accounts payable 1,657 (299) 1,012
Accrued payroll liabilities and commissions 479 909 (546)
Accrued customer support and warranty costs 924 (86) 147
Income taxes payable 1,300 (646) 406
Other accrued liabilities 115 (26) (349)
Customers' deposits 1,629 (435) 720
Other liabilities (67) (27) (53)
------- ------- -------
Cash provided by operating activities 2,629 5,322 2,754
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities (purchases) of short-term investments, net 2,306 (6,903) (1,473)
Purchases of property, plant, and equipment, net (3,329) (1,266) (525)
Purchase of product line (377) -- --
Acquisition of subsidiary (2,754) -- --
------- ------- -------
Cash used in investing activities (4,154) (8,169) (1,998)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock (Note 11) 96 82 49
Payments on long-term debt (1,396) (385) (355)
Proceeds from issuance of long-term debt 1,107 -- --
------- ------- -------
Cash used in financing activities (193) (303) (306)
------- ------- -------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (147) (62) --
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,865) (3,212) 450
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,323 8,535 8,085
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,458 $ 5,323 $ 8,535
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for interest $ 58 $ 62 $ 62
Cash paid during the year for income taxes 1,671 2,014 408
See notes to consolidated financial statements.
21
24
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
1. THE COMPANY
Key Technology, Inc. and its wholly-owned subsidiaries (the "Company")
design, manufacture, and sell process automation systems, integrating
electro-optical inspection and sorting, specialized conveying and product
preparation equipment. The consolidated financial statements include the
accounts of Key Technology, Inc. and its wholly-owned subsidiaries, Key
Technology B.V., Suplusco Holding B.V., and Key Technology FSC, Inc., a
foreign sales corporation (FSC). All significant intercompany accounts and
transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION - Sales revenue net of allowances is generally
recognized at the time equipment is shipped to customers or when title
passes. Upon receipt of an order, the Company generally receives a deposit
which is recorded as customers' deposits. The Company makes periodic
evaluations of the creditworthiness of its customers and generally does
not require collateral. To date, the Company has not experienced any
material trade accounts receivable write-offs.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - The Company
considers all highly liquid investments with original maturities of 90
days or less to be cash equivalents. Short-term investments consist of
bankers acceptances and commercial paper with original maturities of
greater than 90 days and less than one year. Short-term investments are
held to maturity and the carrying value approximates fair value.
INVENTORIES are stated at the lower of cost (first-in, first-out method)
or market.
PROPERTY, PLANT, AND EQUIPMENT are recorded at cost and depreciated over
estimated useful lives on the straight-line method. The range in lives for
the assets is as follows:
YEARS
-----
Buildings and improvements 7 to 40
Manufacturing equipment 7 to 10
Office equipment, furniture, and fixtures 3 to 7
GOODWILL AND PATENTS - Goodwill is amortized over 10 years. Patent costs
are amortized over the estimated useful lives of the related patents or 17
years, whichever is shorter.
ACCRUED CUSTOMER SUPPORT AND WARRANTY COSTS - The Company provides
customer support services consisting of installation and training to its
customers. The Company also provides a warranty on its products for one or
two years following the date of shipment. Management establishes the
reserve for customer support and warranty costs based upon the types of
products shipped, customer support and product warranty experience and
estimates such costs for related new products where experience is not
available. The provision of customer support and warranty costs is charged
to cost of sales at the time such costs are known or estimable.
22
25
INCOME TAXES - Deferred income taxes are provided for the effects of
timing differences arising from differences in the reporting of revenues
and expenses for financial statement and income tax purposes under the
asset and liability method.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities denominated in a
foreign currency are translated to U.S. dollars at the exchange rate on
the balance sheet date. Translation adjustments are shown separately in
shareholders' equity. Revenues, costs, and expenses are translated using
an average rate. Realized and unrealized foreign currency transaction
gains and losses are included in the consolidated statement of earnings
and are not material.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles 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.
FINANCIAL INSTRUMENTS - Statement of Financial Accounting Standards
("SFAS") No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of the estimated fair value of financial instruments.
The carrying value of the Company's cash, short-term investments,
receivables, trade payables, and other accrued liabilities approximates
their estimated fair values because of the short maturities of those
instruments.
NET EARNINGS PER SHARE - Net earnings per share is computed on the basis
of the weighted average number of common and common equivalent shares
outstanding. When dilutive, outstanding options for common stock have been
included in the calculation of common and common equivalent shares
outstanding using the treasury stock method.
RECLASSIFICATIONS - Certain reclassifications were made to prior years'
consolidated financial statements to conform with the 1996 presentation.
3. ACQUISITIONS
Effective July 1, 1996, the Company acquired all of the outstanding common
stock of Suplusco Holding B.V. and a subsidiary, a manufacturer of
specialized conveying equipment. The purchase price was $3,092,000 subject
to certain adjustments and was accounted for by the purchase method. The
excess of the purchase price over the estimated fair value of net assets
acquired amounted to $1,607,000, which is accounted for as goodwill. The
results of operations of Suplusco Holding B.V. and its subsidiary from
July 1, 1996 are included in the statement of earnings. Assets and
liabilities acquired were as follows (in thousands):
Fair value of assets acquired $ 5,841
Cash paid for common stock, less cash acquired of $338,000 (2,754)
-------
Liabilities assumed $ 3,087
=======
23
26
Pro forma unaudited consolidated operating results of the Company and
Suplusco Holding B.V. and subsidiary for the years ended September 30,
1996 and 1995, assuming the acquisition had been made as of October 1,
1995 and 1994, are summarized below (in thousands, except per share
amounts):
YEAR ENDED SEPTEMBER 30,
------------------------
(Unaudited) 1996 1995
Net sales $57,428 $47,352
Net earnings 5,207 3,800
Net earnings per share 1.12 0.82
These pro forma results have been prepared for comparative purposes only
and include certain adjustments such as additional depreciation expense as
a result of a step-up in the basis of property, plant, and equipment,
additional amortization expense as a result of goodwill and certain other
adjustments, together with related income tax effects. They do not purport
to be indicative of the results of operations which actually would have
resulted had the acquisition been in effect on October 1, 1995 and 1994 or
of future results of operations of the consolidated entities.
Effective July 15, 1996, the Company purchased certain inventories,
trademarks, and patents relating to the pharmaceutical inspection product
line from the Imaging Division of Oncor, Inc. for $377,000. The excess of
the purchase price over the estimated fair value of assets acquired
amounted to $307,000.
On October 3, 1994, the Company purchased certain assets from AgriVision
Engineering, Inc. and another party consisting of inventories, equipment,
and a patent for approximately $885,000.
4. TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable consist of the following (in
thousands):
SEPTEMBER 30,
-------------------
1996 1995
Trade accounts receivable $9,097 $3,227
Less allowance for doubtful accounts (273) (298)
------ -------
Total trade accounts and notes receivable $8,824 $2,929
====== ======
5. INVENTORIES
Inventories consist of the following (in thousands):
SEPTEMBER 30,
------------------
1996 1995
Purchased components and raw materials $ 5,728 $2,762
Sub-assemblies 2,055 1,890
Work-in-process 3,267 1,725
Finished goods 2,436 2,412
------- ------
Total inventories $13,486 $8,789
======= ======
24
27
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following (in thousands):
SEPTEMBER 30,
-------------------
1996 1995
Land $ 277 $ --
Buildings and improvements 1,430 165
Manufacturing equipment 6,868 4,443
Office equipment, furniture, and fixtures 5,609 4,863
Building improvements and equipment purchases in process 1,340 458
------- -------
15,524 9,929
Less accumulated depreciation (6,821) (5,833)
------- -------
Total property, plant, and equipment $ 8,703 $ 4,096
======= =======
7. PROPERTY HELD FOR SALE
The Company's property held for sale consists of a manufacturing plant
vacated in 1991 when the Company moved to a new facility. In the first
quarter of fiscal 1993, the Company established a provision for asset
revaluation of $500,000 to reflect management's current estimate of the
plant's net realizable value. The property held for sale is carried at
cost, net of accumulated depreciation and the revaluation reserve.
8. FINANCING AGREEMENTS
The Company has a domestic credit accommodation with a commercial bank
which provides for an unsecured operating line up to $4,000,000, at the
bank's prime interest rate less 1/4%. This accommodation expires January
24, 1997. The accommodation also provides for a letter of credit of
$2,020,000 for an Industrial Revenue Bond. Collateral for the letter of
credit is primarily manufacturing equipment financed by the Industrial
Revenue Bond. At September 30, 1996 and 1995, the Company had no
borrowings under the domestic operating line. The domestic credit
accommodation contains covenants which require certain levels of tangible
equity and working capital and ratios of current assets to current
liabilities and debt to equity.
In conjunction with the acquisition of Suplusco Holding B.V. and
subsidiary (see Note 3), the Company has a foreign credit facility which
provides an operating line up to $400,000 at an interest rate of 8.5%.
Collateral for the credit facility is certain land, buildings, and
receivables. At September 30, 1996, borrowings of $110,000 were
outstanding.
25
28
Long-term debt consists of the following (in thousands):
SEPTEMBER 30,
--------------------
1996 1995
Industrial Revenue Bond, variable interest rate of 4.15%
at September 30, 1996 (interest rate not to exceed 12%),
due in annual principal installments with interest payable
monthly, secured by letter of credit $ 825 $1,240
Note payable, interest rate of 8.5%, due in monthly principal
and interest installments, secured by certain land, buildings,
and receivables 527 --
Notes payable, interest rate of 7%, due in annual principal
and interest installments, secured by letter of credit 697 --
Equipment note payable, interest rate of 4.9%, due in monthly
principal and interest installments, secured by certain office
equipment 231 --
------ ------
2,280 1,240
Less current portion (813) (415)
------ ------
Total long-term debt $1,467 $ 825
====== ======
Principal payments on long-term debt are as follows (in thousands):
YEAR ENDING
SEPTEMBER 30,
1997 $ 813
1998 743
1999 372
2000 58
2001 58
Thereafter 236
------
Total $2,280
======
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of long-term
debt at September 30, 1996 approximates carrying value.
9. LEASES
The Company has agreements with the Port of Walla Walla to lease two
operating facilities. The Company has the option to purchase the land and
plant under one of the agreements after the fifth full lease year (1995).
The purchase price is determined by reducing the original plant
construction costs of approximately $8,800,000 by one thirty-fifth for
each lease year prior to the exercise of the option and adding $600,000
for the land, subject to further reductions if exercised after the
fifteenth year of the lease.
26
29
Rental expense for the Company's operating leases referred to above were
$805,000 for the year ended September 30, 1996 and $651,000 for each of
the years ended September 30, 1995 and 1994.
The following is a schedule of future minimum rental payments required
under the operating leases and the future rental expense (in thousands):
YEAR ENDING RENTAL RENTAL
SEPTEMBER 30, PAYMENTS EXPENSE
------------- -------- --------
1997 $ 856 $ 925
1998 875 925
1999 883 925
2000 894 925
2001 900 925
Thereafter 8,905 8,399
------- -------
Total $13,313 $13,024
======= =======
10. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
YEAR ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994
Current:
Federal $2,515 $1,398 $559
State 205 32 4
------ ------ ----
2,720 1,430 563
------ ------ ----
Deferred:
Federal (445) 151 (71)
State (23) 8 (4)
------ ------ ----
(468) 159 (75)
------ ------ ----
Total $2,252 $1,589 $488
====== ====== ====
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as
follows (in thousands):
SEPTEMBER 30,
--------------------------
1996 1995 1994
Deferred tax asset:
Reserves and accruals $1,111 $ 679 $ 856
Deferred tax liability:
Accumulated depreciation (540) (576) (594)
------ ----- -----
Net deferred tax asset $ 571 $ 103 $ 262
====== ===== =====
27
30
SEPTEMBER 30,
----------------------
1996 1995 1994
Deferred tax:
Current asset - prepaid income taxes $918 $ 412 $ 559
Long-term liability - deferred income taxes (347) (309) (297)
---- ----- -----
Net deferred tax asset $571 $ 103 $ 262
==== ===== =====
Income tax expense is computed at rates different than statutory rates.
The reconciliation between effective and statutory rates is as follows:
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1996 1995 1994
Statutory rates 34.0% 34.0% 34.0%
Increase (reduction) in income taxes resulting from:
FSC commissions (3.3) (1.0) (4.0)
FSC tax 1.1 0.8 2.6
R&D credit (0.6) (3.3) (1.1)
State income taxes, net of federal benefit 1.7 0.8 0.3
Other (1.3) (0.3) 2.2
---- ---- ----
Income tax combined effective rate 31.6% 31.0% 34.0%
==== ==== ====
11. SHAREHOLDERS' EQUITY
EMPLOYEE STOCK PURCHASE PLAN - Effective February 6, 1996, The Company
adopted an Employee Stock Purchase Plan (the "Plan"). Most employees are
eligible to participate in the Plan. Shares are not available to employees
who already own 5% or more of the Company's stock. Employees can withhold,
by payroll deductions, up to 5% of their regular compensation to purchase
shares. The purchase price is 85% of the fair market value of the common
stock on the purchase date. There were 500,000 shares reserved for
purchase under the Plan. During the year ended September 30, 1996, 1,705
shares were issued.
EMPLOYEES' STOCK OPTION PLAN - Under the 1996 Employees' Stock Option
Plan, eligible employees may receive either incentive stock options or
nonstatutory stock options and such options may be exercised only after an
employee has remained in continuous employment for one year after the date
of grant. Thereafter, the options become exercisable as stipulated by the
individual option agreements, generally 25% per year on the anniversary
date of the grant. The option price is determined to be fair market value
at date of grant.
28
31
The following table summarizes activity under this Plan.
SHARES OUTSTANDING OPTIONS TOTAL
AVAILABLE ----------------------------- SHARES
FOR GRANT SHARES PRICE PER SHARE RESERVED
--------- -------- --------------- --------
Balance at September 30, 1994 106,800 137,700 $ 5.28 - $10.75 244,500
Options granted (68,900) 68,900 $ 7.75 - $ 9.90 --
Options exercised -- (10,050) $ 5.28 - $ 9.45 (10,050)
Options forfeited 18,025 (18,025) --
-------- ------- -------
Balance at September 30, 1995 55,925 178,525 $ 5.28 - $10.75 234,450
Additional shares reserved 500,000 -- 500,000
Options granted (176,200) 176,200 $16.25 - $23.25 --
Options exercised -- (8,467) $ 5.28 - $ 9.45 (8,467)
Options forfeited 9,575 (9,575) --
-------- ------- -------
Balance at September 30, 1996 389,300 336,683 725,983
======== ======= =======
At September 30, 1995, options for 41,900 shares were exercisable at
prices from $5.28 to $10.75 per share. At September 30, 1996, options for
74,279 shares were exercisable at prices from $5.28 to $10.75 per share.
12. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan which covers substantially
all employees. The Company is required to match 50% of employee
contributions up to 2% of each participating employee's compensation. The
Company contributed $193,000, $173,000, and $146,000 in matching funds to
the plan for the years ended September 30, 1996, 1995, and 1994.
The 401(k) plan also permits the Company to make discretionary profit
sharing contributions to all employees. Discretionary profit sharing
contributions are determined annually by the Board of Directors. Profit
sharing plan expense was estimated and provided at $723,000 and $483,000
for the years ended September 30, 1996 and 1995. No profit sharing plan
expense was provided for the year ended September 30, 1994.
The Company has a phantom stock plan for certain key employees and the
Company's estimated purchase price of the phantom stock units is shown as
other liabilities. No additional awards of phantom stock units can occur,
with final settlement occurring in 1998. The Company paid $92,000,
$90,000, and $83,000 in settlement of certain phantom stock unit awards
during the years ended September 30, 1996, 1995, and 1994.
29
32
13. SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION
The following table sets forth certain information for Key Technology
B.V., Suplusco Holding B.V., and subsidiary (collectively "Key Europe"),
wholly-owned subsidiaries of the Parent.
SEPTEMBER 30,
-------------------------------------
1996 1995 1994
Parent sales:
Sales to customers $35,804 $31,119 $22,441
Export sales to customers 15,537 9,851 7,378
Sales to affiliates 1,183 1,398 1,138
------- ------- -------
Total parent sales 52,524 42,368 30,957
Key Europe sales:
Sales to customers 3,000 1,683 1,316
Sales to affiliates 416 586 332
Eliminations (1,599) (1,984) (1,470)
------- ------- -------
Net sales $54,341 $42,653 $31,135
======= ======= =======
Earnings (loss) before taxes:
Parent $ 7,556 $ 5,609 $ 2,186
Key Europe (279) (369) (585)
Eliminations (151) (113) (167)
------- ------- -------
Earnings (loss) before taxes $ 7,126 $ 5,127 $ 1,434
======= ======= =======
Total assets:
Parent $41,105 $30,624 $28,419
Key Europe 9,361 1,384 940
Eliminations (5,214) (452) (378)
------- ------- -------
Total assets $45,252 $31,556 $28,981
======= ======= =======
Sales by the Parent to Key Europe are recorded at arms-length prices.
Intercompany profits are eliminated in consolidation.
For the years ended September 30, 1996 and 1995, the Company sold equipment to
one nonaffiliated customer totaling 12% and 11% of net sales. No single customer
accounted for more than 10% of net sales during the year ended September 30,
1994.
14. ROYALTY INCOME
During 1992, the Company received $1,000,000 in connection with the settlement
of a patent infringement lawsuit brought by the Company. As part of the
settlement, the Company entered into a license agreement under which the Company
received royalty payments through 1996. The Company received royalty payments of
$400,000 during each of the years ended September 30, 1996, 1995, and 1994.
30
33
15. QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following is a summary of operating results by quarter for the years
ended September 30, 1996 and 1995 (in thousands, except per share data):
1996 QUARTER ENDED DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, TOTAL
Net sales $9,110 $8,084 $17,304 $19,843 $54,341
Gross profit 3,630 2,353 7,672 7,636 21,291
Net earnings (loss) 328 (620) 2,779 2,387 4,874
Net earnings (loss) per share 0.07 (0.13) 0.60 0.51 1.05
1995 QUARTER ENDED DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, TOTAL
Net sales $8,587 $9,654 $14,355 $10,057 $42,653
Gross profit 3,533 3,862 6,023 4,172 17,590
Net earnings 278 498 1,788 974 3,538
Net earnings per share 0.06 0.11 0.38 0.21 0.76
* * * * * *
31
34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
There is hereby incorporated by reference the information under the
captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed
with the Securities and Exchange Commission within 120 days after the end of
Registrant's fiscal year ended September 30, 1996.
ITEM 11. EXECUTIVE COMPENSATION.
There is hereby incorporated by reference the information under the caption
"Executive Compensation" in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed
with the Securities and Exchange Commission within 120 days after the end of
Registrant's fiscal year ended September 30, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
There is hereby incorporated by reference the information under the caption
"Voting Securities and Principal Holders Thereof" in the Company's definitive
Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is
anticipated to be filed with the Securities and Exchange Commission within 120
days after the end of Registrant's fiscal year ended September 30, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
32
35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
PAGE
----
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS:
Reference is made to Part II, Item 8 for a listing of required
financial statements filed with this report....................... 16
2. FINANCIAL STATEMENT SCHEDULES:
Financial statement schedules are omitted because they are not
applicable or the required information is included in the
accompanying consolidated financial statements or notes thereto.
3. EXHIBITS:
(3) Articles of Incorporation and Bylaws
(3.1) Restated Articles of Incorporation (filed as
Exhibit 3.1 to the Registration Statement on
Form S-1 (Registration No. 33-63194) filed
with the Securities and Exchange Commission
on May 24, 1993 and incorporated herein by
reference)
(3.2) Restated Bylaws, as amended, (filed as
Exhibit 3.2 to the Quarterly Report on Form
10-Q for the quarterly period ended December
31, 1993 and incorporated herein by
reference)
(10) Material contracts
(10.1) Construction and Lease Agreement dated
October 17, 1989 between the Port of Walla
Walla and Registrant (filed as Exhibit 10.1
to the Registration Statement on Form S-1
(Registration No. 33-63194) filed with the
Securities and Exchange Commission on May 24,
1993 and incorporated herein by reference)
(10.2) Indenture of Trust dated as of February 1,
1993 between Port of Walla Walla Public
Corporation and Key Bank of Washington, as
Trustee (filed as Exhibit 10.2 to the
Registration Statement on Form S-1
(Registration No. 33-63194) filed with the
Securities and Exchange Commission on May 24,
1993 and incorporated herein by reference)
(10.3) Loan Agreement dated February 1, 1993 between
Port of Walla Walla Public Corporation and
Registrant (filed as Exhibit 10.3 to the
Registration Statement on Form S-1
(Registration No. 33-63194) filed with the
Securities and Exchange Commission on May 24,
1993 and incorporated herein by reference)
33
36
(10.4) Pledge and Security Agreement dated as of
February 1, 1993 between Registrant and U.S.
Bank of Washington, N.A. (filed as Exhibit
10.4 to the Registration Statement on Form
S-1 (Registration No. 33-63194) filed with
the Securities and Exchange Commission on May
24, 1993 and incorporated herein by
reference)
(10.5)* Registrant's 1989 Employees' Stock Option
Plan, as amended (filed as Exhibit 10.5 to
the Registration Statement on Form S-1
(Registration No. 33-63194) filed with the
Securities and Exchange Commission on May 24,
1993 and incorporated herein by reference)
(10.6)* Registrant's 401(k) Profit Sharing Plan dated
May 11, 1992 (filed as Exhibit 10.6 to
Amendment No. 1 to Form S-1 (Registration No.
33-63194) filed with the Securities and
Exchange Commission on May 24, 1993 and
incorporated herein by reference)
(10.7)* Registrant's Restated Phantom Stock Plan, as
amended (filed as Exhibit 10.7 to the
Registration Statement on Form S-1
(Registration No. 33-63194) filed with the
Securities and Exchange Commission on May 24,
1993 and incorporated herein by reference)
(10.8)* License Agreement effective July 1, 1992
between Registrant and Simco/Ramic
Corporation (filed as Exhibit 10.8 to the
Registration Statement on Form S-1
(Registration No. 33-63194) filed with the
Securities and Exchange Commission on May 24,
1993 and incorporated herein by reference)
(10.9)* Registrant's Restated 1989 Employees' Stock
Option Plan, as amended (filed as Exhibit
10.1 to the Form 10-Q filed with the
Securities and Exchange Commission on May 12,
1995 and incorporated herein by reference)
(10.10) Business Loan Agreement dated as of February
2, 1995 between Registrant and U.S. Bank of
Washington, N.A.
(10.11)* Registrant's 1996 Employees' Stock Option
Plan (filed as Exhibit 10.1 to the Form 10-Q
filed with the Securities and Exchange
Commission on May 2, 1996 and incorporated
herein by reference)
(10.12)* Registrant's 1996 Employees Stock Purchase
Plan (filed as Exhibit 10.2 to the Form 10-Q
filed with the Securities and Exchange
Commission on May 2, 1996 and incorporated
herein by reference)
(10.13) Lease Agreement dated April 18, 1996 between
the Port of Walla Walla and Registrant (filed
as Exhibit 10.1 to the Form 10-Q filed with
the Securities and Exchange Commission on
August 7, 1996 and incorporated herein by
reference)
(21) List of Subsidiaries
(23) Consent of Deloitte & Touche LLP
- -----------------
* Management contract or compensatory plan or arrangement.
34
37
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by the Registrant during
the last quarter of the fiscal year ended September 30, 1996.
1. Registrant's Form 8-K dated July 1, 1996 and filed with the
Securities and Exchange Commission on July 16, 1996.
2. Registrant's Form 8-K/A dated July 1, 1996 and filed with the
Securities and Exchange Commission on September 13, 1996.
35
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Thomas C. Madsen
--------------------------------------------
Thomas C. Madsen
President and Chief Executive Officer
By: /s/ Steven D. Evans
--------------------------------------------
Steven D. Evans
Vice President of Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
December 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Harold R. Frank December 20, 1996
- -------------------------------------
Harold R. Frank, Director
/s/ Edfred L. Shannon, Jr. December 20, 1996
- -------------------------------------
Edfred L. Shannon, Jr. Director
/s/ Thomas C. Madsen December 20, 1996
- -------------------------------------
Thomas C. Madsen, Director
/s/ Gordon Wicher December 20, 1996
- -------------------------------------
Gordon Wicher, Director
/s/ James H. Stanton December 20, 1996
- -------------------------------------
James H. Stanton, Director
/s/ Glenn A. Waller December 20, 1996
- -------------------------------------
Glenn A. Waller, Director
36
39
KEY TECHNOLOGY, INC.
FORM 10-K
EXHIBIT INDEX
EXHIBIT
NUMBER PAGE
- ------- ----
21.1 List of Subsidiaries................................. 38
23.1 Consent of Deloitte & Touche LLP..................... 39
27 Financial Data Schedule.............................. 40
37