Business Context and Reporting Period
Company: Key Tronic Corporation
Filing Type: Form 10-K (Annual Report)
Fiscal Year Ended: July 1, 1995
Business Overview: Key Tronic designs, develops, and manufactures input devices, primarily keyboards, for personal computers, terminals, and workstations. The company serves Original Equipment Manufacturers (OEMs), corporations, and individual end users. Key products include full-travel and low-profile keyboards using capacitance and membrane switch technologies, as well as alternative input devices like mice and touch pads.
Key Financial Metrics
Revenue: Approximately $185.3 million for the fiscal year ended July 1, 1995.
- Keyboard sales: $185.3 million (89% of total sales).
- Non-keyboard products: $22.2 million (11% of total sales).
- Foreign sales: $83.2 million (40.1% of total revenues).
Profitability and Margins: The filing text does not provide specific values for net income, gross profit, or operating margins for the fiscal year 1995. These figures are incorporated by reference from the 1995 Annual Report to Shareholders.
Cash Flow and Liquidity: Specific cash flow figures and liquidity ratios are not provided in the text. The filing references the Consolidated Statements of Cash Flows in the Annual Report.
Debt and Capital Structure:
- Long-term debt instruments are described in Notes 5 and 15 of the financial statements (not detailed in text).
- Aggregate market value of voting stock held by nonaffiliates: $89,835,874 (as of September 1, 1995).
- Shares of Common Stock outstanding: 8,513,205 (as of September 1, 1995).
Reserves and Allowances (Schedule II):
- Allowance for Obsolete Inventory: $3,512,085 (end of year).
- Allowance for Doubtful Accounts: $1,195,373 (end of year).
- Reserve for Litigation: $1,607,496 (end of year), with $607,496 classified as current.
- Accrued Warranty Costs: $628,727 (end of year).
Material Changes vs. Prior Period
Revenue Growth: Total revenues increased significantly from $146.8 million in 1994 to $185.3 million in 1995.
- Non-keyboard product revenue grew from $12.6 million in 1994 to $22.2 million in 1995, driven by the manufacture and sale of plastic components for computer peripherals.
- Foreign sales increased from $68.2 million in 1994 to $83.2 million in 1995.
Customer Concentration:
- Hewlett Packard sales share increased from 10% (1994) to 23% (1995).
- Microsoft sales share increased from 1% (1994) to 19% (1995).
- Compaq Computer sales share decreased from 21% (1994) to 12% (1995).
- The five largest customers accounted for 65% of total sales in 1995, up from 50% in 1994.
Backlog: Order backlog increased to approximately $48 million as of September 1, 1995, compared to $39 million in the prior year, attributed to increased demand for standard products and new product orders.
Research and Development: Expenses were $6.1 million in 1995 (3.0% of sales), down from $5.8 million (3.7% of sales) in 1994.
Guidance, Outlook, Risks, and Contingencies
Management Commentary and Outlook:
- Management anticipates a continued decline in capacitance switch technology in favor of membrane and other emerging technologies due to price advantages.
- The company plans to continue emphasizing research, development, and engineering.
- Order backlog is not necessarily indicative of future sales as shipment dates are subject to change.
Risks and Contingencies:
- Legal Proceedings: The company faces 119 suits alleging repetitive stress injuries (RSI) or cumulative trauma disorders (CTD) caused by keyboard defects. While compensatory damages are likely covered by insurance, punitive damages are not. The range of reasonably possible losses is not estimable, and no provision has been made for future costs.
- Customer Concentration: Heavy reliance on a few major OEMs (HP, Microsoft, Compaq) creates concentration risk.
- Technology Shifts: Rapid changes in computer product development require rapid design and manufacturing response; failure to adapt could impact market position.
Unusual Items:
- Acquisition: In 1993, the company acquired Honeywell's Keyboard Division for approximately $22.0 million in cash plus other consideration. This acquisition contributed to the company's manufacturing footprint in Mexico, New Mexico, and Texas.
- Property: The company holds real estate in Cheney, Washington, for sale with a net book value of $2,243,000.
Important Facts for Investor Verification
- Financial Statements: Verify specific net income, cash flow, and debt figures in the 1995 Annual Report to Shareholders, as they are incorporated by reference and not explicitly detailed in this 10-K text.
- Legal Exposure: Assess the potential financial impact of the 119 pending RSI/CTD lawsuits, particularly regarding the coverage limits of insurance for punitive damages.
- Customer Dependency: Monitor the stability of relationships with top customers (HP, Microsoft, Compaq), which collectively accounted for 54% of 1995 sales.
- Technology Transition: Evaluate the company's success in transitioning from capacitance to membrane and other switch technologies to maintain cost competitiveness.
- Backlog Realization: Confirm the conversion rate of the $48 million order backlog into actual revenue, noting that shipment dates are subject to change.