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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of
The Securities Exchange Act of 1934
----------------------
For the Fiscal Year Ended Commission File Number
July 1, 1995 0-11559
KEY TRONIC CORPORATION
Washington 91-0849125
(State of Incorporation) (I.R.S. Employer
------------------ Identification No.)
N. 4424 Sullivan Road
Spokane, Washington 99216
(509) 928-8000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
The registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities and Exchange Act of 1934 during the preceding 12 months, and
has been subject to such filing requirements during the past 90 days.
Indicate by checkmark if 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.
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was $89,835,874 as of September 1, 1995.
The number of shares of Common Stock of the Registrant outstanding as of
September 1, 1995 was 8,513,205 shares.
The Exhibit Index is located at Page 15.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1995 Annual Report to Shareholders , pages 1 and 10
- - 32, are incorporated by reference into Parts I, II, and IV; a portion of the
Registrant's Proxy Statement, pages 1 - 23, pursuant to Regulation 14A, covering
the Annual Meeting of Shareholders to be held October 26, 1995 is incorporated
by reference into Part III.
KEY TRONIC CORPORATION
1995 FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1. Business 3-9
Item 2. Properties 8
Item 3. Legal Proceedings 8-9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Disagreements on Accounting and Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the Registrant 11-13
Item 11. Management Remuneration 13
Item 12. Securities Ownership of Certain Beneficial Owners and
Management 13
Item 13. Certain Relationships and Related Transactions 13
PART IV
Item 14. Exhibits, Financial Statement Schedules, Reports on Form
8-K and Signatures 14-23
PART I
ITEM 1. BUSINESS
The following discussion relates to fiscal years of the Company.
Key Tronic Corporation, a Washington corporation organized in 1969, and its
subsidiaries (hereinafter collectively called the "Company" or "Key Tronic"
unless the context otherwise requires) are principally engaged in the design,
development, and manufacture of input devices, primarily keyboards, for personal
computers, terminals, and workstations.
BACKGROUND
Keyboards are the primary means by which people input data and commands to
computers. Keyboards consist of an array of switches, with each switch activated
by an operator depressing a keycap to input a particular letter, number or
special function to the computer. Full travel keyboards, with typewriter-like
strokes, are preferred in high use applications where speed, accuracy, and ease
of data input are required. Keyboards are distinguishable from keypads, which
are short travel data entry devices more likely to be used where only numerical
data entry is required, such as in push button telephones and pocket
calculators.
Keyboard configurations differ substantially, depending upon application
and other factors with variables such as switch technology, the amount of key
motion required to activate a switch, the feel or tactile response to the
operator when depressing a key, and the shape, color and positioning of the
individual keys. The majority of keyboards are sold with a plastic enclosure
and cable, although keyboards for portable computers (notebooks and laptops) are
generally sold unenclosed, housed within the system enclosure.
Many keyboards contain a microprocessor. This microprocessor encodes the
data being entered and sends it to the computer. The more powerful
microprocessors available today allow intelligence to be included in the
keyboard. With this intelligence, a keyboard can perform a number of functions
which enhances the value of the keyboard in the overall hardware configuration.
The majority of the Company's keyboards are custom designed for a
particular computer product, although an increasing percentage consist of
standard configurations or those that have been tailored to meet industry
standards. Key Tronic has the capability to produce a variety of keyboards and
keycap configurations to provide to computer manufacturers for the intended
applications.
The pace of computer product development requires that keyboard suppliers
be able to rapidly design and manufacture new products for specific customer
requirements, as well as develop new switch technology platforms that anticipate
future market needs. Because of this, the Company provides custom design
support which depends on its ability to closely control its tooling and
manufacturing processes.
The Company has recognized the need in the marketplace to provide more
answers to data entry needs. In response to this need, the Company has
developed other input devices that can be used separately or in conjunction with
the keyboard. Some of these products include a touch pad, a mouse and an
integrated trackball.
The Company uses an internal sales force to reach a customer base that
consists of Original Equipment Manufacturers (OEMs), corporations, and
individual end users. Standard keyboard products that are plug-compatible with
IBM, Apple and compatible personal computers are available through this network
in addition to custom designed keyboards. The Company sells to principal
customers primarily on a purchase order basis, as opposed to long-term
contracts.
ACQUISITION OF ASSETS
On July 30, 1993, the Company acquired substantially all of the assets and
liabilities of Honeywell, Inc.'s Keyboard Division in a purchase accounting
transaction for approximately $22.0 million in cash, $5.8 million in liabilities
assumed, $5.0 million in acquisition costs, a note payable to Honeywell, Inc. of
$3.6 million plus 400,000 shares of the Company's common stock valued at $3.2
million and a warrant to purchase an additional 300,000 shares of the Company's
common stock. Details of this transaction are more fully discussed in Note 15
to the Company's 1995 Annual Report and in Form 8-K filed on August 12, 1993.
KEYSWITCH TECHNOLOGIES
There are five prevalent keyswitch technologies for fully encoded keyboard
applications presently available to computer manufacturer purchasers of
keyboards: membrane, Hall effect, mechanical contact, conductive rubber,
capacitance, and dome. Key Tronic currently manufactures keyboards employing
capacitance and membrane technologies.
CAPACITANCE SWITCH TECHNOLOGY
In 1975, the Company developed a capacitance keyboard in response to demand
for lower cost keyboards. Key Tronic was the first major independent keyboard
supplier to successfully manufacture and market capacitance keyboards. The
capacitance switch is based on two charged plates separated by an insulator
brought into proximity by depressing the keycap. An electronic signal is
transmitted at the point of closest proximity. Capacitance, mechanical, and
membrane contact are currently the dominant technologies for applications which
require detachable keyboards with serial output.
During 1992, the conversion of significant OEM customers to membrane keyswitch
technologies from capacitance resulted in a change in the predominant technology
used by the Company. It is anticipated that capacitance will continue to
decline as a preferred technology platform as membrane and other technologies in
development offer relative price advantages.
MEMBRANE TECHNOLOGY
In 1987, the Company developed a full travel membrane switch technology.
The membrane switch offers significant reduction in material and labor costs.
Specifically, a membrane keyboard utilizes a smaller printed circuit board and
approximately 40 percent fewer electronic components than capacitance keyboards.
In 1990, the Company completed development on an improved generation of membrane
technology.
KEYBOARD PRODUCTS
During 1995, 1994 and 1993, the Company realized revenues of approximately
$185.3 million, $146.8 million and $110.7 million from the sale of keyboards
representing approximately 89 percent, 92 percent and 90 percent of total sales.
LOW PROFILE KEYBOARDS
In 1979, Europe led a move toward adopting ergonomic standards for computer
products designed to maximize operator comfort. The resulting DIN (Deutsche
Industry Norm) standards were based on human factors engineering studies. The
standards as applied to keyboards require a lower profile, designed to permit
faster and more efficient data entry with less operator fatigue. This new
design has become the worldwide standard. During 1981, Key Tronic committed to
the extensive retooling required to manufacture the new lower profile design,
and was the first domestic manufacturer in volume production of the low profile
keyboards satisfying the DIN standards. The Company's low profile keyboards
incorporate both the capacitance and membrane switch technologies. The Company
believes it has a major position in the low profile noncaptive market.
OEM STANDARD KEYBOARDS
The keyboard market has continued to trend toward standard keyboard
layouts. In order to accommodate the strong demand for standard products, the
Company maintains a purchase-from-stock program. The most popular standard
layouts are built and stocked for immediate availability.
RETAIL KEYBOARDS
In 1983, Key Tronic began supplying to the retail market fully enclosed
plug-compatible keyboards. These products serve as enhancements to or
replacements for the original system-supplied keyboard. The Company is
presently selling its plug-compatible keyboards through a worldwide network of
distributors.
COMPLEX KEYBOARD PRODUCTS
The Company developed a custom terminal for Reuters Limited in response to
specifications developed by Reuters. The construction utilizes a custom
injection molded enclosure which provides integral mounting for the keyboard,
liquid crystal display and associated logic cards. The product utilizes a
structural, high level language and module design to ensure ease of software
maintenance. Features of the system include host-programmable key codes and
selectable legends for the liquid crystal display, built-in 18 digit calculator
function, multiple host environment and option mounts.
ALTERNATIVE INPUT DEVICES
The Company realized revenue from non-keyboard products, which in the
aggregate, accounted for $22.2 million, $12.6 million and $12.6 million in 1995,
1994 and 1993 representing approximately 11 percent, 8 percent and 10 percent of
total sales. The significant dollar increase in 1995 is due to the manufacture
and sale of plastic components for use on computer peripherals.
CUSTOM MANUFACTURING
The Company utilizes its extensive fabrication and assembly capabilities to
offer certain contract manufacturing services. Such services have included
manufacture of tooling, custom molding, as well as complete fabrication and
assembly of unique custom assemblies. Requirements for custom manufacturing may
diminish as a result of the migration to standard products.
MOUSE
In 1988, the Company developed a two button mechanical mouse, a pointing
device that essentially replaces the cursor keys on a computer keyboard and
allows rapid selection of options from a menu on the display.
As part of the acquisition of Honeywell, Inc.'s keyboard division the
company acquired the rights to manufacture and sell the Hawley mouse. This
mouse is a new design whereby it is virtually maintenance free. Unlike other
mouse products this product does not have a trackball to pickup dust and dirt
thereby avoiding contaminants reaching the internal mechanism.
ERGONOMIC PRODUCTS
The Company is currently in various stages of designing, developing, and
marketing a number of input related devices for a growing market for improved
ergonomic products.
MANUFACTURING
Since inception, the Company has made substantial investments in developing
and expanding the extensive capital equipment base to achieve vertical integra
tion in its manufacturing processes. The Company designs and develops tooling
for injection molding machines and manufactures virtually all plastic parts used
in its products. Additionally, the company has invested in equipment to produce
switch membranes as a means to reduce cost and improve quality.
The OEM market has increasingly demanded rapid response time and design
adaptability from keyboard manufacturers. New computer products are continually
being introduced by computer manufacturers, with the timing of product
introduction often perceived as having distinct marketing advantages. Developing
a keyboard for a new application is a custom process, which requires frequent
contact with the customer while working through changes during design stages.
Computer manufacturers place a premium on the ability of the keyboard
manufacturer to design and produce keyboards which meet their technical
specifications, aesthetic considerations, and which are delivered in accordance
with production schedules.
The Company's automated manufacturing processes enable it to work closely
with its customers during design and prototype stages of production for new
custom products and to increase productivity and response time. Key Tronic uses
computer-aided design techniques to assist preparation of the tool design layout
and tool fabrication to reduce tooling costs and significantly enhance
turnaround time during product development.
The Company uses numerous injection molding machines in producing more than
50,000 different keycaps, enclosures and various plastic parts for switching
devices. The two shot injection molding process allows production of high
quality, wear-resistant keycaps. Designs by Key Tronic engineers in both
tooling and molding have improved standard processing time and thereby increased
productivity. The molding machines used by the Company employ the latest
technology, including the ability to mix plastics and determine the color of
finished components as part of the molding process. This automated,
pneumatically-fed process, not only allows precise control of color
determination, but also results in lower product costs. The Company also
produces blank keytops for certain models with print legends using a print
process to apply the colored inks and laser technology to produce entire key
configuration layouts.
Key Tronic uses a variety of manual to highly-automated assembly processes
in its facilities, depending upon product complexity and degree of
customization. Automated processes include component insertion, flexible
robotic assembly, computerized vision system quality inspection, automated
switch and keytop installation, and automated functional testing.
The Company purchases materials for keyboard production from a number of
different suppliers. Key Tronic believes that it has excellent relationships
with its vendors, most of whom have been suppliers for the Company for many
years.
CUSTOMERS AND MARKETING
OEM MARKETS
The Company manufactures and supplies custom keyboards to many of the
leading OEMs in the noncaptive keyboard market. The Company currently sells
keyboards to more than 170 active OEM customers.
Based on industry data, the Company believes it acquired a leading domestic
market position as an independent supplier of keyboards in the late 1970's.
Hewlett Packard accounted for approximately 23 percent, 10 percent and 0
percent of net sales in 1995, 1994 and 1993. Microsoft accounted for
approximately 19 percent, 1 percent and 0 percent of net sales in 1995, 1994 and
1993. Compaq Computer accounted for approximately 12 percent, 21 percent and 32
percent of net sales in 1995, 1994 and 1993. Digital Equipment Corporation
accounted for approximately 6 percent, 11 percent and 3 percent of net sales in
1995, 1994 and 1993. No other customer accounted for more than 10 percent of
net sales during any of the last three years. In 1995, 1994 and 1993, the five
largest customers accounted for 65 percent, 50 percent and 47 percent of total
sales, respectively.
The Company markets its products primarily through its direct sales
organization aided by distribution sales in the U.S., Canada and Europe.
All OEM keyboards are accompanied by a manufacturer's one-year warranty
which provides for repair or replacement of defective products. Retail products
carry a three-year to a limited lifetime warranty.
FOREIGN MARKETS
In 1995, $83.2 million, or 40.1 percent of the Company's revenues were from
foreign sales, primarily sales in Europe, the Far East and Canada. Foreign
sales in 1994 and 1993 were $68.2 million and $53.0 million, respectively.
Foreign sales are made through foreign sales representatives.
For additional financial information about foreign operations, see Note 10
to the Consolidated Financial Statements contained in the Company's 1995 Annual
Report to Shareholders.
BACKLOG
At September 1, 1995, the Company had an order backlog of approximately $48
million. This compares with a backlog of approximately $39 million at September
2, 1994. The increase in backlog is a result of increased demand for standard
products and orders placed on new products. Order backlog is not necessarily
indicative of future sales. Order backlog consists of purchase orders received
for products with a specified shipment date, although shipment dates are subject
to change due to design modifications or other customer requirements. All
orders in backlog are expected to be filled within the current fiscal year.
RESEARCH, DEVELOPMENT, AND ENGINEERING
The Company's research, development, and engineering expenses were $6.1,
$5.8 and $6.7 million in 1995, 1994 and 1993. Research, development and
engineering expenses as a percentage of sales were 3.0 percent, 3.7 percent and
5.4 percent in 1995, 1994 and 1993.
As a key strategy the Company plans continued emphasis on research, development,
and engineering in the future.
COMPETITION
The Company believes that its principal competitors in the full travel
keyboard market are Alps Electric, BTC, Cherry Electrical Products Corporation,
Fujitsu, Chicony, Maxiswitch (a subsidiary of Siletek/Litcon), Mitsumi, NMB
(formerly Hi Tek) and Se-Jin.
TRADEMARKS AND PATENTS
The company owns several patents on emerging keyboard technologies which
management believes will have a significant impact on the market place
once they become available. It is management's belief this will, in turn,
strengthen the company's market position and ability to continue to respond to
the needs of its customers. The Key Tronic name and logo are federally
registered trademarks and the company believes they are valuable assets in its
business.
EMPLOYEES
As of September 1, 1995, the Company had approximately 3,056 employees.
Management considers its employee relations to be excellent. None of the
Company's employees are represented by a union. The Company has never
experienced any material interruption of production due to labor disputes.
The Company's employee benefit program includes a bonus program involving
periodic payments to all employees based on quarterly after-tax income. The
Company maintains a tax-qualified profit sharing plan, a 401(k) plan which
provides a matching company contribution on a portion of the employees
contribution and also provides group health, life, and disability insurance
plans. The Company also offers an Incentive Stock Option Plan, Executive Stock
Appreciation Rights Plan, Executive Stock Option Plan, and an Employee Stock
Ownership Plan to certain individuals.
ITEM 2. PROPERTIES
The Company owns its' principal research and administration facility, which
is located in Spokane, Washington. The Company also owns an assembly facility
in Juarez, Mexico in addition to manufacturing and assembly facilities Las
Cruces, New Mexico and in Ireland. The Company leases manufacturing facilities
in the Spokane Industrial Park, and warehouses in Singapore and El Paso Texas.
In 1994 the Company closed its assembly facility in Cheney, Washington and
currently holds it for sale. In 1992 the Company began the process of closing
an assembly facility it leased in Taiwan. This action was completed in 1993.
The Company considers its properties in good condition, well maintained and
generally suitable for operations. The Company considers the productive
capacity of the rest of its operations sufficient to carry on the Company's
business. The facilities in Juarez, Mexico; Las Cruces, New Mexico; and El
Paso, Texas are a result of the acquisition of assets of Honeywell Inc.'s
Keyboard Division.
The Company owns real estate, for sale, in Cheney, Washington. The net
book value of this property is $2,243,000.
ITEM 3. LEGAL PROCEEDINGS
The company currently has one hundred nineteen suits by computer keyboard
users which are in State or Federal Courts in California, Florida, Illinois,
Kansas, Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania
and Texas. These suits allege that specific keyboard products manufactured by
the company were sold with manufacturing, design and warning defects which
caused or contributed to their injuries. The alleged injuries are not
specifically identified but are referred to as repetitive stress injuries (RSI)
or cumulative trauma disorders (CTD). These suits seek compensatory damages and
some seek punitive damages. It is more likely than not that compensatory
damages, if awarded, will be covered by insurance, however the likelihood that
punitive damages, if awarded, will be covered by insurance is remote. A total
of eighteen suits have been dismissed in California, Kentucky, New York and
Texas. Seven of the eighteen dismissed suits are on appeal, all in New York.
The company believes it has valid defenses and will vigorously defend these
claims. These claims are in the early stages of discovery. Given the early
stage of litigation, the complexity of the litigation, the inherent uncertainty
of litigation and the ultimate resolution of insurance coverage issues, the
range of reasonably possible losses in connection with these suits is not
estimable at this time. Therefore, no provision has been made to cover any
future costs. Management's position will change if warranted by facts and
circumstances.
(Also see Note 9 to the Consolidated Financial Statements contained in the
Company's 1995 Annual Report to Shareholders.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
The information required in Items 5, 6, 7 and 8 in Part II is incorporated
by reference to Key Tronic Corporation's 1995 Annual Report to Shareholders.
Except for such information, which is attached as exhibit 13, the 1995 Annual
Report to Shareholders is not to be deemed filed as part of this report.
Key Tronic
Annual
Report
Page No.
ITEM 5: MARKET FOR REGISTRANTS COMMON STOCK AND
RELATED SHAREHOLDER MATTERS 27 & 32
ITEM 6: SELECTED FINANCIAL DATA 1
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-12
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 14-31
ITEM 9: DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
STANLEY HILLER, JR - Chairman of the Board
Mr. Hiller, age 70, has been Chairman of the Board since September 1, 1995 and
was Chief Executive Officer and a Director from February 1992 through August
1995. Mr. Hiller is also the Managing Partner of The Hiller Group (since 1972)
and the Senior Partner of Hiller Investment Company (private investment) (since
1965). From 1986 through 1988 he was Chairman of the Board and Chief Executive
Officer of York International Corporation, and from August 1988 through July
1990 he was Chairman of the Board of Levolor Corporation. Mr. Hiller also
serves on the Board of Directors of The Boeing Company. He previously served as
Chairman and Chief Executive Officer for a number of companies including G.W.
Murphy, Reed Tool Company, Bekins, and Chairman of Baker International (Baker-
Hughes).
WENDELL J. SATRE - Chairman of the Board Emeritus
Mr. Satre, age 77, was Chairman of the Board from August 1991 through August
1995 and was President from August 1991 through March 1992. He has been a
Director since July 1988. Mr. Satre is a retired Chairman of Washington Water
Power Company and was also a Director of Key Tronic from 1983 through 1986. Mr.
Satre also serves on the Board of Directors of Alascom and Coeur d'Alenes
Company.
FRED WENNINGER - Chief Executive Officer and President
Mr. Wenninger, age 56, was named President, Chief Executive Officer and Director
effective September 1, 1995. Mr. Wenninger has been President and Chief
Executive Officer of Iomega Corporation from 1989 to 1994. He also served as
President of the Bendix/King Division of Allied Signal Corporation from 1986 to
1989. From 1963 to 1986 he served Hewlett-Packard in various positions, the
last eight years in General Manager positions. Mr. Wenninger also serves on the
Board of Directors of Hach and Norand.
LEWIS G. ZIRKLE - Director
Mr. Zirkle, age 80, is founder of the Company and served as Chairman and Chief
Executive Officer from 1969 to August 1990, and as President from 1972 through
1987 and June 1988 through November 1989. Mr. Zirkle was employed for over 20
years with General Electric Corporation in a variety of engineering and
manufacturing positions. He previously also served as Executive Vice President
of the Poly Scientific Division of Litton Industries.
YACOV A. SHAMASH - Director
Dr. Shamash, age 45, has been a Director since December 1989. Since August
1992, Dr. Shamash has been the Dean of the College of Engineering and Applied
Sciences, State University of New York (SUNY) at Stoneybrook. Prior to joining
SUNY, he was a professor and school director at Washington State University from
1985 through August 1992.
KENNETH F. HOLTBY - Director
Mr. Holtby, age 73, has been a Director since March 1992. He is a retired
Senior Vice President of Corporate Engineering for The Boeing Company. He
joined Boeing in July of 1947. Mr. Holtby has continued to work as a consultant
to Boeing since May 1987. He was also a consultant to Chrysler Corporation from
March 1985 through December 1990.
DALE F. PILZ - Director
Mr. Pilz, age 69, has been a Director since March 1992. Since 1990 he has been
working as a management consultant. In 1990 he retired from the position of
Chief Executive Officer of Flowind Corporation, a position he held since 1986.
Prior to that he served as Chief Executive Officer and President of GTE SPRINT
Communications Corporation; Chief Executive Officer and President of GTE
Spacenet Corporation; and President of Kaiser Steel.
MICHAEL R. HALLMAN - Director
Mr. Hallman, age 50, has been a Director since October 1992. Since March 1992,
he has been a consultant with The Hallman Group. Prior to that he was President
and Chief Operating Officer of Microsoft Corporation from March 1990 through
February 1992; from March 1987 through February 1990 he was Vice President and
later President of Boeing Computer Services. Mr. Hallman also serves on the
Board of Directors of Intuit Inc.
CLARENCE W. SPANGLE - Director
Mr. Spangle, age 70, has been a Director since July 1992. In January 1985 he
retired from the position of Chairman of Memorex Corporation and is a former
President of Honeywell Information Systems. Since then he has been working as a
management consultant. Mr. Spangle also serves on the Board of Directors of
Apertus Technologies, Inc. and Pyramid Technologies, Inc.
WILLIAM E. TERRY - Director
Mr. Terry, age 62, has been a Director since July 1992. Mr. Terry retired from
Hewlett-Packard in November 1993 where he served in a number of executive
positions during the past 35 years. Mr. Terry also serves on the Board of
Directors of Applied Magnetics, Inc.
ROBERT H. CANNON, JR. - Director
Mr. Cannon, age 71, has been a Director since September 1992. Professor Cannon
has been Charles Lee Powell, Professor at the Department of Aeronautics and
Astronautics, Stanford Univeristy since 1979. From 1979 to 1990 he was also
Chairman of the Department. Previously, Professor Cannon served as Assistant
Secretary of Transportation and as Chief Scientist of the United States Air
Force. Professor Cannon has served on the General Motors Science Advisory
Committee since 1975, serving as Chairman from 1980 to 1984. He also serves on
the Board of Directors of Parker Hannifin Corporation.
ROYCE G. PEARSON - Director
Mr. Pearson, age 60, served as President and Chief Operating Officer of the
Company from February 1992 to February 1994. Mr. Pearson has been a director of
the Company since February 1992. He served as Vice President and Chief
Manufacturing Officer for Levolor Corporation, a window blind manufacturer, from
October 1988 to March 1992, prior to which he served as Vice President of
Manufacturing for Reed Tool Company.
THOMAS W. CASON - Director
Mr. Cason, age 52, served as President and Chief Operating Officer of the
company from 1994 to September 1995. Mr. Cason has been a Director of the
company since February 1994. Mr. Cason has been President of Progressive
Tractor & Implement Co., Inc., an agricultural equipment dealership, since 1991.
He was Sr. Vice President and CFO of Baker Hughes Incorporated from July 1989 to
December 1990. Mr. Cason was President and Chief Executive Officer of Milpark
Drilling Fluids, a subsidiary of Baker Hughes Incorporated prior thereto. Mr.
Cason also serves on the Board of Purolator Products Co.
RICHARD T. TINSLEY - Vice President of Quality Assurance
Mr. Tinsley, age 47, has been Vice President of the Company since November 29,
1993. He was the owner of Tinsley Associates from May 1993 to September 1993.
Mr. Tinsley served as Director of Manufacturing Operations, Director of Quality
and Quality Assurance Manager at Compaq Computer Corporation from 1983 to 1993.
From 1972 to 1982 Mr. Tinsley worked for Texas Instruments Inc. as Printer
Manufacturing Manager and New Products Program Manager.
RONALD F. KLAWITTER - Vice President of Finance and Treasurer and Acting
Secretary
Mr. Klawitter, age 43, joined the Company in November 1992 as Vice President,
Finance and Treasurer and has been Acting Secretary since November 1994. From
1987 to 1992, Mr. Klawitter was Vice President, Finance at Baker Hughes Tubular
Service, a subsidiary of Baker Hughes Inc.
JACK W. OEHLKE - Senior Vice President of Operations
Mr. Oehlke, age 49, has been an officer of the Company since December 27, 1993.
Mr. Oehlke served as Director of Operations, Director of Quality and various
management positions within manufacturing, engineering and quality functions of
the Micro Switch Division of Honeywell, Inc. from 1968 to 1993.
CRAIG D. GATES - Vice President of Engineering
Mr. Gates, age 36, has been Vice President of Engineering of the company since
October 1994. Mr. Gates served as Director of Operations, Electronics and in
several management positions within the engineering and operation functions at
the Micro Switch Division of Honeywell from 1983 to 1994.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT:
Incorporated by reference to Key Tronic Corporation's 1994 Proxy Statement to
Shareholders.
ITEMS 11, 12 AND 13: EXECUTIVE COMPENSATION; SECURITIES OWNERSHIP AND
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Additional information required by these Items is incorporated by reference
to Key Tronic Corporation's 1995 Proxy Statement to Shareholders which is
attached as exhibit 20.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
Key Tronic
Annual
Report Page in
Page No. Form 10K
-------- --------
FINANCIAL STATEMENTS
Independent Auditors' Report 13 N/A
Consolidated Balance Sheets, July 1, 1995
and July 2, 1994 14 N/A
Consolidated Statements of Operations for
the years ending July 1, 1995, July 2, 1994
and July 3, 1993 15 N/A
Consolidated Statements of Shareholders' Equity
for the years ending July 1, 1995, July 2, 1994
and July 3, 1993 16 N/A
Consolidated Statements of Cash Flows for the
years ending July 1, 1995, July 2, 1994 and
July 3, 1993 17 N/A
Notes to Consolidated Financial Statements 18-31 N/A
SCHEDULES
Independent Auditors Report on Financial
Statement Schedules N/A 18
Independent Auditors' Consent N/A 19
II. Consolidated Valuation and Qualifying Accounts N/A 20-21
Other schedules are omitted because of the absence of conditions under
which they are required, or because required information is given in the
financial statements or notes thereto.
(B) REPORTS ON FORM 8-K
Form 8-K dated October 31, 1994, reporting the secured financing agreement
with the CIT Group/Business Credit, Inc. (CIT).
File No.
2-83898 (i)
Exhibit
No.
(C) EXHIBITS
The Company will, upon request and upon payment of a
reasonable fee not to exceed the rate at which such
copies are available from the Securities and Exchange
Commission, furnish copies of any of the following
exhibits to its security holders.
(3) (a) Articles of Incorporation 3.1
(b) By-Laws, as amended (iii)
(4) Certain long-term debt is described in Notes 5 and 15 to
the Consolidated Financial Statements of the Company.
The Company agrees to furnish to the Commission, upon
request, copies of any instruments defining rights of
holders of long-term debt described in Notes 5 and 15. N/A
(10) Material Contracts
(a) 1983 Incentive Stock Option Plan for Employees
of Key Tronic Corporation, as amended. (iii)
(b) The Key Tronic Corporation Variable Investment
Plan. (iii)
(c) Key Employee Stock Option Plan, as amended. 10.3
(d) Executive Stock Option Plan. (iii)
(e) Stock Bonus Plan (PAYSOP). (iii)
(f) Directors and Officers Liability and Company
Reimbursement Policies. 10.5
(g) Leases with Spokane Industrial Park, Inc. 10.7
(h) Amended and Restated Employment Agreement with
Lewis G. Zirkle. (iii)
(i) Agreement Regarding Split Dollar Life Insurance
Policies, as amended. (iv)
(j) Executive SAR Stock Option Plan of Key Tronic
Corporation (v)
(k) Key Tronic Corporation 1990 Stock Option Plan
for Non-Employee Directors (v)
(l) Employee Stock Ownership Plan (vi)
(m) ELLCO Leasing Corporation Master Equipment
Leasing Agreement (vi)
(n) Registration Rights Agreement with Hiller
Key Tronic Partners (vii)
(o) Stock Option Agreement with Hiller Key Tronic
Partners (vii)
(p) Officer Severance Agreements (vii)
(q) Purchase agreement with Honeywell, Inc. (viii)
(r) Officer Employment Agreement
(11) Computation of Earnings Per Share - page 24 of this report
(13) 1995 Annual Report to Shareholders (to the extent
set forth in Parts I, II, and IV (a) of this report).
(i) Previous filing on Form S-1 is incorporated by reference, exhibit number
indicated
(ii) Incorporated by reference to report on Form 10-K for the year ended
06/30/87
(iii) Incorporated by reference to report on Form 10-K for the year ended
06/30/86
(iv) Incorporated by reference to report on Form 10-K for the year ended
06/30/85
(v) Incorporated by reference, Key Tronic Corporation 1990 Proxy Statement,
pages C-1 - D3
(vi) Incorporated by reference to report on Form 10-K for the year ended
06/30/91
(vii) Incorporated by reference to report on Form 10-K for the year ended
07/04/92
(viii)Incorporated by reference to report on Form 8-K filed August 12, 1993
(21) Subsidiaries of Registrant
1. KT Services, Inc. 2. KT FSC
100% Owned Subsidiary 100% Owned Subsidiary,
Incorporated in the State of a Foreign Sales
Washington Corporation
Incorporated in Guam
3. Key Tronic Taiwan Corporation 4. Key Tronic Europe, LTD
100% Owned Subsidiary 100% Owned Subsidiary
Incorporated in Taiwan Incorporated in the
Cayman Islands
5. KTI Limited 6. U.S. Keyboard Company
100% Owned by Key Tronic Europe, LTD 100% Owned Subsidiary
Incorporated in Ireland Incorporated in the
State of Washington
7. Key Tronic Juarez, SA de CV
100% Owned Subsidiary
Incorporated in Mexico
(23) Consents of Experts and Counsel
(99) Pro Forma Statements of Operations for the years ended July 1, 1995
and July 2, 1994 are incorporated by reference to the 1995 Annual Report
to Shareholders, pages 30-31, which is included as exhibit 13.
Notes to Pro Forma Financial Statements are incorporated by reference to
the 1995 Annual Report to Shareholders, page 29, which is included as
exhibit 13.
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
Key Tronic Corporation
We have audited the consolidated financial statements of Key Tronic Corporation
as of July 1, 1995 and July 2, 1994, and for the years ended July 1, 1995, July
2, 1994 and July 3, 1993, and have issued our report thereon dated August 11,
1995; such consolidated financial statements and reports are included in the
1995 Annual Report to Shareholders and are incorporated herein by reference.
Our audits also included the financial statement schedules of Key Tronic
Corporation listed in Item 14. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
DELOITTE & TOUCHE LLP
August 11, 1995
INDEPENDENT AUDITORS' CONSENT
- -----------------------------
We consent to the incorporation by reference in Registration Statements
No. 33-85800 and No. 33-61680 of Key Tronic Corporation on Form S-8 of our
report dated August 11, 1995, appearing in and incorporated by reference in the
Annual Report on Form 10-K of Key Tronic Corporation for the year ended
July 1, 1995.
DELOITTE & TOUCHE LLP
Seattle, Washington
September 29, 1995
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K AND
SIGNATURES
SCHEDULE II
KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JULY 1, 1995
JULY 2, 1994 AND JULY 3, 1993
1995 1994 1993
-------- -------- --------
Allowance for Obsolete Inventory
Balance at beginning of year $3,581,447 $ 726,838 $3,053,786
Assets acquired in acquisition 0 2,071,558 0
Provision charged to income 2,907,487 1,757,713 534,200
Dispositions (2,976,849) (974,662) (2,861,148)
---------- ---------- ----------
Balance at end of year $3,512,085 $3,581,447 $ 726,838
=========== ========== ==========
Allowance for Doubtful Accounts
Balance at beginning of year $1,538,517 $1,110,582 $ 791,505
Assets acquired in acquisition 0 637,156 0
Provision charged to income 361,283 542,179 713,390
Write-offs and reinstatements (714,427) (751,400) (394,313)
---------- ---------- ---------
Balance at end of year $1,195,373 $1,538,517 $1,110,582
========== ========== ==========
Reserve for Litigation
Balance at beginning of year $2,426,375 $1,500,091 $2,755,879
Assets acquired in acquisition 0 1,000,000 0
Provision charged (credited) to income 0 0 0
Cost incurred-net of recoveries (818,879) (73,716) (1,255,788)
---------- ---------- ----------
Balance at end of year 1,607,496 2,426,375 1,500,091
Less long-term portion 900,000 0 0
---------- ---------- ----------
Current portion $ 607,496 $2,426,375 $1,500,091
========== ========== ==========
Accrued Warranty Costs
Balance at beginning of year $ 762,284 $ 332,093 $ 570,532
Assets acquired in acquisition 0 627,341 0
Provision charged to income 1,001,276 646,759 765,535
Costs incurred (1,134,833) (843,909) (1,003,974)
---------- ---------- ----------
Balance at end of year $ 628,727 $ 762,284 $ 332,093
========== ========== ==========
Long-term Investment Allowance
Balance at beginning of year $ 290,490 $ 290,490 $ 290,490
Provision charged to income 0 0 0
---------- ---------- ----------
Balance at end of year $ 290,490 $ 290,490 $ 290,490
========== ========== ==========
Allowance for Advances to Affiliate
Balance at beginning of year $ 55,434 $ 254,737 $ 254,737
Recovery (55,434) (199,303) 0
Provision charged to income 0 0 0
Write-offs 0 0 0
---------- ---------- ----------
Balance at end of year $ 0 $ 55,434 $ 254,737
========== ========== ==========
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: September 29, 1995
KEY TRONIC CORPORATION
By: /s/ Fred Wenninger
---------------------------------------
Fred Wenninger, Chief Executive Officer
/s/ Fred Wenninger September 29, 1995
- --------------------------------- ------------------
Fred Wenninger Date
(Chief Executive Officer and President)
/s/ Ronald F. Klawitter September 29, 1995
- --------------------------------- ------------------
Ronald F. Klawitter Date
(Principal Financial
and Accounting Officer)
/s/ Stanley Hiller, Jr. September 29, 1995
- --------------------------------- ------------------
Stanley Hiller, Jr. Date
(Chairman of the Board)
/s/ Wendell J. Satre September 29, 1995
- --------------------------------- ------------------
Wendell J. Satre Date
(Chairman of the Board Emeritus)
/s/ Thomas W. Cason September 29, 1995
- --------------------------------- ------------------
Thomas W. Cason Date
(Director)
/s/ Yacov A. Shamash September 29, 1995
- --------------------------------- ------------------
Yacov A. Shamash Date
(Director)
/s/ Dale F. Pilz September 29, 1995
- --------------------------------- ------------------
Dale F. Pilz Date
(Director)
/s/ William E. Terry September 29, 1995
- --------------------------------- ------------------
William E. Terry Date
(Director)