KEY TRONIC CORP - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For Quarter Ended April 3, 2004		Commission File Number Number 0-11559

KEY TRONIC CORPORATION


Washington		91-0849125
(State of Incorporation)		(I.R.S. Employer Identification No.)

North 4424 Sullivan

Spokane, Washington 99216

(509) 928-8000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x.

At May 7, 2004, 9,672,580 shares of Common Stock, no par value (the only class of common stock), were outstanding.

KEY TRONIC CORPORATION

Index


		Page No.
PART I.	FINANCIAL INFORMATION:

Item 1.	Financial Statements:

	Consolidated Balance Sheets – April 3, 2004 (Unaudited) and June 28, 2003	3

	Consolidated Statements of Operations (Unaudited) Third Quarters Ended April 3, 2004 and March 29, 2003	4

	Consolidated Statements of Operations (Unaudited) Nine Months Ended April 3, 2004 and March 29, 2003	5

	Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended April 3, 2004 and March 29, 2003	6

	Notes to Consolidated Financial Statements	7-11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18

Item 4.	Controls and Procedures	18

PART II.	OTHER INFORMATION:

Item 1.	Legal Proceedings	19

Item 2.	Changes in Securities and Use of Proceeds*

Item 3.	Defaults upon Senior Securities*

Item 4.	Submission of Matters to a Vote of Security Holders*

Item 5.	Other Information*

Item 6.	Exhibits and Reports on Form 8-K	19

Signatures		20

*	Items are not applicable

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	April 3, 2004			June 28, 2003
	(in thousands)
Assets
Current assets:
Cash and cash equivalents	$	1,367		$	956
Trade receivables, less allowance for doubtful accounts of $54 and $105		17,845			17,078
Inventories		25,426			24,151
Other		2,038			2,050

Total current assets		46,676			44,235

Property, plant and equipment - net		10,784			11,982

Other assets:
Restricted cash		937			1,142
Other (net of accumulated amortization of $634 and $565)		808			1,001
Goodwill		765			765

Total other assets		2,510			2,908

Total assets	$	59,970		$	59,125

Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term obligations	$	411		$	730
Accounts payable		18,363			13,145
Accrued compensation and vacation		3,387			4,213
Litigation settlement - short-term		910			1,124
Other		1,484			3,240

Total current liabilities		24,555			22,452

Long-term liabilities:
Revolving loan		9,505			9,864
Litigation settlement – long-term		1,861			2,593
Other		1,084			1,096

Total long-term liabilities		12,450			13,553

Total liabilities		37,005			36,005

Commitments and contingencies (Note 8)

Shareholders’ equity:
Common stock, no par value - shares authorized 25,000; issued and outstanding 9,673 and 9,673		38,393			38,393
Accumulated deficit		(15,428	)		(15,273	)

Total shareholders’ equity		22,965			23,120

Total liabilities and stockholders’ equity	$	59,970		$	59,125

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Third Quarters Ended
	April 3, 2004			March 29, 2003
	(in thousands, except per share amounts)
Net sales	$	37,316		$	30,645
Cost of sales		33,604			26,867

Gross profit on sales		3,712			3,778

Operating expenses:
Research, development and engineering		638			725
Selling		681			646
General and administrative		1,773			1,799

Total operating expenses		3,092			3,170

Operating income		620			608

Interest expense		(273	)		(262	)
Other income (expense)		3			(26	)

Income before income tax provision		350			320

Income tax provision		238			14

Net income	$	112		$	306

Earnings per share – basic and diluted:	$	0.01		$	0.03
Weighted average shares outstanding - basic		9,673			9,673
Weighted average shares outstanding - diluted		9,793			9,675

See accompanying notes to consolidated financial statements.

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Nine Months Ended
	April 3, 2004			March 29, 2003
	(in thousands, except per share amounts)
Net sales	$	104,535		$	95,230
Cost of sales		94,675			84,463

Gross profit on sales		9,860			10,767

Operating expenses:
Research, development and engineering		1,926			2,209
Selling		1,527			1,569
General and administrative		5,268			5,425

Total operating expenses		8,721			9,203

Operating income		1,139			1,564

Interest expense		(795	)		(759	)
Litigation settlement		—			12,186
Other income		23			236

Income before income tax provision		367			13,227

Income tax provision		522			368

Net income (loss)	$	(155	)	$	12,859

Earnings (loss) per share – basic and diluted:	$	(0.02	)	$	1.33

Weighted average shares outstanding – basic and diluted		9,673			9,673

See accompanying notes to consolidated financial statements.

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
	April 3, 2004			March 29, 2003
	(in thousands)
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income (loss)	$	(155	)	$	12,859
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		2,137			2,204
Provision for (recovery of) obsolete inventory		(530	)		123
Recovery of doubtful receivables		—			(56	)
Provision for warranty		100			60
Litigation settlement		—			(12,186	)
Loss on disposal of assets		12			22

Changes in operating assets and liabilities:
Trade receivables		(767	)		5,529
Inventories		(745	)		(3,531	)
Other assets		(136	)		118
Accounts payable		5,218			(3,997	)
Accrued compensation and vacation		(826	)		1,064
Litigation settlement		(946	)		(3,111	)
Other liabilities		(2,128	)		1,046

Cash provided by operating activities		1,234			144

Cash flows from investing activities:
Purchase of property and equipment		(638	)		(1,443	)
Increase (decrease) in restricted cash		205			(300	)
Proceeds from sale of property and equipment		4			44

Cash used in investing activities		(429	)		(1,699	)

Cash flows from financing activities:
Payment of financing costs		(35	)		(150	)
Borrowings under revolving credit agreement		106,292			103,405
Repayment of revolving credit agreement		(106,651	)		(102,352	)

Cash provided by (used in) financing activities		(394	)		903

Net increase (decrease) in cash and cash equivalents		411			(652	)

Cash and cash equivalents, beginning of period		956			1,205

Cash and cash equivalents, end of period	$	1,367		$	553

See accompanying notes to consolidated financial statements.

KEY TRONIC CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated interim financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation, in all material respects, of the financial position, results of operations, and cash flows for the periods presented. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s 10-K report for the fiscal year ended June 28, 2003. Certain reclassifications have been made for consistent presentation.

The Company’s reporting period is a 52/53 week fiscal year ending on the Saturday closest to June 30. The quarter ended April 3, 2004 was a 14 week period, and the quarter ended March 29, 2003 was a 13 week period. Consequently, the first nine months of fiscal 2004 include 40 weeks, and the first nine months of fiscal 2003 consisted of 39 weeks.

On October 24, 2002, the Company announced the settlement of the litigation with F&G Scrolling Mouse LLC as explained in greater detail in Note 8 to these financial statements. Readers should be aware that the reported earnings for the nine months ended March 29, 2003, include a one-time benefit for reversal of previously recorded litigation expense.

1. NEW ACCOUNTING PRONOUNCEMENTS

In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The Standard requires that certain freestanding financial instruments be classified as liabilities, including mandatorily redeemable financial instruments, obligations to repurchase the issuer’s equity shares by transferring assets and certain obligations to issue a variable number of shares. The Company adopted SFAS No. 150 on July 1, 2003. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

2. INVENTORIES


	April 3, 2004		June 28, 2003
	(in thousands)
Finished goods	$	8,666	$	9,439
Work-in-process		2,776		3,117

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