UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
_____________________________________________
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, 2008
or
o TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from ____ to ____.
Commission
File No. 0-21820
____________________________________________
KEY
TECHNOLOGY, INC.
(Exact
name of registrant as specified in its charter)
|
Oregon
(State
or jurisdiction of incorporation or organization)
|
93-0822509
(I.R.S.
Employer Identification No.)
|
|
150
Avery Street
Walla
Walla, Washington
(Address
of Principal Executive Offices)
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99362
(Zip
Code)
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Registrant’s
telephone number, including area code: (509) 529-2161
_____________________________________________
Securities
registered pursuant to Section 12(b) of the Act:
|
Title of each class
Common
Stock, no par value
|
Name of each exchange on which
registered
Nasdaq
Global Market
|
_____________________________________________
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicated
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No ý
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act Yes ¨ No ý
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 ý 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 III of this Form 10-K or any amendment to this
Form 10-K. [x]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “accelerated filer”, “large
accelerated filer” and “smaller reporting company” in Rule 12b-2 of Exchange
Act. (Check one):
|
Large
accelerated filer ¨
|
Accelerated
filer ý
|
|
Non-accelerated
filer ¨ (Do
not check if a smaller reporting company.)
|
Smaller
reporting company ¨
|
Indicated
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No ý
The
aggregate market value of the Registrant's common stock held by non-affiliates
on March 31, 2008 (based on the last sale price of such shares) was
approximately $156,144,255.
There
were 5,257,621 shares of the Registrant's common stock outstanding on December
5, 2008.
DOCUMENTS
INCORPORATED BY REFERENCE
Parts of
Registrant's Proxy Statement dated on or about January 5, 2009 prepared in
connection with the Annual Meeting of Shareholders to be held on February 4,
2009 are incorporated by reference into Part III of this Report.
2008
FORM 10-K
TABLE
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| EXHIBIT INDEX |
67
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INFORMATION CONCERNING FORWARD-LOOKING
STATEMENTS
From time
to time, Key Technology, Inc. (“Key” or the “Company”), through its management,
may make forward-looking public statements with respect to the Company
regarding, among other things, expected future revenues or earnings,
projections, plans, future performance, product development and
commercialization, and other estimates relating to the Company’s future
operations. Forward-looking statements may be included in reports
filed under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), in press releases or in oral statements made with the approval of an
authorized executive officer of Key. The words or phrases “will
likely result,” “are expected to,” “intends,” “is anticipated,” “estimates,”
“believes,” “projects” or similar expressions are intended to identify
“forward-looking statements” within the meaning of Section 21E of the Exchange
Act and Section 27A of the Securities Act of 1933, as amended, as enacted by the
Private Securities Litigation Reform Act of 1995.
Forward-looking
statements are subject to a number of risks and uncertainties. The
Company cautions investors not to place undue reliance on its forward-looking
statements, which speak only as to the date on which they are
made. Key’s actual results may differ materially from those described
in the forward-looking statements as a result of various factors, including
those listed below:
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·
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current
worldwide economic conditions may adversely affect the Company’s business
and results of operations, and the business of the Company’s
customers;
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·
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adverse
economic conditions, particularly in the food processing industry, either
globally or regionally, may adversely affect the Company's
revenues;
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·
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the
loss of any of the Company’s significant customers could reduce the
Company’s revenues and
profitability;
|
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·
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the
Company is subject to pricing pressure from its larger customers which may
reduce the Company’s profitability;
|
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·
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the
failure of any of the Company's independent sales representatives to
perform as expected would harm the Company's net
sales;
|
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·
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the
Company may make acquisitions that could disrupt the Company’s operations
and harm the Company’s operating
results;
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·
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issues
arising during the implementation of the Company's enterprise resource
planning (“ERP”) system could affect the Company’s operating results and
ability to manage the Company’s business
effectively;
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·
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if
the Company's ERP system is not implemented properly, it could cause
errors in the Company's financial
reporting;
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·
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the
Company's international operations subject the Company to a number of
risks that could adversely affect the Company’s revenues, operating
results and growth;
|
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·
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competition
and advances in technology may adversely affect sales and
prices;
|
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·
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failure
of the Company’s new products to compete successfully in either existing
or new markets;
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·
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the
Company's inability to retain and recruit experienced personnel may
adversely affect the Company’s business and prospects for
growth;
|
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·
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the
loss of members of the Company’s management team could substantially
disrupt the Company’s business
operations;
|
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·
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the
inability of the Company to protect the Company’s intellectual property,
especially as the Company expands geographically, may adversely affect the
Company’s competitive advantage;
|
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·
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intellectual
property-related litigation expenses and other costs resulting from
infringement claims asserted against the Company by third parties may
adversely affect the Company’s results of operations and the Company’s
customer relations;
|
|
·
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the
Company's dependence on certain suppliers may leave the Company
temporarily without adequate access to raw materials or
products;
|
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·
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the
limited availability and possible cost fluctuations of materials used in
the Company’s products could adversely affect the Company’s gross profits;
and
|
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·
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the
price of the Company's common stock may fluctuate significantly and this
may make it difficult for shareholders to resell common stock when they
want or at prices they find
attractive.
|
Given
these uncertainties, readers are cautioned not to place undue reliance on the
forward-looking statements. The Company disclaims any obligation
subsequently to revise or update forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
ITEM
1. BUSINESS.
General
The
Company was founded in 1948 as a local producer of vegetable processing
equipment. The Company has evolved into a worldwide supplier of
process automation solutions to the food processing industry and other
industries such as tobacco and pharmaceuticals. The present Company was
incorporated in 1982 as a result of a management buyout of the predecessor
organization.
The
Company and its operating subsidiaries design, manufacture, sell and service
process automation systems that process product streams of discrete pieces to
improve safety and quality. These systems integrate electro-optical
automated inspection and sorting systems with process systems that include
specialized conveying and preparation equipment. The Company provides parts and
service for each of its product lines to customers throughout the
world.
Net sales
for the year ended September 30, 2008 were $134.1 million compared with $107.5
million for fiscal 2007. The Company reported net earnings for fiscal
2008 of $7.5 million, or $1.35 per diluted share, compared with net earnings of
$7.4 million, or $1.37 per diluted share, for fiscal 2007, which included a
$750,000 gain, or $0.14 per share, from the 2007 sale of the Company’s 50%
interest in its InspX joint venture. Export and international sales
for the fiscal years ended September 30, 2008, 2007 and 2006 accounted for 50%,
46% and 51% of net sales in each such year, respectively.
Industry
Background
Food
Processing Industry
The
Company’s primary market is the food processing industry. Food
processors must process large quantities of product through different stages,
including sorting to remove foreign material and defective pieces, and
inspection for product quality and safety. The frequency and severity
of defects in the 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. The industry has sought
to replace manual methods with automated systems that achieve higher yield,
improve product quality and safety, and reduce costs.
The
Company’s strategy is to solve processing industry problems of high labor costs,
inadequate yields and inconsistent quality and safety by providing automated
inspection systems and process systems. The Company’s process
automation systems use advanced optical inspection technology to improve product
yield (more of the good product recovered) and quality (higher percentage of
defective product and foreign material removed) over the manual sorting and
defect removal methods historically used by food processors. In more
developed markets, such as those in North America and Western Europe, the
substitution of automated inspection for manual inspection is well
underway. However, processors in these areas remain keenly interested
in process yield and product quality and safety improvements.
The
largest markets for the Company’s products have been processors of potatoes,
vegetables and fruit. The Company believes many additional
applications for its systems exist in both food and non-food
markets.
The
principal potato market served by the Company’s systems is french
fries. French fries comprise a significant portion of the frozen
potato products processed annually in the United States. The
expansion of American-style fast food chains in other countries is resulting in
continued development of the frozen french fry market
overseas. Current domestic investment in new french fry processing
facilities has flattened relative to historical levels, largely in response to
changing consumer preferences. However, investments in process yield
enhancement and in greater process throughputs from existing plants remain
significant items for the Company and
its
customers in the potato market. The Company’s recent diversification
strategies have resulted in less dependence on this industry although it
continues to be a strategically important market.
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 markets for the Company
are green beans, corn, carrots, peas, onions, apples, pears, cranberries,
peaches, pre-prepared, ready-to-eat salads and vegetables, dehydrated fruits and
vegetables, nuts, and fresh-cut fruit products.
The
Company believes the food processing companies are financially strong, yet are
faced with the need to improve profitability while satisfying external pressures
to hold constant or reduce prices for their own products and provide safer
products to the consuming public. Since the Company’s equipment
results in higher process yields, improved product quality and safety, as well
as reduced processing costs, the Company believes these companies will have
increased interest in the Company’s products to satisfy these needs, allowing
for expanded sales into the food processing industry in future
years. Due to the seasonal nature of the food processing industry,
the Company does experience some seasonality of orders and
shipments. Orders and shipments for this industry in the Company’s
first two fiscal quarters of the year tend to be lower than during the Company’s
other fiscal quarters. Demand for the Company’s products remained
strong during fiscal 2008 due to positive market and geographical opportunities,
and new product introductions by the Company.
Non-food
Industries – Tobacco, Pharmaceuticals and Nutraceuticals
Processors
in non-food industries also implement systems solutions to reduce costs,
increase yields, and produce higher quality products. The Company’s
primary non-food markets are the tobacco industry and the
pharmaceutical/nutraceutical industry.
In fiscal
2008, the tobacco industry represented less than 5% of the Company’s
sales. The Company’s products provide tobacco companies sorting
capability to remove foreign matter from a stream of stripped
tobacco.
In fiscal
2008, the pharmaceutical and nutraceutical industries also represented less than
5% of the Company’s sales. The Company’s products provide
pharmaceutical and nutraceutical manufacturers with capabilities to verify
correct doses and meet acceptable quality levels for finished
products.
Products
The
following table sets forth sales by product category for the periods indicated
(in thousands):
|
Fiscal
Year Ended September 30,
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||||||||||||||||||||||||
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2008
|
2007
|
2006
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||||||||||||||||||||||
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Automated
inspection systems
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$ | 55,968 | 42 | % | $ | 46,858 | 44 | % | $ | 30,264 | 36 | % | ||||||||||||
|
Process
systems
|
56,603 | 42 | % | 40,947 | 38 | % | 34,925 | 41 | % | |||||||||||||||
|
Parts
and
service
|
21,515 | 16 | % | 19,735 | 18 | % | 19,651 | 23 | % | |||||||||||||||
|
Net sales
|
$ | 134,086 | 100 | % | $ | 107,540 | 100 | % | $ | 84,840 | 100 | % | ||||||||||||
Service
and maintenance contracts are less than 10% of total net sales and are therefore
summarized with parts and service.
The
following table sets forth the percent of the total gross margin contributed by
each product category for the periods indicated:
|
Fiscal
Year Ended September 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Automated
inspection
systems
|
45 | % | 51 | % | 44 | % | ||||||
|
Process
systems
|
37 | % | 30 | % | 30 | % | ||||||
|
Parts
and
service
|
18 | % | 19 | % | 26 | % | ||||||
|
Total gross
margin
|
100 | % | 100 | % | 100 | % | ||||||
Upgrades
of automated inspection systems are included with automated inspection
systems.
Automated
Inspection Systems
Automated
inspection systems are used in various applications to detect and remove defects
and foreign materials from production lines, most often during processing of raw
and semi-finished products. The Company’s product families within
this group include the following: Manta™, Tegra® and
Optyx®, which
are used in a variety of applications and industries; Tobacco Sorter™
3 tobacco sorting systems used in tobacco threshing and primary
processing; ADR®
automatic defect removal systems used in the french fry industry; and Optyx®SG used
in the pharmaceutical and nutraceutical industry.
The
Company’s automated inspection systems incorporate object-based sorting
technology that recognizes not only color, size and shape characteristics, but
also density and fluorescence sensing. This capability provides a
solution to previously difficult sorting problems, such as differentiation
between green beans and green bean stems. To ease operation, the
sorters are equipped with application-specific software packs called
KeyWare®, which
are designed for a single product category. Object Linking and
Embedding for Process Control (“OPC”)-compliant network communication software,
introduced in 2008, allows the systems to easily interface with plant networks,
extending machine monitoring and communication control capabilities beyond the
plant floor to the control room. The systems operate on Key’s
advanced G6 electro-optical platform, which features a controller, modular
vision engine and high-resolution cameras. Modular designs and the
use of industry-wide connectivity standards ease future upgrades to keep the
systems up to date and performing optimally as technology advances.
Nearly
all systems in this group use proprietary linear array, charged coupled device
(“CCD”) monochromatic, color or multi-spectral cameras. Additionally,
Manta and Optyx can be equipped with Raptor Laser Technology or FluoRaptor™, a
fluorescence-sensing laser, in combination with the cameras. The
cameras and laser-sensors scan the product-streams, which move at 5 to 20 feet
per second, at the rate of 1,500 to 8,000 times per second and can identify
defects as small as 1/128 of an inch in diameter. Systems with
monochromatic cameras generally are sold at lower price levels and are most
effective for product that has a marked disparity in shade between the defective
and the good product. Systems with color cameras are required when a
variety of defect and product colors occur simultaneously, when the difference
in shading between the defective and the good product is more subtle, and when
shape sorting is required. Multi-spectral systems can utilize
infrared or ultraviolet technologies, individually or in combination with
visible light, to identify defects that are best differentiated from good
product outside the visible light spectra. Systems with laser
technology detect foreign matter based on differences in the structural
properties of the objects, regardless of color or shape.
Manta. Introduced
in 2008, Manta is the Company’s highest capacity optical
sorter. Featuring high-resolution inspection and a 79-inch scan width
within a space-saving footprint, Manta handles up to 60,000 pounds of processed
vegetables or fruit per hour. With the highest number of sensors and
image processing modules, Manta maintains the high resolution of the finest
narrow-belt sorters on its wider, higher-capacity frame. Key can
configure Manta with up to eight top-mounted color or Vis/IR (visible infrared)
cameras and up to two top-mounted Raptor or FluoRaptor
lasers. Optional bottom-mounted sensors can be added to meet the
specific needs of each application. Manta’s dynamic design supports
on-belt viewing as well as off-belt, in-air viewing. In addition to
processed vegetables and fruit, Manta is being developed for other industry
applications.
Tegra
System. Inspecting product in-air using cameras configured in
a tilted-X geometry that look at oblique angles, Tegra views product from all
sides. A unique metal-mesh catenary C-belt® uses
gravity and centrifugal force
–
not friction – to gently accelerate, stabilize and launch product into the
inspection zone. Ideal for highly three-dimensional products such as
slices, dices and larger round objects that may have small defects on one
surface, applications include potato products, green beans, dried beans, corn,
carrots, pears, peaches and coffee. Tegra is available with a 60-inch
wide platform to sort up to 45,000 pounds of product an hour and a 30-inch wide
platform to sort up to 22,500 pounds of product an hour, depending on the
product.
Optyx
System. Using a combination of on-belt and in-air sorting,
Optyx is a versatile family of sorters that can be equipped with cameras or a
combination of cameras and lasers. The lower cost Optyx 3000 series
features a 24-inch scan width to sort up to 18,000 pounds of product an hour,
offering the power and sorting capabilities of a larger sorter in an economical
and compact machine ideal for smaller processors and lower volume processing
lines. The Optyx 6000 series features a 48-inch scan width to sort up
to 36,000 pounds of product an hour. Optyx sorters have gained strong
acceptance in segments of the fruit, vegetable, processed potato, dried fruit,
nut, and snack food markets. Additionally, Optyx has been placed in applications
inspecting pharmaceuticals, nutraceuticals, tobacco and recycled commodities
such as paper and plastic.
Laser-sensing
technology, including the Company’s Raptor Laser Technology and FluoRaptor, a
fluorescence-sensing laser, can be integrated into Manta and Optyx sorters,
along with cameras. Color cameras enable the sorter to analyze size
and shape and millions of subtle color differences while the lasers detect
foreign matter based on differences in the structural properties of the objects,
regardless of color or shape. Combining color sorting with laser
technology achieves the most complete sort, maximizing the removal of defects
and foreign matter. Raptor is ideal for a variety of fresh, frozen
and dried fruits and vegetables, including frozen potato products, tree nuts,
raisins and other foods. FluoRaptor inspects product based on
differing levels of chlorophyll and is ideal for a variety of fresh and frozen
vegetables and potato products.
Tobacco Sorter
3. The tobacco industry has special requirements in the
handling and sorting of its tobacco products, which vary in size and moisture
content and other properties depending upon the type of product being produced
and the point of handling and inspection. Key’s Tobacco Sorter 3
(TS3) utilizes a specially constructed frame, enclosure and material handling
arrangement to meet the specific product inspection requirements of this
industry. TS3 recognizes millions of colors, detecting and removing
foreign materials, as well as subtle product defects from strip tobacco, tobacco
stem and other leafy product (such as tea). This technology helps achieve high
purity standards to reduce exposure to product liability claims. TS3
has been installed in North America, Latin America, Europe and
Asia.
ADR
System. Featuring a belt conveyor, LED light source, Vis/IR
cameras, air-actuated knives on a patented rotary cutter and Iso-Flo®
vibratory conveyor, ADR 5 aligns, singulates, inspects and trims defects from
peeled and peel-on French fries and removes the defects from the product
stream. The Company believes its ADR system is the principal defect
removal system used in the french fry processing industry. ADR 5
combines the wide footprint of ADR III with the high speed accuracy of ADR 4 to
handle as much as 17,000 to 27,000 pounds of product per hour, depending on the
cut size. The system can also cut excessively long strips to control
product length, a function especially valuable for fast-food
products. In 2008, ADR®First was introduced which
gives french fry processors the capability of using the ADR earlier in the
primary processing line than it has traditionally been placed.
Pharmaceutical and Nutraceutical
Inspection Systems. In fiscal 2007, the Company introduced the
OptyxSG/P and OptyxSG/N inspection systems, the Impulse™ size grading system,
and the PulseScrubber® softgel
polishing system. In fiscal 2008, pharmaceutical and nutraceutical
customers successfully installed and qualified all of these products, including
validations required for GAMP (Good Automated Manufacturing Practices) and
21CFR11 required by the FDA. The Company also introduced its concept
of Continuous Softgel Finishing Lines which is based on replacement of
individual, manual processing steps with continuous processes that use the
Company's Impulse/P size grader, PulseScrubber, and OptyxSG system together in
one continuous line. In fiscal 2008, the Company sold several systems in
this configuration which indicates growing acceptance of this concept for the
pharmaceutical and nutraceutical industry.
The
OptyxSG/P enables the Company to offer a fully FDA 21CFR11-compliant,
high-volume inspection solution to solid dose pharmaceutical
manufacturing. Applicable to over the counter and prescription drugs,
the OptyxSG/P meets validation requirements pharmaceutical customers face when
selecting automation for their FDA-
regulated
production lines. The OptyxSG/N is targeted at the nutraceutical
market and includes many of the features of the OptyxSG/P without the specific
enhancements required for the regulated pharmaceutical market.
The
Impulse/P, derived from the Company’s Impulse vibratory conveyor technology,
provides high-volume vibratory size grading that complements other automation
solutions like the OptyxSG-series. Since the introduction of the
Impulse/P solid dose size grading product line, the Company continues to build
toward more comprehensive “full line” solutions.
The
PulseScrubber product is targeted at the softgel manufacturing segment and
provides a fully-automated, high-volume continuous-flow alternative to
traditional batch-oriented softgel polishing. Like the Impulse/P, the
PulseScrubber complements other systems to provide customers the economic
benefits of highly-integrated continuous automation.
Upgrades. The Company has a
large installed base of inspection and processing systems. This installed base
generates potential business for the Company’s upgrade products. In
contrast to the acquisition of new inspection and processing systems products,
upgrades can provide the customer with a less capital intensive
alternative.
The
Company believes that there is an opportunity for the sale of upgrade product
offerings to its customers so that newer technology with advanced features,
lower cost, greater reliability, and performance enhancements can benefit owners
of Key systems. The Company has increased its investment in
development of specific upgrade products, particularly the G6 vision engine
which creates upgrade opportunities for many customers in its installed base of
sorting systems.
Process
Systems
Conveying
and process systems are utilized worldwide throughout processing industries to
move and process product within a production plant. The Company’s
conveying and process systems include the SmartShaker®
vibratory solutions of Iso-Flo® and
Impulse™ branded conveyor systems, Farmco rotary grading systems, Turbo-Flo® steam
blanchers, Freshline products for fresh-cut, and additional conveying and
processing equipment. The functions of these product lines include
conveying, transferring, distributing, aligning, feeding, metering, separating
and grading, as well as blanching, cooking, pasteurizing, cooling, cleaning,
washing, drying and packaging. The process systems group includes
standard products as well as custom designed equipment.
Iso-Flo Vibratory Conveying
Systems. The Company’s principal specialized conveying system
is its Iso-Flo vibratory conveyor system. The Iso-Flo conveyor is a
type of pan conveyor. Pan conveyors are common throughout industries
that process product streams of discrete pieces, including 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.
Iso-Flo
systems are used in a variety of processing applications, including potato
products, vegetables and fruits (green beans, peas, carrots, corn, peaches,
pears, cranberries and apples), snack foods, cereals, fresh salads, cheese,
poultry, and seafood. Non-food processing applications include
nutraceuticals, tobacco, pet food and plastics.
Impulse is a line of nearly
silent electromagnetic vibratory conveyors which combine the advantage of quick
start/stop with precise metering control. Additionally, the Impulse
conveyor drive systems are oil-free, which limits the potential for
contamination and improves the safety of food products. This conveyor
system was developed for packaging applications in snack food, dry ingredient,
chemical and pharmaceutical processing, but is seeing increased application in a
wide variety of food and industrial processes.
Rotary grading systems. The
mechanical sizing, sorting, separating, and grading products manufactured at the
Redmond, Oregon manufacturing site are used in many food processing and fresh
vegetable packing operations. These rotary sizing and grading
technologies optimize yield, increase packaging efficiency, and improve product
quality by either removing oversized, undersized and small irregular-shaped
pieces of product from the line or
separating
product into predetermined size categories. In combination with other
Company-provided equipment, these products increase overall line efficiency and
systems capability.
Preparation
Systems. The Company designs and manufactures preparation
systems to prepare products prior to cooking, freezing, canning or other
processing. Products in this group include air cleaners, air coolers,
vegetable metering and blending systems, and bulk handling
equipment. These products 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 geographic markets.
Preparation
system revenues may also include a variety of third-party supplied equipment and
installation services which are sold as components of larger processing lines,
for which the Company has assumed turn-key sales responsibility. In
addition, the process systems group includes other custom designed conveying and
raw food sizing, grading, and preparation equipment.
Freshline
products. This product line addresses the fresh-cut produce
industry by providing a range of low to high volume equipment, including low to
high volume washers and automatic dryers. This range of processing
solutions consists of individual machines and large-scale production lines with
automated control systems.
Parts
and Service
The
Company has a large installed base of inspection and processing systems. This
installed base generates potential business for the Company’s parts and service
products. The Company has made parts and service an area of strategic
focus, and realigned its organization to leverage the large installed base and
its strong customer support organization.
The
Company provides spare parts and post-sale field and telephone-based repair
services to support its customers’ routine maintenance requirements and seasonal
equipment startup and winterization processes. The Company considers
its parts and maintenance service sales to be important potential sources of
future revenue growth. The Company continues to realign its service
organization so that field service personnel are now geographically located
closer to its customers throughout the world. This strategy has
contributed to revenue growth and improved gross margins in parts and
service. The Company also typically provides system installation
support services which are included in the sales price of certain of its
products, principally automated inspection systems, and customer
training.
Engineering,
Research and Development
At
September 30, 2008, the Company’s research and development department had
49 employees who conduct new product research and development and
sustaining engineering for released products. The Company’s technical
staff includes electronic, optical, mechanical and software engineers,
mathematicians and technical support personnel.
At
September 30, 2008, the Company’s project engineering department had 43
employees engaged in project engineering for custom systems. The
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
2008, the Company’s research and development expenses, together with engineering
expenses not applied to the manufacturing costs of products, were approximately
$8.7 million, compared to $5.5 million and $6.4 million in 2007 and 2006,
respectively.
Manufacturing
The
Company maintains two domestic manufacturing facilities, one located in Walla
Walla, Washington and one in Redmond, Oregon. The Company also has a
European manufacturing facility located in The Netherlands.
The
Company’s current manufacturing facilities and its product design and
manufacturing processes integrate Computer Aided Engineering (CAE), Finite
Element Analysis (FEA), Computer Aided Design (CAD), Computer Aided
Manufacturing (CAM) and Computer Integrated Manufacturing (CIM)
technologies. Manufacturing activities include process engineering;
fabrication, welding, finishing, and assembly of custom designed stainless steel
systems; camera and electronics assembly; subsystem assembly; and system test
and integration. The following table provides a summary of the
Company’s manufacturing locations and manufacturing floor space:
|
Location
|
Manufacturing
Size in Square Feet
|
Products/Services
Produced
|
|
Walla
Walla, Washington
|
132,000
|
Automated
Inspection
Process
Systems
Parts
and Service
|
|
Redmond,
Oregon
|
17,000
|
Process
Systems
Parts
and Service
|
|
Beusichem,
The Netherlands
|
38,000
|
Process
Systems
Parts
and Service
|
The
Company manufactures certain of its products to Underwriters Laboratories and
United States Department of Agriculture standards. Certain of the
Company’s products also comply with the Canadian Standards Association (CSA),
European CE (Conformité Européene) and Electronic Testing Laboratory (ETL)
safety standards. Certain products for the
pharmaceutical/nutraceutical industry are FDA 21CFR11-compliant and designed
using GAMP4 guidelines. The Company’s domestic facilities were
recertified to the ISO 9001:2000 standard in 2006.
Certain
components and subassemblies included in the Company’s products are obtained
from limited-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
limited- and sole-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.
Environmental
The
Company has not received notice of any material violations of environmental laws
or regulations in on-going operations at any of its manufacturing
locations.
Sales
and Marketing
The
Company markets its products worldwide both directly and through independent
sales representatives. In fiscal 2008, sales by independent sales
representatives accounted for approximately 26% of the Company's consolidated
net sales. In North America, the Company operates sales offices in
Walla Walla, Washington; Medford, Oregon; Redmond, Oregon; and Santiago de
Querétaro, Mexico. The Company’s subsidiary, Key Technology B.V.,
provides sales and service to European and Middle Eastern and South African
customers. The Company’s subsidiary, Key Technology Australia Pty
Ltd., provides sales and service to customers primarily in Australia and New
Zealand. The Company’s subsidiary Productos Key Mexicana S. de R.L.
de C.V. provides sales and service to customers in Mexico, Central and South
America. The Company’s subsidiary, Key Technology (Shanghai) Trading
Company Ltd., provides sales and service to customers in greater
China. The Company supplies products from both product groups -
automated inspection systems and process systems - to customers in its primary
markets through common sales and distribution channels. In addition,
the Company supplies parts and service through its worldwide service
organization.
Most
exports of products manufactured in the United States for shipment into
international markets, other than Europe, have been denominated in U.S.
dollars. Sales into Europe of systems, spare parts and service, as
well as products manufactured in Europe, are generally denominated in European
currencies, most commonly Euros. As the Company expands its
operations in Australia, Latin America and China, transactions denominated in
the local currencies of these countries may increase. In its export
and international 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
or decrease the sales prices in local currencies of the
Company’s
products
in international markets; tariffs and other barriers and restrictions; and the
requirements of complying with a variety of international
laws. Additional information regarding export and international sales
is set forth in Note 14 to the Company’s Consolidated Financial Statements for
the fiscal year ended September 30, 2008
During
fiscal 2008, 2007 and 2006, sales to our largest customer, McCain Foods,
represented approximately 14%, 9% and 17% of total net sales,
respectively. During fiscal 2008, sales to Frito-Lay were
approximately 13% of total net sales. While the Company believes that
its relationship with these customers is satisfactory, the loss of these
customers could have a material adverse effect on the Company’s revenues and
results of operations.
Backlog
The
Company’s backlog as of September 30, 2008 and September 30, 2007 was
approximately $33.8 million and $30.9 million, respectively. 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.
Competition
The
markets for automated inspection systems and process 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. 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 Heat & Control, Inc. and
its subsidiaries, BEST N.V., Sortex Ltd. and Kiremko B.V. The Company
has encountered additional small competitors entering its markets, including the
introduction of potentially competing tobacco sorters into the Chinese market
manufactured by Chinese companies. As the Company enters new markets,
it expects to encounter additional new competitors.
Patents
and Trademarks
The
Company currently holds forty-three United States patents issued from 1991
through 2008, and twelve other national patents issued by other
countries. The first of these patents expires in calendar 2009, and
the Company believes that expiration will not have a significant effect on the
Company. As of December 5, 2008, fourteen other national patent
applications have been filed and are pending in the United States and other
countries, and three international or regional applications have been filed that
are awaiting the national phase. The Company has forty registered
trademarks and six pending applications for trademarks.
The
Company also attempts to protect its trade secrets and other proprietary
information through proprietary information agreements and security measures
with employees, consultants and others. 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, 2008, the Company had 612 full-time employees, including 297 in
manufacturing, 92 in engineering, research and development, 153 in marketing,
sales and service, and 66 in general administration and finance. A
total of 140 employees are located outside the United States. The
Company utilizes temporary contract employees, which improves the Company’s
ability to adjust manpower in response to changing demand for Company
products. Of the total employees at September 30, 2008, fifteen were
contract employees. None of the Company’s employees in the United
States are represented by a labor union. The manufacturing employees
located at the Company’s facility in Beusichem, The Netherlands are represented
by the Small Metal Union. The Company has never experienced a work
stoppage, slowdown or strike.
Available
Information
The
Company’s annual and quarterly reports and other filings with the United States
Securities and Exchange Commission (“SEC”) are made available free of charge
through the Investor Relations section of the Company’s website at www.key.net
as soon as reasonably practicable after the Company files such material with the
SEC. The information on or that can be accessed through the Company’s
website is not a part of this Annual Report on Form 10-K.
ITEM
1A. RISK
FACTORS.
In
addition to the other information in this Annual Report on Form 10-K, the
following risk factors should be considered carefully in evaluating the Company
and its business because such factors may have a significant effect on its
operating results and financial condition. As a result of the risk
factors set forth below and the information presented elsewhere in this Annual
Report on Form 10-K, actual results could differ materially from those included
in any forward-looking statements.
Current
worldwide economic conditions may adversely affect the Company’s business and
results of operations, and the business of the Company’s customers.
The
Company’s business may be affected by general economic conditions and
uncertainty that may cause customers to defer or cancel new orders and sales
commitments previously made to us. Recent economic difficulties in
the United States credit markets and certain international markets may lead to
an economic recession in some or all of the markets in which the Company
operates. A recession or even the risk of a potential recession may
be sufficient reason for customers to delay, defer or cancel purchase decisions,
including decisions previously made.
The
recent disruptions in credit and other financial markets and deterioration of
national and global economic conditions, could, among other things:
|
|
·
|
adversely
affect the Company’s expansion
plans;
|
|
|
·
|
impair
the financial condition of some of the Company’s customers and suppliers,
thereby increasing customer bad debts or non-performance by
suppliers;
|
|
|
·
|
negatively
affect global demand for the Company’s customers' products, particularly
in the food industry, which could result in a reduction of sales,
operating income and cash
flows;
|
|
|
·
|
negatively
affect the Company’s customer’s ability to get financing, which could
result in a reduction in sales, operating income and cash
flows;
|
|
|
·
|
decrease
the value of the Company’s cash investments in marketable
securities;
|
|
|
·
|
make
it more difficult or costly for the Company to obtain financing for the
Company’s operations or
investments;
|
|
|
·
|
negatively
affect the Company’s risk management activities if the Company is required
to record losses related to financial instruments or experience
counterparty failure;
|
|
|
·
|
require
asset write-downs; or
|
|
|
·
|
impair
the financial viability of the Company’s
insurers.
|
Adverse
economic conditions in the food processing industry, either globally or
regionally, may adversely affect the Company's revenues.
The
markets the Company serves, particularly the food processing industry, are
experiencing variable economic conditions. Additionally, varying
consumer demand, product supply, and plant capacity, most notably in the potato
market, could result in reduced or deferred capital equipment purchases for the
Company’s product lines. While the Company has reacted to these
developments with applications directed to the growing fresh vegetable and fruit
industries as well as the pharmaceutical and nutraceutical industries, loss of
business, particularly in the potato industry, would have a negative effect on
the Company’s sales and net earnings.
The
loss of any of the Company’s significant customers could reduce the Company’s
revenues and profitability.
The
Company does have significant, strategic customers and the Company anticipates
that its operating results may continue to depend on these customers for the
foreseeable future. The loss of any one of those customers, or a
significant decrease in the volume of products they purchase from the Company,
could adversely affect the Company's revenues and materially adversely affect
its profitability. Any difficulty in collecting outstanding amounts
due from one of those customers may also harm the Company's sales. In
addition, sales to any particular large customer may fluctuate significantly
from quarter to quarter causing fluctuations in the Company’s quarterly
operating results.
The
Company is subject to pricing pressure from its larger customers which may
reduce the Company’s profitability.
The
Company faces significant pricing pressures from its larger
customers. Because of their purchasing volume, the Company’s larger
customers can influence market participants to compete on price
terms. Such customers also use their buying power to negotiate lower
prices. If the Company is not able to offset price reductions
resulting from these pressures by improved operating efficiencies and reduced
expenditures, such price reductions may have an adverse effect on the Company’s
profit margins and net earnings.
The
failure of any of the Company's independent sales representatives to perform as
expected would harm the Company's net sales.
In fiscal
2008, sales by independent sales representatives accounted for approximately 26%
of the Company's consolidated net sales. If the Company's independent
sales representatives fail to market, promote and sell the Company’s products
adequately, the Company's business will be adversely affected. The
Company's independent sales representatives could reduce or discontinue sales of
its products, or they may not devote the resources necessary to sell the
Company's products in the volumes and within the time frames that the Company
expects, either of which events could adversely affect the Company's revenues
and net earnings.
The
Company may make acquisitions that could disrupt the Company’s operations and
harm the Company’s operating results.
The
Company may in the future make acquisitions of businesses that offer products,
services, or technologies that the Company believes would complement its
business. Acquisitions present significant challenges and risks and
there can be no assurances that the Company will manage acquisitions
successfully. Acquisitions involve numerous risks,
including:
|
|
·
|
significant
potential expenditures of cash, stock, and management
resources;
|
|
|
·
|
difficulty
achieving the potential financial and strategic benefits of the
acquisition;
|
|
|
·
|
difficulties
in integrating acquired operations or products, including the potential
loss of key employees from the acquired
business;
|
|
|
·
|
difficulties
and costs associated with integrating and evaluating the information
systems and internal control systems of the acquired
business;
|
|
|
·
|
impairment
of assets related to goodwill resulting from the acquisition, and
reduction in the Company’s future operating results from amortization of
intangible assets;
|
|
|
·
|
diversion
of management's attention from the Company’s core business, including loss
of management focus on marketplace
development;
|
|
|
·
|
potential
difficulties in complying with foreign regulatory requirements, including
multi-jurisdictional competition
rules;
|
|
|
·
|
adverse
effects on existing business relationships with suppliers and customers,
including the potential loss of suppliers and customers of the acquired
business;
|
|
|
·
|
assumption
of liabilities, known and unknown, related to litigation and other legal
process involving the acquired
business;
|
|
|
·
|
entering
geographic areas or distribution channels in which the Company has limited
or no prior experience; and
|
|
|
·
|
those
risks related to general economic and political
conditions.
|
There can
be no assurance that attractive acquisition opportunities will be available to
us, that we will be able to obtain financing for or otherwise consummate any
acquisition, or that any acquisition that we do consummate will prove to be
successful.
Issues arising during the implementation of the Company's enterprise resource planning system could affect the Company’s operating results and ability to manage the Company’s business effectively.
The
Company is in the process of implementing an enterprise resource planning, or
ERP, system in the near future to enhance operating efficiencies and provide
more effective management of the Company's business operations. If
the Company experiences problems with the implementation of the ERP system, the
resulting disruption could adversely affect the Company's sales, manufacturing
processes, results of operations and financial
condition. Implementing the Company's ERP system involves numerous
risks, including:
|
|
·
|
the
possibility that the complexities related to switching certain management
information functions to the ERP system will be greater than
expected;
|
|
|
·
|
the
possibility that the implementation could disrupt operations if the
transition to the ERP system creates new or unexpected difficulties, or if
the ERP system does not perform as
expected;
|
|
|
·
|
difficulties
integrating the new ERP system with the Company's current
operations;
|
|
|
·
|
potential
delays in processing customer orders for shipment of
products;
|
|
|
·
|
diversion
of management's attention from normal daily business
operations;
|
|
|
·
|
dependence
on an unfamiliar system while the Company continues to train employees on
the ERP system; and
|
|
|
·
|
increased
operating expenses resulting from training, conversion and transition
support activities.
|
If
the Company's ERP system is not implemented properly, it could cause errors in
the Company's financial reporting.
The
Company may experience difficulties in transitioning to the ERP system that
could disrupt its ability to timely and accurately process and report key
components of the Company's results of operations, financial position and cash
flows. Any disruptions or difficulties that may occur in connection
with implementing, making changes to or enhancing the Company's ERP system could
also adversely affect its ability to complete the evaluation of its internal
controls and attestation activities pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002.
The
Company's international operations subject the Company to a number of risks that
could adversely affect the Company’s revenues, operating results and
growth.
The
Company conducts business outside the United States, which subjects it to the
risks inherent in international operations. In fiscal 2008, the
Company's international sales represented approximately 50% of its consolidated
net sales, compared to 46% of its consolidated net sales in fiscal
2007. Risks inherent in international operations include the
following:
|
|
·
|
unexpected
changes in regulatory
requirements;
|
|
|
·
|
restrictive
governmental actions (such as restrictions on the transfer or repatriation
of funds and trade protection measures, including export duties and
quotas, customs duties and tariffs, or trade barriers erected by either
the United States or other countries where the Company does
business);
|
|
|
·
|
scrutiny
of foreign tax authorities which could result in significant fines,
penalties and additional
taxes;
|
|
|
·
|
changes
in import or export licensing
requirements;
|
|
|
·
|
longer
payment cycles;
|
|
|
·
|
transportation
delays;
|
|
|
·
|
pricing
pressure that the Company may experience
internationally;
|
|
|
·
|
economic
downturns, civil disturbances or political
instability;
|
|
|
·
|
geopolitical
turmoil, including terrorism or
war;
|
|
|
·
|
currency
restrictions and exchange rate
fluctuations;
|
|
|
·
|
difficulties
and costs of staffing and managing geographically disparate
operations;
|
|
|
·
|
changes
in labor standards;
|
|
|
·
|
laws
and business practices favoring local
companies;
|
|
|
·
|
limitations
on the Company's ability under local laws to protect its intellectual
property;
|
|
|
·
|
changes
in domestic and foreign tax rates and laws;
and
|
|
|
·
|
difficulty
in obtaining sales representatives and servicing products in foreign
countries.
|
Competition and advances in technology may adversely affect sales and prices.
The
markets for the Company’s products are competitive. Advances in
technology may remove some barriers to market entry, enabling additional
competitors to enter the Company’s markets. Such additional
competition could force the Company to reduce prices to remain competitive, and
decrease the Company’s profits, having a material adverse affect on the
Company’s business and financial condition. There can be no assurance
that the Company will be able to continue to compete effectively in the
future.
The
Company’s new products may not compete successfully in either existing or new
markets, which would adversely affect sales.
The
future success and growth of the Company is dependent upon its ability to
develop, market, and sell products and services in certain food processing
markets as well as to introduce new products into other existing and potential
markets. There can be no assurance the Company can successfully
penetrate these potential markets or expand into new international markets with
its current or new and future products. Many of the Company’s
competitors manufacture their products in jurisdictions with substantially lower
corporate tax rates than in the United States which adversely affects the
Company’s ability to compete in certain potential markets.
The
Company's inability to retain and recruit experienced personnel may adversely
affect the Company’s business and prospects for growth.
The
Company's success depends in part on the skills and experience of its key
employees. The loss of services of such employees could adversely
affect the Company's business until suitable replacements can be
found. In addition, the Company's headquarters are located in Walla
Walla, Washington, a small, relatively remote geographic location. As
such, there may be a limited number of individuals locally with the requisite
skill and experience, and the Company has from time-to-time experienced
difficulty recruiting individuals from larger metropolitan areas. Consequently,
the Company may not be able to retain and recruit a sufficient number of
qualified individuals on acceptable terms to maintain its business or achieve
planned growth.
The
loss of members of the Company’s management team could substantially disrupt the
Company’s business operations.
Our
success depends to a significant degree upon the continued individual and
collective contributions of our management team. A limited number of
individuals have primary responsibility for managing our business, including our
relationships with key customers. These individuals are integral to
our success based on their expertise and knowledge of our business and
products. The loss of the services of members of the management team
and other key employees could have a material adverse effect on the
Company.
The
inability to protect the Company’s intellectual property, especially as the
Company expands geographically, may adversely affect the Company's competitive
advantage.
The
Company’s competitive position may be affected by its ability to protect its
proprietary technology. The Company has obtained certain patents and
has filed a number of patent applications. The Company also
anticipates filing applications for protection of its future products and
technology. There can be no assurance that any such
patents
will provide meaningful protection for the Company’s product innovations, or
that the issuance of a patent will give the Company any material advantage over
its competition in connection with any of its products. The Company
may experience additional intellectual property risks in international markets
where it may lack patent protection. The patent laws of other
countries, such as China, may differ from those of the U.S. as to the
patentability of the Company’s products and processes. Moreover, the
degree of protection afforded by foreign patents may be different from that of
U.S. patents.
Intellectual
property-related litigation expenses and other costs resulting from infringement
claims asserted against the Company by third parties may adversely affect the
Company’s results of operations and its customer relations.
The
technologies used by the Company may infringe the patents or proprietary
technology of others, and the Company has been required in the past to initiate
litigation to protect its patents. The cost of enforcing the
Company’s patent rights in lawsuits that it may bring against infringers or of
defending itself against infringement charges by other patent holders or other
third parties, including customers, may be high and could have an adverse effect
on the Company’s results of operations and its customer relations.
The
Company's dependence on certain suppliers may leave the Company temporarily
without adequate access to raw materials or products.
The
Company relies on third-party domestic and foreign suppliers for certain raw
materials and component products, particularly in the Company’s automated
inspection equipment product line. Several of these suppliers are the
single source of the raw material or component provided to the
Company. The Company does not have long-term contracts with any
supplier. The Company may be adversely affected in the event that
these suppliers cease operations or if pricing terms become less
favorable. The loss of a key vendor may force the Company to purchase
its necessary raw materials and components in the open market, which may not be
possible or may be at higher prices, until it could secure another
source. There is no assurance that the terms of any subsequent supply
arrangements the Company may enter into would be as favorable as the supply
arrangements the Company currently has in place. If the Company is
unable to replace a key supplier, it may face delays in delivering finished
products, which could have an adverse effect on the Company’s sales and
financial performance.
The
limited availability and possible cost fluctuations of materials used in the
Company's products could adversely affect the Company's gross
margins.
Certain
basic materials, such as stainless steel, are used extensively in the Company’s
product fabrication processes. Such basic materials have in the
recent past been subject to worldwide shortages or price fluctuations related to
the supply of or demand for raw materials, such as nickel, which are used in
their production by the Company’s suppliers. A significant increase
in the price or decrease in the availability of one or more of these components,
subassemblies or basic materials could adversely affect the Company’s results of
operations.
The
price of the Company's common stock may fluctuate significantly, and this may
make it difficult for shareholders to resell common stock when they want or at
prices they find attractive.
The
Company expects that the price of its common stock could fluctuate as a result
of a variety of factors, many of which are beyond its control. These
factors include:
|
|
·
|
quarterly
variations in the Company's operating
results;
|
|
|
·
|
operating
results that vary from the expectations of management, securities analysts
and investors;
|
|
|
·
|
significant
acquisitions or business combinations, strategic partnerships, joint
ventures or capital commitments involving the Company or its
competitors;
|
|
|
·
|
changes
in expectations as to the Company's future financial
performance;
|
|
|
·
|
the
operating and securities price performance of other companies that
investors believe are comparable to the
Company;
|
|
|
·
|
future
sales of the Company's equity or equity-related
securities;
|
|
|
·
|
changes
in general conditions in the Company's industry and in the economy, the
financial markets and the domestic or international political situation;
and
|
|
|
·
|
departures
of key personnel.
|
In
addition, in recent periods the stock market in general has experienced
unprecedented price and volume fluctuations. This volatility has had
a significant effect on the market price of securities issued by many companies
for reasons often unrelated to their operating performance. These
broad market fluctuations may adversely affect the Company's stock price,
regardless of its operating results.
ITEM
2. PROPERTIES.
The
Company owns or leases the following properties:
|
Location
|
Purpose
|
Square
Feet
|
Owned
or Leased
|
Lease
Expires
|
Renewal
Period
|
|
Walla
Walla, Washington
|
Corporate
office, manufacturing, research and development, sales and marketing,
administration
|
173,000
|
Owned
(1)
|
n/a
|
n/a
|
|
Redmond,
Oregon
|
Manufacturing,
research and development, sales, administration
|
19,000
|
Leased
|
2012
|
2017
|
|
Beusichem,
The Netherlands
|
Manufacturing,
sales and marketing, administration
|
45,000
|
Leased
|
2013
|
Renewable
in 5 year increments
|
|
Beusichem,
The Netherlands
|
Parts
warehouse, future manufacturing expansion
|
18,000
|
Owned
(2)
|
n/a
|
n/a
|
|
(1)
|
Subsequent
to the end of the fiscal year, the Company purchased this
facility.
|
|
(2)
|
Subsequent
to the end of the fiscal year, the Company approved a plan to list this
property with a broker and sell this
facility.
|
The
Company also has leased office space for sales and service and other activities
in Medford, Oregon, Dingley, Australia, Shanghai, China, Santiago de Querétaro,
Mexico and Rotselaar, Belgium.
The
Company considers all of its properties suitable for the purposes for which they
are used.
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 5, 2008, the
Company was not a party to any material legal proceedings.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
Common
Stock
Shares of
the Company’s common stock are quoted on the Nasdaq Global Market under the
symbol “KTEC”. The following table shows the high and low sales
prices per share of the Company’s common stock by quarter for the two most
recent fiscal years ending September 30, 2008:
|
Stock
price by quarter
|
High
|
Low
|
||
|
Fiscal
year ended September 30, 2008
|
||||
|
First Quarter
|
$36.250
|
$25.000
|
||
|
Second Quarter
|
$38.830
|
$25.870
|
||
|
Third Quarter
|
$39.470
|
$27.860
|
||
|
Fourth Quarter
|
$35.310
|
$21.230
|
||
|
Fiscal
year ended September 30, 2007
|
||||
|
First Quarter
|
$15.230
|
$11.311
|
||
|
Second Quarter
|
$16.870
|
$13.500
|
||
|
Third Quarter
|
$23.100
|
$15.190
|
||
|
Fourth Quarter
|
$30.950
|
$21.170
|
The
source of these quotations for the Company’s common stock was the Nasdaq
OnlineSM
Internet site.
The
Company had approximately 2,174 beneficial owners of its common stock, of which
228 are of record, as of December 5, 2008.
The
Company has not historically paid dividends on its common or preferred
stock. The Board of Directors presently intends to continue its
policy of retaining earnings for reinvestment in the operations of the
Company.
Issuer Purchases of Equity
Securities
The
following table provides information about purchases made by or on behalf of the
Company during the quarter ended September 30, 2008 of equity securities
registered by the Company under Section 12 of the Securities Exchange Act of
1934.
|
Stock
Repurchase Program
|
||||||||||
|
Period
|
Total
Number of Shares Purchased (1)
|
Average
Price Paid per Share (1)
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
||||||
|
July
1-31, 2008
|
0 |
-
|
0 | |||||||
|
August
1-31, 2008
|
3,307 |
$
32.95
|
0 | |||||||
|
September
1-30, 2008
|
1,906 |
$23.70
|
0 | |||||||
|
Total
|
5,213
|
$29.56
|
0 |
411,748(2)
|
||||||
|
(1)
|
Represents
shares of restricted stock surrendered to satisfy tax withholding
obligations.
|
|
(2)
|
The
Company initiated a stock repurchase program effective November 27,
2006. The Company was authorized to purchase up to 500,000
shares of its common stock under the program. Pursuant to the
program, the Company repurchased 88,252 shares in fiscal
2007. The Company did not repurchase any shares in fiscal
2008. Subsequent to the end of fiscal 2008, the Board of
Directors restored the number of shares that may be repurchased to the
original 500,000 share amount, and subsequently increased
the
|
number of
shares that may be repurchased under the share repurchase program to 750,000
shares. During the period from October 1, 2008 through December 5,
2008, the Company purchased an additional 388,511 shares at an average price of
$12.32 per share.
STOCK
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR
CUMULATIVE TOTAL RETURN
AMONG KEY
TECHNOLOGY, INC., THE RUSSELL MICROCAP INDEX, AND PEER GROUPS
|
TOTAL
RETURN ANALYSIS
|
||||||
|
9/30/2003
|
9/30/2004
|
9/30/2005
|
9/30/2006
|
9/30/2007
|
9/30/2008
|
|
|
Key
Technology
|
$ 100.00
|
$ 94.79
|
$ 119.63
|
$ 107.66
|
$ 253.54
|
$ 199.63
|
|
New
Peer Group
|
$ 100.00
|
$ 151.68
|
$ 161.24
|
$ 148.03
|
$ 227.34
|
$ 300.86
|
|
Old
Peer Group *
|
$ 100.00
|
$ 153.38
|
$ 176.69
|
$ 192.47
|
$ 344.57
|
$ 351.84
|
|
Russell
Microcap
|
$ 100.00
|
$ 114.86
|
$ 134.35
|
$ 143.77
|
$ 157.69
|
$ 122.17
|
OLD
PEER GROUP: Cognex Corp., Perceptron, Inc., Flir Systems, Inc., Flow
International Corp., Elbit Vision Systems Ltd., PPT Vision, Inc., Robotic Vision
Systems, Inc., FMC Technologies, Inc.**
NEW
PEER GROUP: Cognex Corp., Perceptron, Inc., Flir Systems, Inc., Elbit
Vision Systems Ltd., PPT Vision, Inc., Robotic Vision Systems, Inc., John Bean
Technologies Corporation, K-Tron International, Inc.
*
In reviewing its’ current “old” Peer Group, the Company believes that it is no
longer representative of the Company’s Peers for performance comparison
purposes. The Company believes that the “new” Peer Group, as listed above, is a
more appropriate representation of its’ Peers. Thus, beginning with the 2009
Form 10-K, the Company will replace the “old” Peer Group with the “new” Peer
Group.
**
FMC Technologies, currently included in the “old” Peer Group, spun off John Bean
Technologies Corporation in July of 2008. As a result, the Company has removed
FMC Technologies from the Peer Group, and replaced it with John Bean
Technologies Corporation, whose line of business it believes to be much closer
to that of the Company.
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, 2008 has been derived from the audited
consolidated financial statements of the Company. 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 of this
Annual Report on Form 10-K, respectively.
|
Fiscal
Year Ended September 30,
|
||||||||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
(in
thousands, except per share data)
|
||||||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||||||
|
Net
sales
|
$ | 134,086 | $ | 107,540 | $ | 84,840 | $ | 80,322 | $ | 80,610 | ||||||||||
|
Cost
of
sales
|
80,893 | 66,099 | 53,041 | 49,145 | 46,887 | |||||||||||||||
|
Gross
profit
|
53,193 | 41,441 | 31,799 | 31,177 | 33,723 | |||||||||||||||
|
Operating
expenses
|
42,952 | 32,839 | 31,743 | 27,193 | 28,295 | |||||||||||||||
|
Gain
on sale of
assets
|
81 | 23 | 109 | 28 | 5 | |||||||||||||||
|
Income
from
operations
|
10,322 | 8,625 | 165 | 4,012 | 5,433 | |||||||||||||||
|
Other
income
(expense)
|
666 | 1,961 | (980 | ) | (419 | ) | (132 | ) | ||||||||||||
|
Earnings
(loss) from continuing operations before income taxes
|
10,988 | 10,586 | (815 | ) | 3,593 | 5,301 | ||||||||||||||
|
Income
tax (benefit)
expense
|
3,515 | 3,176 | (22 | ) | 902 | 1,617 | ||||||||||||||
|
Net
earnings
|
7,473 | 7,410 | (793 | ) | 2,691 | 3,684 | ||||||||||||||
|
Assumed
dividends on mandatorily redeemable preferred stock
|
-- | -- | -- | (33 | ) | (69 | ) | |||||||||||||
|
Net
earnings (loss) available to common shareholders
|
$ | 7,473 | $ | 7,410 | $ | (793 | ) | $ | 2,658 | $ | 3,615 | |||||||||
|
Earnings
(loss) per
share –
basic
|
$ | 1.38 | $ | 1.41 | $ | (0.15 | ) | $ | 0.53 | $ | 0.74 | |||||||||
|
–
diluted
|
$ | 1.35 | $ | 1.37 | $ | (0.15 | ) | $ | 0.52 | $ | 0.71 | |||||||||
|
Cash
dividends per share
|
$ | -- | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||||
|
Shares
used in per share calculation – basic
|
5,430 | 5,265 | 5,205 | 5,041 | 4,909 | |||||||||||||||
|
–
diluted
|
5,517 | 5,407 | 5,205 | 5,219 | 5,222 | |||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||
|
Cash
and cash equivalents and short-term investments
|
$ | 36,322 | $ | 27,880 | $ | 15,246 | $ | 13,181 | $ | 8,817 | ||||||||||
|
Working
capital
|
47,531 | 40,946 | 30,057 | 28,164 | 20,991 | |||||||||||||||
|
Property,
plant and equipment, net.
|
8,705 | 4,671 | 4,275 | 4,264 | 5,046 | |||||||||||||||
|
Total
assets
|
89,625 | 75,497 | 57,938 | 57,527 | 52,514 | |||||||||||||||
|
Current
portion of long-term debt
|
-- | -- | 1 | 1,121 | 1,210 | |||||||||||||||
|
Long-term
debt, less current portion
|
-- | -- | -- | 1,199 | 2,323 | |||||||||||||||
|
Mandatorily
redeemable preferred stock and warrants, including current
portion
|
-- | -- | -- | -- | 1,595 | |||||||||||||||
|
Shareholders'
equity
|
$ | 60,368 | $ | 50,393 | $ | 41,252 | $ | 40,471 | $ | 36,044 | ||||||||||
Certain
reclassifications have been made to prior year amounts to conform to the current
year presentation.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
Introduction
The
Company and its wholly-owned subsidiaries design, manufacture and sell process
automation systems integrating electro-optical inspection, sorting and process
systems.
The
Company consists of Key Technology, Inc. which directly owns six
subsidiaries: Key Holdings USA LLC; Key Technology Australia Pty
Ltd.; Productos Key Mexicana S. de R. L. de C.V.; Key Technology (Shanghai)
Trading Co., Ltd.; Key Technology Asia-Pacific Pte. Ltd.; and Key Technology
AMVC LLC (inactive). Key Holdings USA LLC owns Suplusco Holdings
B.V., its European subsidiary, which owns Key Technology B.V. The
Company manufactures products in Walla Walla, Washington; Redmond, Oregon; and
Beusichem, The Netherlands.
Overview
Sales for
the year ended September 30, 2008 were $134.1 million compared with $107.5
million for fiscal 2007. The Company reported net earnings for fiscal
2008 of $7.5 million, or $1.35 per diluted share, compared with net earnings of
$7.4 million, or $1.37 per diluted share, for fiscal 2007. Fiscal
year 2007 included a $750,000 gain, or $0.14 per share, of non-operating income
associated with the sale of the Company’s 50% interest in its InspX joint
venture. Net earnings increased in fiscal 2008 compared to fiscal
2007 as a result of a 24.7% increase in sales volume, reflecting the 18.7%
increase in orders for fiscal 2008, as well as the improvement of gross margins
to 39.7% in fiscal 2008 from 38.5% in fiscal 2007. These increases
were partially offset by increased operating expenses of $43.0 million, or 32%
of net sales, compared to $32.8 million, or 30.5% of net sales, for fiscal 2007
and unfavorable changes in foreign currency exchange rates, particularly in the
fourth quarter of fiscal 2008. Automated inspection systems sales
were up 19%, process systems sales were up 38%, and parts and service sales
increased 9% over the prior fiscal year. The primary market forces
driving demand for our products are: the increased concerns about food safety
and security, the inability of food and pharmaceutical processors to obtain cost
effective labor, and the Company’s expansion into international
markets. Export and international sales for the fiscal years ended
September 30, 2008, 2007 and 2006 accounted for 50%, 46% and 51% of net sales in
each year, respectively.
In 2008,
the Company focused efforts on four major initiatives to achieve its long-term
revenue growth plan:
|
|
·
|
Continue
to grow the Company’s core food processing markets including potatoes,
fresh-cut, and processed fruit and
vegetables;
|
|
|
·
|
Expand
and grow its participation in the pharmaceutical and nutraceutical
market;
|
|
|
·
|
Strengthen
and grow the level of international business, including the Asia Pacific
and Latin America regions; and
|
|
|
·
|
Continue
to grow the Company’s aftermarket product
lines.
|
In 2008,
sales in our core food processing businesses, including upgrades, accounted for
a significant portion of the company’s increased revenues. Sales in
potatoes, fresh-cut, and processed fruit and vegetables all increased
significantly in 2008, and orders for the fresh-cut business grew 278% over
fiscal 2007. Significant progress, however, was also realized with
respect to the other three major initiatives. The pharmaceutical
initiative began in the fourth quarter of 2005 with the formation of the
SYMETIX® business
unit. This business unit was formed to dedicate a team of employees
to develop and grow Key’s business in the pharmaceutical and nutraceutical
market. Anticipated penetration into this market will extend and
advance the Company’s existing patented, high-resolution inspection technology
and material handling platforms. Revenue increased $2.8 million in
fiscal 2008 to $4.9 million as efforts on the pharmaceutical initiative began to
make progress.
The
Company has historically been successful in selling tobacco sorters in
China. Larger opportunities exist there in the food processing
business, and the Company invested in China during fiscal 2006 to enhance sales,
service and applications support to build upon its established
base. In 2006, the Company opened an office and located personnel
in-country. In 2008, order volume in China increased 166% over fiscal
2007, indicating that the
Company’s
expansion efforts gained some traction. However, a significant
portion of the order volume increase related to tobacco orders, and the Company
is still developing its marketing and product strategies to be more successful
in the Chinese food processing market. In 2008, the Company was
successful in increasing its penetration in the Latin America markets, where
orders increased 84% over orders received in fiscal 2007.
The
Company also focused on its aftermarket product lines (which include
parts/service and upgrades) during fiscal 2008. With the introduction
of the G6 family of products in 2005, this enhanced vision engine technology
provided additional product upgrade opportunities. Upgrades are an
important aspect of the aftermarket product lines, and the modular G6 product
family, which provides advanced image processing capability, has been well
received by the Company’s current customers. Aftermarket sales
(including upgrades which are classified in automated inspection systems)
increased in fiscal 2008 over fiscal 2007 by 17% to $38.5 million.
The
Company’s strategic initiatives for 2009 are to continue to build upon the
direction and solid revenue base the Company developed during
2008. The focus for the coming year is to continue to grow sales in
the Company’s core markets and geographical regions, and invest in a
market-driven technology road map that provides the new products required by our
customers. In addition, the Company will focus on four primary
industries: potatoes, fresh cut produce, processed fruit and vegetables, and
pharmaceutical/nutraceutical, and focus on four developing regions: China, Latin
America, Eastern Europe and the Middle East.
The
Company also plans to continue to make significant investments in research and
development expenditures and to implement its global Enterprise Resource
Planning, or ERP, system. Efforts in research and development will
continue to focus on customer solutions, providing new products that meet
current needs as well as anticipated future functionality
requirements. The Company began preliminary work on developing a
global ERP system in the third and fourth quarters of fiscal
2007. Implementation will be spread over a three-year period into
fiscal year 2010. A significant portion of the ERP implementation
costs will be capitalized. During fiscal 2008, the Company incurred
operating expenses of $1.2 million and capital expenditures of approximately
$2.3 million associated with the implementation of the ERP
system. Cumulative ERP-related operating expenses and capital
expenditures are $1.2 million and $3.0 million, respectively.
Application
of Critical Accounting Policies
The
Company has identified its critical accounting policies, the application of
which may materially affect the financial statements, either because of the
significance of the financial statement item to which they relate, or because
they require management judgment to make estimates and assumptions in measuring,
at a specific point in time, events which will be settled in the
future. The critical accounting policies, judgments and estimates
which management believes have the most significant effect on the financial
statements are set forth below:
|
|
·
|
Revenue
recognition
|
|
|
·
|
Allowances
for doubtful accounts
|
|
|
·
|
Valuation
of inventories
|
|
|
·
|
Long-lived
assets
|
|
|
·
|
Allowances
for warranties
|
|
|
·
|
Accounting
for income taxes
|
Management
has discussed the development, selection and related disclosures of these
critical accounting estimates with the audit committee of the Company’s board of
directors.
Revenue
Recognition. The Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
provided, the sale price is fixed or determinable, and collectability is
reasonably assured. Additionally, the Company sells its goods on
terms which transfer title and risk of loss at a specified location, typically
shipping point, port of loading or port of discharge, depending on the final
destination of the goods. Accordingly, revenue recognition from
product sales occurs when all criteria are met, including transfer of title and
risk of loss, which occurs either upon shipment by the Company or upon receipt
by customers at the location specified in the terms of sale. Sales of
system upgrades are recognized as revenue upon completion of
the
conversion of the customer’s existing system when this conversion occurs at the
customer site. Revenue earned from services (maintenance,
installation support, and repairs) is recognized ratably over the contractual
period or as the services are performed. If any contract provides for
both equipment and services (multiple deliverables), the sales price is
allocated to the various elements based on objective evidence of fair
value. Each element is then evaluated for revenue recognition based
on the previously described criteria. The Company’s sales
arrangements provide for no other significant post-shipment
obligations. If all conditions of revenue recognition are not met,
the Company defers revenue recognition. In the event of revenue
deferral, the sale value is not recorded as revenue to the Company, accounts
receivable are reduced by any amounts owed by the customer, and the cost of the
goods or services deferred is carried in inventory. In addition, the
Company periodically evaluates whether an allowance for sales returns is
necessary. Historically, the Company has experienced few sales
returns. If the Company believes there are potential sales returns,
the Company will provide any necessary provision against sales. In
accordance with the Financial Accounting Standard Board’s Emerging Issues Task
Force Issue No. 01-9, “Accounting for Consideration Given
by a Vendor to a Customer or a Reseller of the Vendor’s Product,” the
Company accounts for cash consideration (such as sales incentives) that are
given to customers or resellers as a reduction of revenue rather than as an
operating expense unless an identified benefit is received for which fair value
can be reasonably estimated. The Company believes that revenue
recognition is a “critical accounting estimate” because the Company’s terms of
sale vary significantly, and management exercises judgment in determining
whether to recognize or defer revenue based on those terms. Such
judgments may materially affect net sales for any period. Management
exercises judgment within the parameters of accounting principles generally
accepted in the United States of America (GAAP) in determining when contractual
obligations are met, title and risk of loss are transferred, the sales price is
fixed or determinable and collectability is reasonably assured. At
September 30, 2008, the Company had invoiced $2.9 million compared to $2.3
million at September 30, 2007 for which the Company has not recognized
revenue.
Allowances for doubtful
accounts. The Company establishes allowances for doubtful
accounts for specifically identified, as well as anticipated, doubtful accounts
based on credit profiles of customers, current economic trends, contractual
terms and conditions, and customers’ historical payment
patterns. Factors that affect collectability of receivables include
general economic or political factors in certain countries that affect the
ability of customers to meet current obligations. The Company
actively manages its credit risk by utilizing an independent credit rating and
reporting service, by requiring certain percentages of down payments, and by
requiring secured forms of payment for customers with uncertain credit profiles
or located in certain countries. Forms of secured payment could
include irrevocable letters of credit, bank guarantees, third-party leasing
arrangements or EX-IM Bank guarantees, each utilizing Uniform Commercial Code
filings, or the like, with governmental entities where possible. The
Company believes that the accounting estimate related to allowances for doubtful
accounts is a “critical accounting estimate” because it requires management
judgment in making assumptions relative to customer or general economic factors
that are outside the Company’s control. As of September 30, 2008, the
balance sheet included allowances for doubtful accounts of
$308,000. Amounts charged to bad debt expense for fiscal 2008 and
2007 were $116,000 and $16,000, respectively. Actual charges to the
allowance for doubtful accounts for fiscal 2008 and 2007 were $230,000 and
$98,000, respectively. If the Company experiences actual bad debt
expense in excess of estimates, or if estimates are adversely adjusted in future
periods, the carrying value of accounts receivable would decrease and charges
for bad debts would increase, resulting in decreased net earnings.
Valuation of
inventories. Inventories are stated at the lower of cost or
market. The Company’s inventory includes purchased raw materials, manufactured
components, purchased components, service and repair parts, work in process,
finished goods and demonstration equipment. Write downs for excess
and obsolete inventories are made after periodic evaluation of historical sales,
current economic trends, forecasted sales, estimated product lifecycles and
estimated inventory levels. The factors that contribute to inventory
valuation risks are the Company’s purchasing practices, electronic component
obsolescence, accuracy of sales and production forecasts, introduction of new
products, product lifecycles and the associated product support. The
Company actively manages its exposure to inventory valuation risks by
maintaining low safety stocks and minimum purchase lots, utilizing just in time
purchasing practices, managing product end-of-life issues brought on by aging
components or new product introductions, and by utilizing inventory minimization
strategies such as vendor-managed inventories. The Company believes
that the accounting estimate related to valuation of inventories is a “critical
accounting estimate” because it is susceptible to changes from period-to-period
due to the requirement for management to make estimates relative to each of the
underlying factors ranging from purchasing to sales to production to after-sale
support. At
September
30, 2008, cumulative inventory adjustments to lower of cost or market totaled
$1.7 million compared to $1.8 million as of September 30,
2007. Amounts charged to expense to record inventory at lower of cost
or market for fiscal 2008 and 2007 were $708,000 and $386,000,
respectively. Actual charges to the cumulative inventory adjustments
upon disposition or sale of inventory were $801,000 and $903,000 for fiscal 2008
and 2007, respectively. If actual demand, market conditions or
product lifecycles are adversely different from those estimated by management,
inventory adjustments to lower market values would result in a reduction to the
carrying value of inventory, an increase in inventory write-offs, and a decrease
to gross margins.
Long-lived
assets. The Company regularly reviews all of its long-lived
assets, including property, plant and equipment, and amortizable intangible
assets, for impairment whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. If the total of projected
future undiscounted cash flows is less than the carrying amount of these assets,
an impairment loss based on the excess of the carrying amount over the fair
value of the assets is recorded. In addition, goodwill is reviewed
based on its fair value at least annually. As of September 30, 2008,
the Company held $13.5 million of property, plant and equipment, goodwill and
other intangible assets, net of depreciation and amortization. There
were no changes in the Company’s long-lived assets that would result in an
adjustment of the carrying value for these assets. Estimates of
future cash flows arising from the utilization of these long-lived assets and
estimated useful lives associated with the assets are critical to the assessment
of recoverability and fair values. The Company believes that the
accounting estimate related to long-lived assets is a “critical accounting
estimate” because: (1) it is susceptible to change from period to
period due to the requirement for management to make assumptions about future
sales and cost of sales generated throughout the lives of several product lines
over extended periods of time; and (2) the potential effect that recognizing an
impairment could have on the assets reported on the Company’s balance sheet and
the potential material adverse effect on reported earnings or
loss. Changes in these estimates could result in a determination of
asset impairment, which would result in a reduction to the carrying value and a
reduction to net earnings in the affected period.
Allowances for
warranties. The Company’s products are covered by standard
warranty plans included in the price of the products ranging from 90 days to
five years, depending upon the product and contractual terms of
sale. The Company establishes allowances for warranties for
specifically identified, as well as anticipated, warranty claims based on
contractual terms, product conditions and actual warranty experience by product
line. Company products include both manufactured and purchased
components and, therefore, warranty plans include third-party sourced parts
which may not be covered by the third-party manufacturer’s
warranty. Ultimately, the warranty experience of the Company is
directly attributable to the quality of its products. The Company
actively manages its quality program by using a structured product introduction
plan, process monitoring techniques utilizing statistical process controls,
vendor quality metrics, a quality training curriculum for every employee, and
feedback loops to communicate warranty claims to designers and engineers for
remediation in future production. The Company believes that the
accounting estimate related to allowances for warranties is a “critical
accounting estimate” because: (1) it is susceptible to significant
fluctuation period to period due to the requirement for management to make
assumptions about future warranty claims relative to potential unknown issues
arising in both existing and new products, which assumptions are derived from
historical trends of known or resolved issues; and (2) risks associated with
third-party supplied components being manufactured using processes that the
Company does not control. As of September 30, 2008, the balance sheet
included warranty reserves of $1.7 million, while $2.7 million of warranty
charges were incurred during the fiscal year then ended, compared to warranty
reserves of $1.4 million as of September 30, 2007 and warranty charges of $2.1
million for the fiscal year then ended. If the Company’s actual
warranty costs are higher than estimates, future warranty plan coverages are
different, or estimates are adversely adjusted in future periods, reserves for
warranty expense would need to increase, warranty expense would increase and
gross margins would decrease.
Accounting for income
taxes. The Company’s provision for income taxes and the
determination of the resulting deferred tax assets and liabilities involves a
significant amount of management judgment. The quarterly provision
for income taxes is based partially upon estimates of pre-tax financial
accounting income for the full year and is affected by various differences
between financial accounting income and taxable income. Judgment is
also applied in determining whether the deferred tax assets will be realized in
full or in part. In management’s judgment, when it is more likely
than not that all or some portion of specific deferred tax assets, such as
foreign tax credit carryovers, will not be realized, a valuation allowance must
be established for the amount of the deferred tax assets that are determined not
to be realizable. At September 30, 2008, the Company had valuation
reserves of approximately
$450,000
for deferred tax assets related to the sale of the investment in the InspX joint
venture and the valuation reserve for notes receivable and contingent payments,
and offsetting amounts for U.S. and Chinese deferred tax assets and liabilities,
primarily related to net operating loss carry forwards in the foreign
jurisdictions that the Company believe will not be utilized during the
carryforward period. During fiscal 2008, $60,000 of net valuation
reserves for combined U.S. and Australian deferred taxes were eliminated due to
the final dissolution of the related Australian entity. There were no
other valuation allowances at September 30, 2008 due to anticipated utilization
of all the deferred tax assets as the Company believes it will have sufficient
taxable income to utilize these assets. The Company maintains
reserves for estimated tax exposures in jurisdictions of
operation. These tax jurisdictions include federal, state and various
international tax jurisdictions. Potential income tax exposures
include potential challenges of various tax credits, export-related tax
benefits, and issues specific to state and local tax
jurisdictions. Exposures are typically settled primarily through
audits within these tax jurisdictions, but can also be affected by changes in
applicable tax law or other factors, which could cause management of the Company
to believe a revision of past estimates is appropriate. During fiscal
2008 and 2007, there have been no significant changes in these
estimates. Management believes that an appropriate liability has been
established for estimated exposures; however, actual results may differ
materially from these estimates. The Company believes that the
accounting estimate related to income taxes is a “critical accounting estimate”
because it relies on significant management judgment in making assumptions
relative to temporary and permanent timing differences of tax effects, estimates
of future earnings, prospective application of changing tax laws in multiple
jurisdictions, and the resulting ability to utilize tax assets at those future
dates. If the Company’s operating results were to fall short of
expectations, thereby affecting the likelihood of realizing the deferred tax
assets, judgment would have to be applied to determine the amount of the
valuation allowance required to be included in the financial statements in any
given period. Establishing or increasing a valuation allowance would
reduce the carrying value of the deferred tax asset, increase tax expense and
reduce net earnings.
The
federal Research and Development Credit (“R&D credit”) expired on December
31, 2007. Subsequent to the end of the Company’s fiscal year, the
Emergency Economic Stabilization Act of 2008 was enacted. As part of
the legislation, the existing R&D credit was retroactively renewed and
extended to December 31, 2009. Due to this subsequent change in tax
law, the Company expects to record approximately $160,000 of additional R&D
tax credits in the first quarter of fiscal 2009 related to R&D expenditures
incurred during fiscal 2008.
The
Company adopted the provisions of FASB Interpretation 48, Accounting for
Uncertainty in Income Taxes, on October 1, 2007. Previously, the Company had
accounted for tax contingencies in accordance with Statement of Financial
Accounting Standards 5, Accounting for Contingencies. As required by
Interpretation 48, which clarifies Statement 109, Accounting for Income Taxes,
the Company recognizes the financial statement benefit of a tax position only
after determining that the relevant tax authority would more likely than not
sustain the position following an audit. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent likelihood
of being realized upon ultimate settlement with the relevant tax authority. At
the adoption date, the Company applied Interpretation 48 to all tax positions
for which the statute of limitations remained open. As a result of the
implementation of Interpretation 48, the Company recognized a decrease of
approximately $250,000 in the liability for unrecognized tax benefits, which was
accounted for as an increase to the October 1, 2007 balance of retained
earnings.
|
Comparison
of Fiscal 2008 to Fiscal 2007
|
||||||||||||||||
|
Fiscal
Year Ended September 30,
|
||||||||||||||||
|
2008
|
2007
|
Change
$
|
Change
%
|
|||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Statement
of Operations Data
|
||||||||||||||||
|
Net
sales
|
$ | 134,086 | $ | 107,540 | $ | 26,546 | 24.7 | |||||||||
|
Gross
profit
|
53,193 | 41,441 | 11,752 | 28.4 | ||||||||||||
|
Research
and development
|
8,744 | 5,520 | 3,224 | 58.4 | ||||||||||||
|
Sales
and marketing
|
21,373 | 17,191 | 4,182 | 24.3 | ||||||||||||
|
General
and administrative
|
11,528 | 8,821 | 2,707 | 30.7 | ||||||||||||
|
Amortization
|
1,307 | 1,307 | - | 0.0 | ||||||||||||
|
Total
operating expense
|
42,952 | 32,839 | 10,113 | 30.8 | ||||||||||||
|
Gain
on sale of assets
|
81 | 23 | 58 | n/m | * | |||||||||||
|
Income
from operations
|
10,322 | 8,625 | 1,697 | 19.7 | ||||||||||||
|
Other
income and expense
|
666 | 1,961 | (1,295 | ) | -66.0 | |||||||||||
|
Income
tax expense
|
3,515 | 3,176 | 339 | 10.7 | ||||||||||||
|
Net
income
|
7,473 | 7,410 | 63 | 0.9 | ||||||||||||
|
Balance
Sheet Data
|
||||||||||||||||
|
Cash
and cash equivalents
|
36,322 | 27,880 | 8,442 | 30.3 | ||||||||||||
|
Accounts
receivable
|
13,577 | 14,020 | (443 | ) | -3.2 | |||||||||||
|
Inventories
|
21,915 | 18,753 | 3,162 | 16.9 | ||||||||||||
|
Other
Data (unaudited)
|
||||||||||||||||
|
Orders
for year ended September 30
|
136,874 | 115,276 | 21,598 | 18.7 | ||||||||||||
|
Backlog
at fiscal year end
|
33,804 | 30,931 | 2,873 | 9.3 | ||||||||||||
|
*
Not meaningful
|
||||||||||||||||
Results
of Operations
Fiscal
2008 compared to Fiscal 2007
Net sales
for the year ended September 30, 2008 were $134.1 million, a 25% increase over
the $107.5 million reported for fiscal 2007. The Company ended the
year strongly with a record fourth quarter of $40.2 million in sales, a 27%
increase over the corresponding period in fiscal 2007.
Sales in
the Company’s automated inspection systems product line increased by 19% to
$56.0 million in fiscal 2008, accounting for 42% of total revenues, compared to
$46.9 million in fiscal 2007 and 44% of total revenues. The most
significant increase was in upgrade sales which increased $4.3 million or 34% to
$16.9 million. Sales increased over the prior year in almost
all automated inspection product lines including the new Manta automated
inspection product which was introduced in fiscal 2008. Process
systems sales in fiscal 2008 were $56.6 million, a 38% increase over the $40.9
million reported for fiscal 2007. Sales of process systems accounted
for 42% of total revenues in fiscal 2008 compared to 38% in fiscal
2007. Shipments of process systems in fiscal 2008 from United States
operating locations increased nearly 46% and from the Netherlands increased by
nearly 23%. Parts and service sales increased from the prior year by
$1.8 million or 9%, and represented 16% of sales in fiscal 2008, compared to 18%
of sales in fiscal 2007.
New
orders increased 19%, or $21.6 million, to $136.9 million in fiscal 2008 over
the $115.3 million in orders received in fiscal 2007. Backlog at
September 30, 2008 increased to $33.8 million compared to the $30.9 million
reported at the end of fiscal 2007. The order mix for the more recent
year improved over fiscal 2007. For fiscal 2008, the Company’s higher
margin automated inspection systems orders increased by $14.3 million, or 30%,
representing almost 46% of order volume in fiscal 2008 compared to 42% in the
prior year. This increase was due in large part to an almost 31%
increase in upgrade orders.
Gross
profits increased to $53.2 million for fiscal 2008 compared to $41.4 million in
fiscal 2007, or 39.7% and 38.5% of net sales, respectively. The
principle driver for the $11.8 million increase in gross profit relates to the
nearly 25% increase in sales volume. The improvement in the gross
profit percentage relates to the lower other cost of sales relating to improved
manufacturing and overhead variances.
Research
and development spending increased $3.2 million to $8.7 million, or 6.5% of
sales, in fiscal 2008 from $5.5 million and 5.1% of sales in fiscal
2007. The increase was driven largely by increases in the research
and development team, as well as significant investments in research and
development for SYMETIX projects.
Sales and
marketing spending in fiscal 2008 increased to $21.4 million, compared to the
$17.2 million spent in fiscal 2007. As a percentage of sales, sales
expense decreased 0.1% from the 16.0% of sales reported in fiscal 2007 to 15.9%
of sales reported in fiscal 2008. The primary drivers for the
increase in spending were the significantly higher sales volume, continued
investment in the Company’s SYMETIX initiative in the pharmaceutical and
nutraceutical industry, and an increase in the mix of sales through independent
representatives which incur higher commission rates.
General
and administrative spending in fiscal 2008 was $11.5 million and 8.6% of sales
for the year, compared to $8.8 million and 8.2% of sales for fiscal
2007. The increase in fiscal 2008 was due to the investment in the
Company’s new ERP system, increases in incentive and stock compensation, and new
employee salary and relocation expenses.
Other
income and expense was $666,000 of income for fiscal 2008 compared to $2.0
million of income for fiscal 2007. Interest income increased slightly
to $735,000 in fiscal 2008 from the $726,000 reported for fiscal
2007. The Company recognized exchange losses of $157,000 in fiscal
2008 compared with exchange gains of $570,000 in fiscal 2007. During
fiscal 2007, the Company recognized a gain of $750,000 from the sale of its
investment in the InspX joint venture.
The
effective tax rate for the Company was 32.0% in fiscal 2008 compared to 30.0% in
fiscal 2007. The effective tax rate for fiscal 2007 was primarily
affected by the reversal of valuation reserves recorded in fiscal
2006
related
to the Company’s valuation of its investment in the InspX joint
venture. Other items, such as permanent differences arising from
extra-territorial income exclusions, domestic production deductions, research
and development tax credits, tax exempt interest, and other permanent
differences, caused the effective tax rate to vary from the 34% statutory rate
in both fiscal 2008 and 2007.
Net
earnings in fiscal 2008 were $7.5 million, or $1.35 per diluted share, compared
to net earnings of $7.4 million, or $1.37 per diluted share, in fiscal
2007. The principal reasons for the increase in earnings for fiscal
2008 compared to fiscal 2007 were increased sales volumes and improved gross
profit margins which were partially offset by increased operating expenses and
the unfavorable effects of changes in foreign currency exchange
rates. Earnings in fiscal 2007 were favorably impacted by the
$750,000 gain, or $0.14 per share, from the sale of the Company’s 50% interest
in its InspX joint venture.
Fiscal
2007 compared to Fiscal 2006
Net sales
for the year ended September 30, 2007 were $107.5 million, a 27% increase over
the $84.8 million reported for fiscal 2006. The Company ended the
year strongly with a record fourth quarter of $31.7 million in sales, a 31%
increase over the corresponding period in fiscal 2006.
Sales in
the Company’s automated inspection systems product line increased by 55% to
$46.9 million in fiscal 2007, accounting for 44% of total revenues, compared to
$30.3 million in fiscal 2006 and 36% of total revenues. The most
significant increase was in upgrade sales which increased $5.7 million or 81% to
$12.7 million. Sales increased in all automated inspection
product lines except tobacco, which dropped $2.5 million to $0.7 million in
fiscal 2007 as a result of a significant tobacco order from China that shipped
in fiscal 2006. Process systems sales in fiscal 2007 were $40.9
million, a 17.2% increase over the $34.9 million reported for fiscal
2006. Sales of process systems accounted for 38% of total revenues in
fiscal 2007 compared to 41% in fiscal 2006. Shipments of process
systems in fiscal 2007 from United States operating locations increased nearly
27% and from the Netherlands increased by nearly 12%. Parts and
service sales remained on par with the prior year at $19.7 million and
represented 18% of sales this year, down from 23% of sales in fiscal
2006.
New
orders increased 27%, or $24.8 million, to $115.3 million in fiscal 2007 over
the $90.5 million in orders received in fiscal 2006. Backlog at
September 30, 2007 increased to $30.9 million compared to the $22.8 million
reported at the end of fiscal 2006. The order mix for the more recent
year improved over fiscal 2006. The Company’s higher margin automated
inspection systems orders increased to almost 42% of order volume in fiscal 2007
compared to 40% in the prior year due in large part to an almost 42% increase in
upgrade orders and a $3.0 million increase in SYMETIX orders.
Gross
profits increased to $41.4 million for fiscal 2007 compared to $31.8 million in
fiscal 2006, or 38.5% and 37.5% of sales, respectively. The principle
driver for the $9.6 million increase in gross profit relates to the nearly 27%
increase is sales volume. The improvement in gross profit percentage
relates to the increased mix of automated inspection systems sales as well as
lower other cost of sales relating to improved manufacturing and overhead
variances. Gross profits were negatively affected by higher raw
material cost increases driven by stainless steel pricing, as well as lower
labor efficiencies relating to hiring and training over 40 new production
employees in 2007.
Research
and development spending decreased $924,000 to $5.5 million, or 5.1% of sales,
in fiscal 2007 from $6.4 million and 7.6% of sales in fiscal
2006. The decrease was driven largely by focusing on fewer research
and development projects, as well as the closure and the reduction in staffing
of the Company’s Medford, Oregon facility.
Sales and
marketing spending in fiscal 2007 was $17.2 million, a significant increase from
the $14.8 million spent in fiscal 2006. As a percent of sales, costs
dropped 1.4% from the 17.4% of sales reported in fiscal 2006 to 16.0% of sales
reported in fiscal 2007. The primary drivers for the increase were
the significantly higher sales volume, as well as continued investment in the
Company’s China sales office and its SYMETIX initiative in the pharmaceutical
and nutraceutical industry.
General
and administrative spending in fiscal 2007 was $8.8 million and 8.2% of sales
for the year, compared to $9.2 million and 10.8% of sales for fiscal
2006. The decrease in fiscal 2007 was due to the closure of the
Company’s operations in Australia and reduced management consulting
costs. General and administrative costs incurred in 2006 included
non-recurring costs related to information system upgrades. General
and administrative costs decreased in fiscal 2007 despite the $500,000 of
external costs incurred to comply with Section 404 of the Sarbanes-Oxley
Act.
Other
income and expense was $2.0 million of income for fiscal 2007 compared to $1.0
million of expense for fiscal 2006. During fiscal 2007, the Company
recognized a gain of $750,000 from the sale of the investment in the InspX joint
venture. In fiscal 2006, the Company booked a charge of $865,000
related to the write-off of it’s investment in InspX. During fiscal
2006, the Company’s equity in the earnings of InspX was an additional loss of
$389,000. Interest income increased to $726,000 in fiscal 2007 from
the $391,000 reported for fiscal 2006 due to increased investment of cash
generated by operations. The Company also recognized exchange gains
of $570,000 in fiscal 2007 compared with $86,000 in the prior year.
The
effective tax rate for the Company was 30.2% in fiscal 2007 compared to 2.7% in
fiscal 2006. The effective tax rate for fiscal 2007 was primarily
affected by the reversal of valuation reserves recorded in fiscal 2006 related
to the Company’s valuation of its investment in the InspX joint
venture. Other items, such as permanent differences arising from
extra-territorial income exclusions, domestic production deductions, research
and development tax credits, tax exempt interest, and other permanent
differences, caused the effective tax rate to vary from the 34% statutory rate
in fiscal 2007.
Net
earnings in fiscal 2007 were $7.4 million, or $1.37 per diluted share, compared
to a net loss of $793,000, or $0.15 per diluted share, in fiscal
2006. The principal reasons for the increase in earnings for fiscal
2007 compared to fiscal 2006 were increased sales volumes and improved gross
profit margins. In addition, earnings improved due to the effect of
the InspX transactions in both years.
Liquidity
and Capital Resources
Fiscal
2008
For
fiscal year 2008, net cash increased by $8.4 million, or over 30%, to $36.3
million on September 30, 2008. The Company generated $13.1 million in
cash from operating activities, generated $938,000 from financing activities and
consumed $5.4 million in investing activities.
The net
cash provided by operating activities during fiscal 2008 of $13.1 million
included net earnings for the year of $7.5 million, non-cash expenses for
depreciation and amortization of $2.8 million and non-cash share based payments
and deferred income tax benefits of $1.5 million and $549,000,
respectively. Non-cash working capital at September 30, 2008 declined
from the same time last year, contributing $2.7 million to the cash provided by
operating activities. Inventory increased due to strategic
investments in inventory related to new products and increased business activity
at the end of fiscal 2008. These increases were more than offset by
increases in accounts payable, customer deposits, customer support and warranty
accruals, income taxes payable, as well as higher yearly incentive
accruals. Despite the increase in sales during fiscal 2008, the
Company’s ending accounts receivable balance did not change significantly
compared to the prior fiscal year.
Cash used
in investing activities totaled $5.4 million during fiscal
2008. Capital expenditures during fiscal 2008 were approximately $5.5
million for the fiscal year, including $2.3 million for the global ERP
implementation project and $750,000 for an equipment purchase. Cash
used for investing activities in fiscal 2007 was $749,000.
Cash
generated from financing activities totaled $938,000 in fiscal
2008. $687,000 of cash was generated from the issuance of common
stock related to option exercises. Financing activities also
benefited from the $251,000 excess tax benefit from share based
payments. During the prior fiscal year, the Company repurchased
88,252 shares of its common stock using $1.3 million of cash. At the
end of both fiscal 2007 and 2008, the Company had no long term debt
outstanding.
The
Company’s domestic credit facility provides for a revolving credit line of up to
$10 million and credit sub-facilities of $3.0 million each for sight commercial
letters of credit and standby letters of credit. The credit facility
matures on June 30, 2009. The credit facility bears interest, at the
Company’s option, of either the bank prime rate minus 1.75% or LIBOR plus 1.0%
per annum. At September 30, 2008, the interest rate would have been
3.25%. The credit facility is secured by all U.S. accounts
receivable, inventory and fixed assets. The credit facility contains
covenants which require the maintenance of a defined net worth ratio, a
liquidity ratio and an EBITDA coverage ratio. The credit facility
also restricts mergers and acquisitions, incurrence of additional indebtedness,
and transactions, including purchases and retirements, in the Company’s own
common stock without the prior consent of the Lender. At September
30, 2008, the Company had no borrowings outstanding under the credit facility
and $380,000 in standby letters of credit of which $230,000 related to lease
obligations. This portion was cancelled subsequent to the end of the
Company’s fiscal year. At September 30, 2008, the Company was in
compliance with its loan covenants, and had received the consent of the lender
for its stock repurchase program. At September 30, 2007, the Company
had no borrowings outstanding under the credit facility and $530,000 in standby
letters of credit.
The
Company’s credit accommodation with a commercial bank in The Netherlands
provides a credit facility for its European subsidiary. This credit
accommodation totals $3.5 million and includes an operating line of the
lesser of $2.1 million or the available borrowing base, which is based on
varying percentages of eligible accounts receivable and inventories, and a bank
guarantee facility of $1.4 million. The operating line and bank
guarantee facility are secured by all of the subsidiary’s personal
property. The credit facility bears interest at the bank’s prime
rate, with a minimum of 3.00%, plus 1.75%. At September 30, 2008, the
interest rate was 8.15%. At September 30, 2008, the Company had no
borrowings under this facility and had received bank guarantees of $1.2 million
under the bank guarantee facility. At September 30, 2007, the Company
had no borrowings under this facility and had received bank guarantees of
$668,000 under the bank guarantee facility. The credit facility
allows overages on the bank guarantee facility. Any overages reduce
the available borrowings from the operating line.
The
Company anticipates that the ongoing cash flows from operations and borrowing
capacity under currently available operating credit lines will be sufficient to
fund the Company’s operating needs for the foreseeable future. Cash
provided by operating activities was $13.1 million, $12.4 million and $5.5
million in each of the last three years, respectively. This operating
cash flow has allowed the Company to fund capital asset purchases and eliminate
the long-term debt outstanding. The Company anticipates that its cash
needs will continue to be met from cash from operations as it embarks on its
initiatives to grow the pharmaceutical, nutraceutical and aftermarket
businesses, and expand its operations in world-wide
locations. Subsequent to the end of fiscal 2008, the Company
exercised its purchase option and purchased its Walla Walla, Washington
headquarters facility and grounds for approximately $6.5 million. The
Company intends to pursue long-term financing for the property and expects to
finalize financing by the end of the first quarter of fiscal
2009. The Company also anticipates cash expenditures over the
2009-2010 fiscal years for the development of a global ERP system, a significant
portion of which will be capitalized. In addition, due to the rate of
growth, the Company is investigating opportunities for increased office and
plant space, primarily through leased facilities in the Walla Walla
area. The Company had no material commitments for capital
expenditures at September 30, 2008.
Prior
Years - Fiscal 2007 and 2006
For
fiscal year 2007, net cash increased by $12.6 million, or nearly 83%, to $27.9
million on September 30, 2007. The Company generated $12.4 million in
cash from operating activities and generated $575,000 from financing activities
and consumed $749,000 in investing activities.
The net
cash provided by operating activities during fiscal 2007 of $12.4 million
included net earnings for the year of $7.4 million, non-cash expenses for
depreciation and amortization of $2.6 million and non-cash share based payments
and deferred income taxes of $987,000 and $721,000, respectively. Net
earnings also included the $750,000 gain on the sale of InspX. This
gain is not included in the cash provided by operations. Non-cash
working capital at September 30, 2007 declined from the same time last year,
contributing $1.7 million to the cash provided by operating
activities. Increased business activity at the end of and during the
fourth quarter of fiscal 2007 versus 2006, reflected by the record year-end
backlog and the record fourth quarter revenues, resulted in increased inventory
and receivables. These increases were more than offset by increases
in accounts payable, customer deposits, customer support and warranty accruals,
as well as higher yearly incentive accruals.
Cash used
in investing activities totaled $749,000 during fiscal 2007. Capital
expenditures during fiscal 2007 were approximately $1.6 million for the fiscal
year, including $706,000 for software purchased for the global ERP
implementation project. These expenditures were partially offset by
$750,000 of proceeds from the sale of InspX and $64,000 in proceeds from the
sale of property.
Cash
generated from financing activities totaled $575,000 in fiscal
2007. The Company initiated a stock repurchase program in fiscal 2007
and repurchased 88,252 shares of stock during the fiscal year using $1.3 million
of cash. These applications of cash were more than offset by the $1.6
million generated from the issuance of common stock related to option
exercises. Financing activities also benefited by the $320,000
excess tax benefit from share based payments. At the end of fiscal
2007, the Company had no long term debt outstanding.
For
fiscal year 2006, net cash increased by $2.1 million to $15.2 million on
September 30, 2006. The Company generated $5.5 million in cash from
operating activities and consumed $1.4 million in investing activities and $2.0
million in financing activities.
The net
cash provided by operating activities during fiscal 2006 of $5.5 million
included a net loss for the year which reduced cash by $0.8
million. This net loss included the non-cash loss of $1.3 million
from the Company’s joint venture equity interest in InspX and non-cash expenses
for depreciation and amortization of $3.0 million. Higher business
levels at the end of 2006 versus 2005 reflected by the increased order backlog
resulted in increased payables and liabilities, as well as higher inventory
levels. These increases included higher accounts payable, $1.7
million, higher customer deposits on orders in process, $2.2 million, and higher
inventories, $1.0 million. All other operating activities resulted in
a use of cash in fiscal 2006 of $0.8 million.
Cash used
in investing activities was for machinery and equipment purchases during fiscal
2006 and amounted to $1.4 million for the fiscal year. Cash used in
investing activities in fiscal 2005 of $2.0 million was slightly higher than
fiscal 2006 and included the Freshline acquisition in early fiscal 2005 of $1.1
million.
Cash used
in financing activities totaled $2.0 million in fiscal 2006. During
the fiscal year, the Company used cash to payoff both the current and long term
portion of debt in the amount of $2.3 million. Borrowings at
September 30, 2005 consisted of a term loan with a balance of $1.6 million,
notes payable totaling $0.5 million and capital leases totaling $0.2
million. At the end of fiscal 2006, the Company had no long term debt
outstanding. These applications of cash were partially offset by the
receipt of $0.3 million due to the issuance of common stock pursuant to the
exercise of stock options.
Contractual
Obligations
The
Company’s continuing contractual obligations and commercial commitments existing
on September 30, 2008 are as follows (as adjusted for the subsequent purchase of
the Company’s Walla Walla headquarters facility):
|
Payments due by period (in
thousands)
|
||||||||||||||||||||
|
Contractual
Obligations (1)
|
Total
|
Less
than 1 year
|
1 –
3 years
|
4 –
5 years
|
After
5 years
|
|||||||||||||||
|
Operating
leases
|
$ | 2,075 | $ | 591 | $ | 915 | $ | 569 | - | |||||||||||
|
Total contractual cash
obligations
|
$ | 2,075 | $ | 591 | $ | 915 | $ | 569 | $ | - | ||||||||||
|
(1)
|
The
Company also has $110,000 of contractual obligations related to uncertain
tax positions for which the timing and amount of payment can not be
reasonably estimated due to the nature of the uncertainties and the
unpredictability of jurisdictional examinations in relation to the statue
of limitations.
|
At
September 30, 2008, the Company had standby letters of credit totaling $1.6
million, which includes secured bank guarantees under the Company’s credit
facility in Europe and letters of credit securing certain self-insurance
contracts and lease commitments. Subsequent to the end of the fiscal
year, a letter of credit in the amount of $230,000 securing lease payments was
cancelled as the leased facility was purchased. If the Company fails
to meet
its
contractual obligations, these bank guarantees and letters of credit may become
liabilities of the Company. The Company has no off-balance sheet
arrangements or transactions, or arrangements or relationships with “special
purpose entities.”
Future
Accounting Changes
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements,” which establishes guidelines
for measuring fair value and expands disclosures regarding fair value
measurements. SFAS No. 157 does not require any new fair
value measurements but rather it eliminates inconsistencies in the guidance
found in various prior accounting
pronouncements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The Company is evaluating the
potential effects of this standard, although the Company does not expect the
adoption of SFAS No. 157 to have a material effect on its financial
position, results of operation, or cash flows.
In
February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2, “Effective
Date of FASB Statement No. 157,” to delay the effective date of FASB Statement
157 for one year for certain nonfinancial assets and nonfinancial liabilities,
excluding those that are recognized or disclosed in financial statements at fair
value on a recurring basis (that is, at least annually). For purposes
of applying the FSP, nonfinancial assets and nonfinancial liabilities include
all assets and liabilities other than those meeting the definition of a
financial asset or a financial liability in FASB Statement 159. This
FSP defers the effective date of Statement 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items
within the scope of this FSP.
In
February 2007, the FASB issued Statement 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” This Statement permits
entities to elect to measure certain financial instruments and other items at
fair value. The fair value option may be applied on an instrument by
instrument basis, is irrevocable and is applied only to entire
instruments. SFAS 159 requires additional financial statement
presentation and disclosure requirements for those entities that elect to adopt
the standard and is effective for fiscal years beginning after November 15,
2007. The Company does not expect the adoption of SFAS 159 to have a
material effect on its financial position, results of operations or cash
flows.
In June
2008, the FASB issued FASB Staff Position EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities.” This position states that unvested share-based payment awards that
contain nonforfeitable rights to dividends (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share (EPS) under the two-class method described in paragraphs 60 and 61 of
FASB Statement No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for
financial statements issued for fiscal years beginning after December 15, 2008.
All prior period EPS data will be required to be adjusted to conform to the
provisions of this pronouncement and early application is prohibited. The
Company does have participating securities as described under this pronouncement
and is currently evaluating the impact of FSP EITF 03-6-1.
In March
2008, the FASB issued Statement 161 “Disclosures about Derivative Instruments
and Hedging Activities” an amendment to FASB No. 133. This statement
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures
about (a) how and why and entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows. This statement is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008. Early application is encouraged. The Company does
not expect the adoption of SFAS 161 to have a material impact on its financial
position, results of operations or cash flows.
In
December 2007, the Financial Accounting Standards Board ratified a consensus
opinion reached by the Emerging Issues Task Force (EITF) on EITF Issue 07-1,
“Accounting for Collaborative Arrangements.” The guidance in EITF Issue 07-1
defines collaborative arrangements and establishes presentation and disclosure
requirements for transactions within a collaborative arrangement (both with
third parties and between participants in the arrangement). The
consensus in EITF Issue 07-1 is effective for fiscal years, and interim periods
within those
fiscal
years, beginning after December 15, 2008. The consensus requires retrospective
application to all collaborative arrangements existing as of the effective date,
unless retrospective application is impracticable. The impracticability
evaluation and exception should be performed on an arrangement-by-arrangement
basis. The Company is evaluating the impact EITF Issue 07-1 will have
on its financial statements. The Company currently does not believe that the
adoption of EITF Issue 07-1 will have a significant effect on its financial
statements.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
The
Company has assessed its exposure to market risks for its financial instruments
and has determined that its exposures to such risks are generally limited to
those affected by the value of the U.S. Dollar compared to the Euro and to a
lesser extent the Australian Dollar, Mexican Peso and Chinese
Renminbi.
The terms
of sales to European customers are typically denominated in
Euros. The Company expects that its standard terms of sale to
international customers, other than those in Europe, will continue to be
denominated in U.S. dollars, although as the Company expands its operations in
Australia, Latin America and China, transactions denominated in the local
currencies of these countries may increase. For sales transactions
between international customers, including European customers, and the Company’s
domestic operations, which are denominated in currencies other than U.S.
dollars, the Company assesses its currency exchange risk and may enter into
forward contracts to minimize such risk. At September 30, 2008, the
Company held a 30-day forward contract for $2.0 million Euros. As of
September 30, 2008, management estimates that a 10% change in foreign exchange
rates would affect net earnings before taxes by approximately $200,000 on an
annual basis as a result of converted cash, accounts receivable, loans to
foreign subsidiaries, and sales or other contracts denominated in foreign
currencies.
As of
September 30, 2008, the Euro lost a net of 1% in value against the U.S. dollar
compared to its value at September 30, 2007. During the twelve-month
period ended September 30, 2008, changes in the value of the Euro against the
U.S. dollar ranged between a 1% loss and a 10% gain as compared to the value at
September 30, 2007. The weakening of the Euro was predominately in
the fourth fiscal quarter of 2008, as at June 30, 2008, the Euro had gained 10%
in value as compared to the value at September 30, 2007, but ended the fiscal
year at a 1% net loss in value. Other foreign currencies showed
varied changes in value against the U.S. dollar during fiscal
2008. The effect of these fluctuations on the operations and
financial results of the Company were:
|
·
|
Translation
adjustments of ($131,000), net of income tax, were recognized as a
component of comprehensive income as a result of converting the Euro
denominated balance sheets of Key Technology B.V. and Suplusco Holding
B.V. into U.S. dollars, and to a lesser extent, the Australian dollar
balance sheets of Key Technology Australia Pty Ltd., the RMB balance sheet
of Key Technology (Shanghai) Trading Co., Ltd., the Singapore dollar
balance sheet of Key Technology Asia-Pacific Pte. Ltd., and the Peso
balance sheet of Productos Key
Mexicana.
|
|
·
|
Foreign
exchange losses of $157,000 were recognized in the other income and
expense section of the consolidated statement of operations as a result of
conversion of Euro and other foreign currency denominated receivables,
intercompany loans, and cash carried on the balance sheet of the U.S.
operations, as well as the result of the conversion of other
non-functional currency receivables, payables and cash carried on the
balance sheets of the European, Australian, Chinese, Singapore and Mexican
operations.
|
Compared
to historical exchange rates, the U.S. dollar is still in a relatively weak
position on the world markets but, subsequent to the end of the Company’s fiscal
year, the value of the dollar gained significantly on the world
markets. A relatively weaker U.S. dollar makes the Company’s
U.S.-manufactured goods relatively less expensive to international customers
when denominated in U.S. dollars or potentially more profitable to the Company
when denominated in a foreign currency. On the other hand, materials
or components imported into the U.S. may be more expensive. A
relatively weaker U.S. dollar on the world markets, especially as measured
against the Euro, may favorably affect the Company’s market and economic outlook
for international sales. Conversely, when the dollar strengthens on
the world markets, the Company’s market and economic outlook for international
sales could be negatively affected as export sales to international customers
become relatively more expensive. The Company’s Netherlands-based
subsidiary transacts business primarily in Euros and does not have significant
exports to the U.S, but does import a significant portion of its products from
its U.S.-based parent company.
Under the
Company’s current credit facilities, the Company may borrow at the lender’s
prime rate minus 175 basis points on its domestic credit facility and at the
lenders prime rate plus 175 basis points on its European credit
facility. At September 30, 2008, the Company had no borrowings which
had variable interest rates. During the year then ended, interest
rates applicable to its variable rate credit facilities ranged from 3.25% to
8.15%. At September 30, 2008, the rate was 3.25% on its domestic
credit facility and 8.15% on its European credit facility. As of
September 30, 2008, management estimates that a 100 basis point change in these
interest rates would not affect net income before taxes because the Company had
no borrowings outstanding under its variable interest rate
facilities.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
Title
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
35
|
|
Report
of Independent Registered Public Accounting Firm
|
36
|
|
Consolidated
Balance Sheets at September 30, 2008 and 2007
|
37
|
|
Consolidated
Statements of Operations for the three years ended September 30,
2008
|
39
|
|
Consolidated
Statements of Shareholders' Equity for the three years ended September 30,
2008
|
40
|
|
Consolidated
Statements of Cash Flows for the three years ended September 30,
2008
|
41
|
|
Notes
to Consolidated Financial Statements
|
43
|
|
Supplementary
Data
|
60
|
Board of
Directors and Shareholders of Key Technology, Inc.
We have
audited the accompanying consolidated balance sheets of Key Technology, Inc. (an
Oregon corporation) as of September 30, 2008 and 2007, and the related
consolidated statements of operations, shareholders’ equity, and cash flows for
each of the three years in the period ended
September 30, 2008. These financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Key Technology, Inc. as of
September 30, 2008 and 2007, and the results of its operations and its
cash flows for each of the three years in the period ended
September 30, 2008 in conformity with accounting principles generally
accepted in the United States of America.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) Key Technology Inc.’s internal control over
financial reporting as of September 30, 2008, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
December 8, 2008 expressed an unqualified opinion on the effectiveness
of the Company’s internal control over financial reporting.
/s/ GRANT
THORNTON LLP
Seattle,
Washington
December
8, 2008
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Shareholders of Key Technology, Inc.
We have
audited the internal control over financial reporting of Key Technology, Inc.
(the Company) as of September 30, 2008, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Key Technology,
Inc.’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s
Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of September 30, 2008, based on
criteria established in Internal Control—Integrated Framework issued by
COSO.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the accompanying consolidated balance sheets of
Key Technology, Inc. as of September 30, 2008 and 2007, and the
related consolidated statements of operations, stockholders’ equity, and cash
flows for each of the three years in the period ended
September 30, 2008 and our report dated December 8, 2008
expressed an unqualified opinion on these financial statements.
/s/ GRANT
THORNTON LLP
Seattle,
Washington
December
8, 2008
|
KEY
TECHNOLOGY, INC. AND SUBSIDIARIES
|
||||||||
|
CONSOLIDATED
BALANCE SHEETS
|
||||||||
|
SEPTEMBER
30, 2008 AND 2007
|
||||||||
|
(In
thousands)
|
||||||||
|
2008
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
and cash equivalents
|
$ | 36,322 | $ | 27,880 | ||||
|
Trade
accounts receivable, net
|
13,577 | 14,020 | ||||||
|
Inventories
|
21,915 | 18,753 | ||||||
|
Deferred
income taxes
|
2,340 | 2,120 | ||||||
|
Prepaid
expenses and other assets
|
1,873 | 1,954 | ||||||
|
Total
current assets
|
76,027 | 64,727 | ||||||
|
PROPERTY,
PLANT AND EQUIPMENT, Net
|
8,705 | 4,671 | ||||||
|
DEFERRED
INCOME TAXES
|
101 | - | ||||||
|
INTANGIBLES,
Net
|
2,266 | 3,573 | ||||||
|
GOODWILL,
Net
|
2,524 | 2,524 | ||||||
|
OTHER
ASSETS
|
2 | 2 | ||||||
|
TOTAL
|
$ | 89,625 | $ | 75,497 | ||||
|
See
notes to consolidated financial statements.
|
(Continued)
|
|||||||
|
KEY
TECHNOLOGY, INC. AND SUBSIDIARIES
|
||||||||
|
CONSOLIDATED
BALANCE SHEETS
|
||||||||
|
SEPTEMBER
30, 2008 AND 2007
|
||||||||
|
(In
thousands, except shares)
|
||||||||
|
2008
|
2007
|
|||||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts payable
|
$ | 7,556 | $ | 5,692 | ||||
|
Accrued payroll liabilities and commissions
|
7,558 | 6,663 | ||||||
|
Accrued customer support and warranty costs
|
2,545 | 1,946 | ||||||
|
Income tax payable
|
417 | 181 | ||||||
|
Customer purchase plans
|
1,443 | 651 | ||||||
|
Other accrued liabilities
|
942 | 798 | ||||||
|
Customers’ deposits
|
8,035 | 7,850 | ||||||
|
Total
current liabilities
|
28,496 | 23,781 | ||||||
|
DEFERRED
INCOME TAXES
|
- | 722 | ||||||
|
LONG-TERM
DEFERRED RENT
|
605 | 601 | ||||||
|
OTHER
LONG TERM LIABILITIES
|
156 | - | ||||||
|
COMMITMENTS
AND CONTINGENCIES
|
- | - | ||||||
|
SHAREHOLDERS’
EQUITY:
|
||||||||
|
Preferred stock—no par value; 5,000,000 shares authorized;
|
||||||||
|
none issued and outstanding
|
- | - | ||||||
|
Common stock—no par value; 45,000,000 shares authorized;
|
||||||||
|
5,629,566 and 5,508,658 issued and outstanding at September 30, 2008 and
2007, respectively
|
19,489 | 17,105 | ||||||
|
Retained earnings
|
40,381 | 32,659 | ||||||
|
Accumulated other comprehensive income
|
498 | 629 | ||||||
|
Total
shareholders’ equity
|
60,368 | 50,393 | ||||||
|
TOTAL
|
$ | 89,625 | $ | 75,497 | ||||
|
See
notes to consolidated financial statements.
|
(Concluded)
|
|||||||
|
KEY
TECHNOLOGY, INC. AND SUBSIDIARIES
|
||||||||||||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||||
|
THREE
YEARS ENDED SEPTEMBER 30, 2008
|
||||||||||||
|
(In
thousands, except per share data)
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
NET
SALES
|
$ | 134,086 | $ | 107,540 | $ | 84,840 | ||||||
|
COST
OF SALES
|
80,893 | 66,099 | 53,041 | |||||||||
|
Gross
profit
|
53,193 | 41,441 | 31,799 | |||||||||
|
OPERATING
EXPENSES:
|
||||||||||||
|
Selling
|
21,373 | 17,191 | 14,784 | |||||||||
|
Research and development
|
8,744 | 5,520 | 6,444 | |||||||||
|
General and administrative
|
11,528 | 8,821 | 9,185 | |||||||||
|
Amortization of intangibles
|
1,307 | 1,307 | 1,330 | |||||||||
|
Total
operating expenses
|
42,952 | 32,839 | 31,743 | |||||||||
|
GAIN
ON SALE OF ASSETS
|
81 | 23 | 109 | |||||||||
|
INCOME
FROM OPERATIONS
|
10,322 | 8,625 | 165 | |||||||||
|
OTHER
INCOME (EXPENSE):
|
||||||||||||
|
Royalty income
|
38 | 31 | 17 | |||||||||
|
Interest income
|
735 | 726 | 391 | |||||||||
|
Interest expense
|
(8 | ) | (12 | ) | (36 | ) | ||||||
|
Equity in earnings (loss) of joint venture
|
- | - | (389 | ) | ||||||||
|
Gain on sale of joint venture
|
- | 750 | - | |||||||||
|
Impairment charge on investment in joint venture
|
- | - | (865 | ) | ||||||||
|
Other, net
|
(99 | ) | 466 | (98 | ) | |||||||
|
Total
other income (expense)—net
|
666 | 1,961 | (980 | ) | ||||||||
|
Earnings
(loss) before income taxes
|
10,988 | 10,586 | (815 | ) | ||||||||
|
Income
tax expense (benefit)
|
3,515 | 3,176 | (22 | ) | ||||||||
|
Net
earnings (loss)
|
$ | 7,473 | $ | 7,410 | $ | (793 | ) | |||||
|
EARNINGS
(LOSS) PER SHARE—Basic
|
$ | 1.38 | $ | 1.41 | $ | (0.15 | ) | |||||
|
EARNINGS
(LOSS) PER SHARE—Diluted
|
$ | 1.35 | $ | 1.37 | $ | (0.15 | ) | |||||
|
SHARES
USED IN PER SHARE CALCULATION—Basic
|
5,430 | 5,265 | 5,205 | |||||||||
|
SHARES
USED IN PER SHARE CALCULATION—Diluted
|
5,517 | 5,407 | 5,205 | |||||||||
|
See
notes to consolidated financial statements.
|
||||||||||||
|
KEY
TECHNOLOGY, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
|
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||||||
|
THREE
YEARS ENDED SEPTEMBER 30, 2008
|
||||||||||||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||||||||
|
Deferred
|
Accumulated
|
|||||||||||||||||||||||
|
Common
Stock
|
Stock-
|
Other
|
||||||||||||||||||||||
|
Based
|
Retained
|
Comprehensive
|
||||||||||||||||||||||
|
Shares
|
Amount
|
Compensation
|
Earnings
|
Income
(Loss)
|
Total
|
|||||||||||||||||||
|
Balance
at September 30, 2005
|
5,347,784 | 15,301 | (2,057 | ) | 27,104 | 123 | 40,471 | |||||||||||||||||
|
Components
of comprehensive income:
|
||||||||||||||||||||||||
|
Net loss
|
- | - | - | (793 | ) | - | (793 | ) | ||||||||||||||||
|
Comprehensive income—foreign currency translation adjustment, net of tax
of $62
|
- | - | - | - | 120 | 120 | ||||||||||||||||||
|
Total
comprehensive income
|
(673 | ) | ||||||||||||||||||||||
|
Tax
benefits from share-based payments
|
- | 262 | - | - | - | 262 | ||||||||||||||||||
|
Share
based payments
|
- | 910 | - | - | - | 910 | ||||||||||||||||||
|
Issuance
of stock upon exercise of stock options
|
40,412 | 220 | - | - | - | 220 | ||||||||||||||||||
|
Issuance
of stock for Employee Stock Purchase Plan
|
5,765 | 62 | - | - | - | 62 | ||||||||||||||||||
|
Stock
grants - employment-based
|
25,926 | - | - | - | - | - | ||||||||||||||||||
|
Stock
grants - performance-based
|
(34,199 | ) | - | - | - | - | - | |||||||||||||||||
|
Reversal
of deferred stock compensation on adoption of FASB
123(R) -
|
(2,057 | ) | 2,057 | - | - | - | ||||||||||||||||||
|
Balance
at September 30, 2006
|
5,385,688 | 14,698 | - | 26,311 | 243 | 41,252 | ||||||||||||||||||
|
Components
of comprehensive income:
|
||||||||||||||||||||||||
|
Net earnings
|
- | - | - | 7,410 | - | 7,410 | ||||||||||||||||||
|
Comprehensive income—foreign currency translation adjustment, net of tax
of $228
|
- | - | - | - | 443 | 443 | ||||||||||||||||||
|
Less: Reclassification to net earnings (net of tax benefit of
$29)
|
- | - | - | - | (57 | ) | (57 | ) | ||||||||||||||||
|
Total
comprehensive income
|
7,796 | |||||||||||||||||||||||
|
Tax
benefits from share-based payments
|
- | 58 | - | - | - | 58 | ||||||||||||||||||
|
Share
based payments
|
- | |||||||||||||||||||||||