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)
|
99362
(Zip
Code)
|
PART
I
|
PAGE
|
||
Item
1.
|
1
|
||
Item
1A.
|
9
|
||
Item
1B.
|
11
|
||
|
|||
Item
2.
|
12
|
||
|
|||
Item
3.
|
12
|
||
Item
4.
|
12
|
||
|
|||
PART
II
|
|
||
|
|||
Item
5.
|
13
|
||
|
|||
Item
6.
|
15
|
||
|
|||
Item
7.
|
16
|
||
|
|||
Item
7A.
|
27
|
||
|
|||
Item
8.
|
29
|
||
|
|||
Item
9.
|
55
|
||
|
|||
Item
9A.
|
55
|
||
|
|||
Item
9B.
|
56
|
||
|
|||
PART
III
|
|
||
|
|||
Item
10.
|
56
|
||
|
|||
Item
11.
|
56
|
||
|
|||
Item
12.
|
56
|
||
|
|||
Item
13.
|
57
|
||
|
|||
Item
14.
|
57
|
||
|
|||
PART
IV
|
|
||
|
|||
Item
15.
|
58
|
||
61
|
|||
|
|||
62
|
·
|
adverse
economic conditions, particularly in the food processing industry,
either
globally or regionally, may adversely affect the Company's
revenues;
|
·
|
competition
and advances in technology may adversely affect sales and
prices;
|
·
|
the
Company's new products may not compete successfully in either existing
or
new markets;
|
·
|
the
limited availability and possible cost fluctuations of materials
used in
the Company's products could adversely affect the Company's gross
profits;
|
·
|
the
inability to protect its intellectual property, especially as the
Company
expands geographically, may adversely affect the Company's competitive
advantage; and
|
·
|
intellectual
property-related litigation expenses and other costs resulting
from
infringement claims asserted against the Company or its customers
by third
parties may adversely affect the Company’s results of operations and its
customer relations.
|
·
|
inadequate
internal controls over financial reporting could result in an inability
to
accurately report the Company’s financial
results.
|
ITEM
1.
|
BUSINESS.
|
Fiscal
Year Ended September 30,
|
|||||||||||||||||||
2005
|
2004
|
2003
|
|||||||||||||||||
(in
thousands)
|
|||||||||||||||||||
Automated
inspection systems
|
$
|
20,647
|
26%
|
|
$
|
28,675
|
36%
|
|
$
|
30,230
|
37%
|
|
|||||||
Process
systems
|
31,853
|
40%
|
|
27,713
|
34%
|
|
31,759
|
38%
|
|
||||||||||
Aftermarket
|
27,822
|
34%
|
|
24,222
|
30%
|
|
20,633
|
25%
|
|
||||||||||
Net
sales
|
$
|
80,322
|
100%
|
|
$
|
80,610
|
100%
|
|
$
|
82,622
|
100%
|
|
Fiscal
Year Ended September 30,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Automated
inspection systems
|
29%
|
|
42%
|
|
42%
|
|
||||
Process
systems
|
28%
|
|
22%
|
|
28%
|
|
||||
Aftermarket
|
43%
|
|
36%
|
|
30%
|
|
||||
Total
gross margin
|
100%
|
|
100%
|
|
100%
|
|
Location
|
Size
in Square Feet
|
Products/Services
Produced
|
Walla
Walla, Washington
|
150,000 (1)
|
Automated
Inspection
Process
Systems
Parts
and Service
|
Walla
Walla, Washington
|
100,000 (1)
|
Process
Systems
|
Redmond,
Oregon
|
19,000
|
Process
Systems
Parts
and Service
|
Beusichem,
The Netherlands
|
45,000
|
Process
Systems
Parts
and Service
|
Beusichem,
The Netherlands
|
18,000
|
Parts
Warehouse
Future
Manufacturing Expansion
|
Sydney,
Australia
|
14,500
|
Process
Systems
|
(1)
|
In
June 2005, the Company announced plans to expand its primary operating
facility in Walla Walla by approximately 23,000 square feet and
terminate
the lease on the second facility in Walla Walla in December
2005.
|
ITEM
1A.
|
RISK
FACTORS.
|
·
|
documentation
of accounting guidance applicable to significant non-recurring
events and
transactions; and
|
·
|
reconciliation
procedures and policies related to the monthly closing
process.
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS.
|
ITEM
2.
|
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(1)
|
150,000
|
Leased
with option to purchase within the lease term
|
2020
|
None
|
Walla
Walla, Washington
|
Manufacturing,
research and development, sales and marketing(1)
|
100,000
|
Leased
with option to purchase
|
2005
|
None
|
Medford,
Oregon
|
Research
and development, sales and marketing
|
16,000
|
Leased
|
2007
|
None
|
Redmond,
Oregon
|
Manufacturing,
research and development, sales, administration
|
19,000
|
Leased
|
2007
|
2008
|
Beusichem,
The Netherlands
|
Manufacturing,
sales and marketing, administration
|
45,000
|
Leased
|
2008
|
2013
|
Beusichem,
The Netherlands
|
Parts
warehouse, future manufacturing expansion
|
18,000
|
Owned
|
n/a
|
n/a
|
Sydney,
Australia
|
Manufacturing,
sales and marketing, administration
|
14,500
|
Leased
|
2006
|
2007
|
(1)
|
In
June 2005, the Company announced plans to expand its primary operating
facility in Walla Walla by approximately 23,000 square feet and
terminate
the lease on the second facility in Walla Walla in December
2005.
|
ITEM
3.
|
LEGAL
PROCEEDINGS.
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|
ITEM
5.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER
PURCHASES OF EQUITY
SECURITIES.
|
Fiscal
2005
|
Fiscal
2004
|
||||||||||||
High
|
Low
|
High
|
Low
|
||||||||||
First
Quarter
|
$
|
11.780
|
$
|
8.520
|
$
|
17.250
|
$
|
11.050
|
|||||
Second
Quarter
|
10.500
|
8.970
|
19.260
|
14.000
|
|||||||||
Third
Quarter
|
11.500
|
9.250
|
16.240
|
11.050
|
|||||||||
Fourth
Quarter
|
15.190
|
10.500
|
13.690
|
10.480
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
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, 2005
|
112,339
|
$10
|
-
|
-
|
||||
August
1 - 31, 2005
|
0
|
-
|
-
|
-
|
||||
September
1 - 30, 2005
|
0
|
-
|
-
|
-
|
||||
Total
|
112,339
|
0
|
Period
|
Total
Number of Warrants Purchased
|
Average
Price Paid per Warrant
|
Total
Number of Warrants Purchased as Part of Publicly Announced Plans
or
Programs
|
Maximum
Number of Warrants that May Yet Be Purchased Under the Plans
or
Programs
|
||||
July
1-31, 2005
|
12,560
|
$10
|
-
|
-
|
||||
August
1-31, 2005
|
0
|
-
|
-
|
-
|
||||
September
1-30, 2005
|
0
|
-
|
-
|
-
|
||||
Total
|
12,560
|
0
|
(1)
|
In
July 2000, the Company issued 1,340,366 shares of Series B convertible
preferred stock (“Series B”) at a price of $8.60 per share in conjunction
with the acquisition of AMVC. Each share of Series B, par value $0.01
per share, was convertible into 2/3 of a share of common stock.
The Series
B was convertible at the option of the holder at any time, unless
previously redeemed, or by the Company upon a merger, consolidation,
share
exchange or sale of substantially all of its assets. The holders
of
Series B could have required the Company to repurchase any or all of
their shares at the redemption price of $10.00. If not converted
to common
stock or redeemed at the option of the Series B holder prior to
July 12, 2005, the Company was required to redeem the Series B
for $10.00 per share on July 12, 2005. In July 2005, all remaining
unconverted Series B shares were redeemed at the $10.00 per share
redemption price.
|
(2)
|
In
July 2000, the Company issued 365,222 warrants at a fair market
value of
$10.00 per warrant in conjunction with the issuance of the convertible
preferred stock. Each warrant entitled its holder to purchase at
any time
for a period of five years from July 12, 2000 one share of common
stock at $15.00 per share, subject to certain adjustments. The
warrants
permitted the holder to engage in a net exercise of the warrants
if the
fair market value of one share of common stock is greater than
$15.00 per
share on the date of exercise. Prior to the expiration date of
the
warrant, the holder could have required the Company to redeem the
warrant
for cash at a price equal to $10.00 for each whole share of common
stock
that may be purchased under the warrant. These warrants expired
in July
2005, and all unconverted warrants presented to the Company were
redeemed
at the $10.00 per warrant redemption price. There were 12,738 warrants
that expired unredeemed and
unconverted.
|
ITEM
6.
|
SELECTED
FINANCIAL DATA.
|
Fiscal
Year Ended September 30,
|
||||||||||||||||
2005
|
2004
|
2003
|
2002
|
2001
|
||||||||||||
(in
thousands, except per share data)
|
||||||||||||||||
Statement
of Operations Data:
|
||||||||||||||||
Net
sales
|
$
|
80,322
|
$
|
80,610
|
$
|
82,622
|
$
|
70,234
|
$
|
72,954
|
||||||
Cost
of sales
|
49,015
|
46,887
|
48,626
|
42,352
|
47,186
|
|||||||||||
Gross
profit
|
31,307
|
33,723
|
33,996
|
27,882
|
25,768
|
|||||||||||
Operating
expenses
|
27,625
|
28,295
|
25,221
|
23,486
|
28,190
|
|||||||||||
Gain
(loss) on sale of assets
|
28
|
5
|
4
|
883
|
76
|
|||||||||||
Income
(loss) from operations
|
3,710
|
5,433
|
8,779
|
5,279
|
(2,346
|
)
|
||||||||||
Other
income (expense)
|
(117
|
)
|
(132
|
)
|
(327
|
)
|
(1,733
|
)
|
(1,340
|
)
|
||||||
Earnings
(loss) from continuing operations before income taxes
|
3,593
|
5,301
|
8,452
|
3,546
|
(3,686
|
)
|
||||||||||
Income
tax (benefit) expense
|
902
|
1,617
|
2,693
|
1,238
|
(1,343
|
)
|
||||||||||
Net
earnings (loss) from continuing operations
|
2,691
|
3,684
|
5,759
|
2,308
|
(2,343
|
)
|
||||||||||
Earnings
(loss) on discontinued operation (net of tax)
|
--
|
--
|
--
|
39
|
(2,581
|
)
|
||||||||||
Change
in accounting principle (net of tax) (1)
|
--
|
--
|
--
|
(4,302
|
)
|
--
|
||||||||||
Net
earnings (loss)
|
2,691
|
3,684
|
5,759
|
(1,955
|
)
|
(4,924
|
)
|
|||||||||
Assumed
dividends on mandatorily redeemable preferred stock
|
(33
|
)
|
(69
|
)
|
(132
|
)
|
--
|
--
|
||||||||
Accretion
of mandatorily redeemable preferred stock
|
--
|
--
|
--
|
(582
|
)
|
(939
|
)
|
|||||||||
Net
earnings (loss) available to common shareholders
|
$
|
2,658
|
$
|
3,615
|
$
|
5,627
|
$
|
(2,537
|
)
|
$
|
(5,863
|
)
|
||||
Net
earnings (loss) from continuing operations per share
-
basic
|
$
|
0.53
|
$
|
0.74
|
$
|
1.18
|
$
|
0.36
|
$
|
(0.69
|
)
|
|||||
-
diluted
|
|
$
|
0.52
|
$
|
0.71
|
$
|
1.15
|
$
|
0.36
|
$
|
(0.69
|
)
|
||||
Net
earnings (loss) from discontinued operation per share
-
basic and diluted
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
0.01
|
$
|
(0.55
|
)
|
|||||
Change
in accounting principle per share
-
basic and diluted
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
(0.90
|
)
|
$
|
--
|
|||||
Earnings
(loss) per share
-
basic
|
$
|
0.53
|
$
|
0.74
|
$
|
1.18
|
$
|
(0.53
|
)
|
$
|
(1.24
|
)
|
||||
-
diluted
|
$
|
0.52
|
$
|
0.71
|
$
|
1.15
|
$
|
(0.53
|
)
|
$
|
(1.24
|
)
|
||||
Cash
dividends per share
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
||||||
Shares
used in per share calculation
-
basic
|
5,041
|
4,909
|
4,774
|
4,759
|
4,740
|
|||||||||||
-
diluted
|
5,219
|
5,222
|
4,989
|
4,759
|
4,740
|
(1)
|
The
change in accounting principle relates to the Company’s adoption of SFAS
No. 142, Goodwill
and Other Intangible Assets
in
fiscal year 2002, and the related impairment of goodwill identified
in
connection with implementation of this standard.
|
September
30,
|
||||||||||||||||
2005
|
2004
|
2003
|
2002
|
2001
|
||||||||||||
(in
thousands)
|
||||||||||||||||
Balance
Sheet Data:
|
||||||||||||||||
Cash
and cash equivalents and short-term investments
|
$
|
13,181
|
$
|
8,817
|
$
|
6,442
|
$
|
1,707
|
$
|
738
|
||||||
Working
capital
|
27,510
|
20,991
|
17,226
|
7,673
|
10,722
|
|||||||||||
Property,
plant and equipment, net.
|
4,264
|
5,046
|
5,503
|
6,407
|
11,436
|
|||||||||||
Total
assets
|
57,527
|
52,514
|
51,215
|
49,820
|
74,841
|
|||||||||||
Current
portion of long-term debt
|
1,121
|
1,210
|
1,066
|
1,668
|
11,739
|
|||||||||||
Long-term
debt, less current portion
|
1,199
|
2,323
|
3,249
|
3,747
|
6,581
|
|||||||||||
Mandatorily
redeemable preferred stock and warrants, including current
portion
|
--
|
1,595
|
1,882
|
3,467
|
13,531
|
|||||||||||
Shareholders'
equity
|
40,471
|
36,044
|
30,219
|
23,602
|
25,711
|
ITEM
7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
·
|
Expand
and grow its participation in the pharmaceutical
market;
|
·
|
Continue
to drive growth in the Company’s aftermarket product
lines;
|
·
|
Strengthen
and grow the level of business in
China.
|
·
|
Revenue
recognition
|
·
|
Allowances
for doubtful accounts
|
·
|
Valuation
of inventories
|
·
|
Long-lived
assets
|
·
|
Allowances
for warranties
|
·
|
Accounting
for income taxes
|
Summary
of Financial Information
|
|||||||||||||
Fiscal
Year
Ended September 30,
|
|||||||||||||
2005
|
2004
|
Change
$
|
Change
%
|
||||||||||
(in
thousands)
|
|||||||||||||
Statement
of Operations Data
|
|||||||||||||
Orders
(unaudited)
|
$
|
83,716
|
$
|
72,609
|
$
|
11,107
|
15.3
|
||||||
Net
sales
|
80,322
|
80,610
|
(288
|
)
|
-0.4
|
||||||||
Gross
profit
|
31,307
|
33,723
|
(2,416
|
)
|
-7.2
|
||||||||
Research
& development
|
5,134
|
5,756
|
(622
|
)
|
-10.8
|
||||||||
Sales
and marketing
|
13,071
|
13,514
|
(443
|
)
|
-3.3
|
||||||||
General
& administrative
|
8,087
|
7,702
|
385
|
5.0
|
|||||||||
Amortization
|
1,333
|
1,323
|
10
|
0.8
|
|||||||||
Total
operating expense
|
27,625
|
28,295
|
(670
|
)
|
-2.4
|
||||||||
Gain
on sale of assets
|
28
|
5
|
23
|
N/A
|
|||||||||
Income
from operations
|
3,710
|
5,433
|
(1,723
|
)
|
-31.7
|
||||||||
Other
income and expense
|
(117
|
)
|
(132
|
)
|
15
|
-11.4
|
|||||||
Income
tax
|
902
|
1,617
|
(715
|
)
|
-44.2
|
||||||||
Net
income
|
2,691
|
3,684
|
(993
|
)
|
-27.0
|
||||||||
Balance
Sheet Data
|
|||||||||||||
Cash
and cash equivalents
|
13,181
|
8,817
|
4,364
|
49.5
|
|||||||||
Accounts
receivable
|
10,828
|
9,336
|
1,492
|
16.0
|
|||||||||
Inventories
|
14,860
|
13,633
|
1,227
|
9.0
|
|||||||||
Current
portion of redeemable stock
|
-
|
1,279
|
(1,279
|
)
|
-100.0
|
||||||||
Current
portion of warrants
|
-
|
316
|
(316
|
)
|
-100.0
|
||||||||
Long-term
debt
|
1,199
|
2,323
|
(1,124
|
)
|
-48.4
|
Payments
due by period (in thousands)
|
||||||||||||||||
Contractual
Obligations
|
Total
|
Less
than 1 year
|
1
-
3 years
|
4
-
5 years
|
After
5 years
|
|||||||||||
Long-term
debt *
|
$
|
2,145
|
$
|
947
|
$
|
942
|
$
|
121
|
$
|
135
|
||||||
Capital
lease obligations
|
175
|
174
|
1
|
-
|
-
|
|||||||||||
Operating
leases
|
14,637
|
1,455
|
2,348
|
1,696
|
9,138
|
|||||||||||
Total
contractual cash obligations
|
$
|
16,957
|
$
|
2,576
|
$
|
3,291
|
$
|
1,817
|
$
|
9,273
|
*
|
Includes
the revolving credit line, term loan and mortgage payments on the
Company’s owned facility in Europe. Subsequent to September 30, 2005, the
term loan of $1.6 million was paid in full from available
cash.
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
·
|
Translation
adjustments of ($15,000), net of income tax, were recognized as
a
component of comprehensive income as a result of converting the
Euro
denominated balance sheet of Key Technology B.V. into U.S. dollars,
and to
a lesser extent, the Australian dollar balance sheets of Key Technology
Australia Pty. Ltd. and Freshline Machines Pty. Ltd., and the Peso
balance
sheet of Productos Key Mexicana.
|
·
|
Foreign
exchange losses of $165,000 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
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 and Mexican operations.
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA.
|
Title
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
30
|
Report
of Independent Registered Public Accounting Firm
|
31
|
Consolidated
Balance Sheets at September 30, 2005 and 2004
|
32
|
Consolidated
Statements of Operations for the three years ended September 30,
2005
|
34
|
Consolidated
Statements of Shareholders' Equity for the three years ended September
30,
2005
|
35
|
Consolidated
Statements of Cash Flows for the three years ended September 30,
2005
|
36
|
Notes
to Consolidated Financial Statements
|
38
|
Supplementary
Data
|
54
|
KEY
TECHNOLOGY, INC. AND SUBSIDIARIES
|
|||||||
CONSOLIDATED
BALANCE SHEETS
|
|||||||
SEPTEMBER
30, 2005 AND 2004
|
|||||||
(In
thousands)
|
|||||||
2005
|
2004
|
||||||
ASSETS
|
|||||||
CURRENT
ASSETS:
|
|||||||
Cash
and cash equivalents
|
$
|
13,181
|
$
|
8,817
|
|||
Trade
accounts receivable, net
|
10,828
|
9,336
|
|||||
Inventories
|
14,860
|
13,633
|
|||||
Deferred
income taxes
|
2,382
|
2,119
|
|||||
Prepaid
expenses and other assets
|
1,490
|
1,097
|
|||||
Total
current assets
|
42,741
|
35,002
|
|||||
PROPERTY,
PLANT, AND EQUIPMENT, Net
|
4,264
|
5,046
|
|||||
DEFERRED
INCOME TAXES
|
10
|
6
|
|||||
OTHER
ASSETS
|
525
|
630
|
|||||
INVESTMENT
IN JOINT VENTURE
|
1,254
|
1,914
|
|||||
INTANGIBLES,
Net
|
6,209
|
7,392
|
|||||
GOODWILL,
Net
|
2,524
|
2,524
|
|||||
TOTAL
|
$
|
57,527
|
$
|
52,514
|
See
notes to consolidated financial statements.
|
(Continued)
|
KEY
TECHNOLOGY, INC. AND SUBSIDIARIES
|
|||||||
CONSOLIDATED
BALANCE SHEETS
|
|||||||
SEPTEMBER
30, 2005 AND 2004
|
|||||||
(In
thousands, except shares)
|
|||||||
2005
|
2004
|
||||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
CURRENT
LIABILITIES:
|
|||||||
Accounts
payable
|
$
|
2,280
|
$
|
1,599
|
|||
Accrued
payroll liabilities and commissions
|
3,957
|
3,781
|
|||||
Accrued
customer support and warranty costs
|
1,775
|
1,283
|
|||||
Income
tax payable
|
5
|
19
|
|||||
Customer
purchase plans
|
1,316
|
289
|
|||||
Other
accrued liabilities
|
1,762
|
1,699
|
|||||
Customers’
deposits
|
3,015
|
2,536
|
|||||
Current
portion of long-term debt
|
1,121
|
1,210
|
|||||
Current
portion of mandatorily redeemable preferred stock
|
-
|
1,279
|
|||||
Current
portion of warrants
|
-
|
316
|
|||||
Total
current liabilities
|
15,231
|
14,011
|
|||||
LONG-TERM
DEBT
|
1,199
|
2,323
|
|||||
DEFERRED
INCOME TAXES
|
626
|
136
|
|||||
COMMITMENTS
AND CONTINGENCIES
|
-
|
-
|
|||||
SHAREHOLDERS’
EQUITY:
|
|||||||
Preferred
stock—no par value; 5,000,000 shares authorized;
none issued and outstanding
|
-
|
-
|
|||||
Common
stock—no par value; 15,000,000 shares authorized; 5,347,784
and
4,982,500 issued and outstanding at September 30, 2005 and 2004,
respectively
|
15,301
|
11,493
|
|||||
Deferred
stock-based compensation
|
(2,057
|
)
|
-
|
||||
Retained
earnings
|
27,104
|
24,413
|
|||||
Accumulated
other comprehensive income
|
123
|
138
|
|||||
Total
shareholders’ equity
|
40,471
|
36,044
|
|||||
TOTAL
|
$
|
57,527
|
$
|
52,514
|
See
notes to consolidated financial statements.
|
(Concluded)
|
KEY
TECHNOLOGY, INC. AND SUBSIDIARIES
|
||||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||
THREE
YEARS ENDED SEPTEMBER 30, 2005
|
||||||||||
(In
thousands, except per share data)
|
||||||||||
2005
|
2004
|
2003
|
||||||||
NET
SALES
|
$
|
80,322
|
$
|
80,610
|
$
|
82,622
|
||||
COST
OF SALES
|
49,015
|
46,887
|
48,626
|
|||||||
Gross
profit
|
31,307
|
33,723
|
33,996
|
|||||||
OPERATING
EXPENSES:
|
||||||||||
Selling
|
13,071
|
13,514
|
11,695
|
|||||||
Research
and development
|
5,134
|
5,756
|
4,874
|
|||||||
General
and administrative
|
8,087
|
7,702
|
7,329
|
|||||||
Amortization
of intangibles
|
1,333
|
1,323
|
1,323
|
|||||||
Total
operating expenses
|
27,625
|
28,295
|
25,221
|
|||||||
GAIN
ON SALE OF ASSETS
|
28
|
5
|
4
|
|||||||
INCOME
FROM OPERATIONS
|
3,710
|
5,433
|
8,779
|
|||||||
OTHER
INCOME (EXPENSE):
|
||||||||||
Royalty
income
|
-
|
6
|
18
|
|||||||
Interest
income
|
229
|
114
|
59
|
|||||||
Interest
expense
|
(179
|
)
|
(204
|
)
|
(399
|
)
|
||||
Equity
in earnings (loss) of joint venture
|
(659
|
)
|
(170
|
)
|
-
|
|||||
Other,
net
|
492
|
122
|
(5
|
)
|
||||||
Total
other income (expense)—net
|
(117
|
)
|
(132
|
)
|
(327
|
)
|
||||
Earnings
before income taxes
|
3,593
|
5,301
|
8,452
|
|||||||
Income
tax expense
|
902
|
1,617
|
2,693
|
|||||||
Net
earnings
|
2,691
|
3,684
|
5,759
|
|||||||
Assumed
dividends on mandatorily redeemable preferred stock
|
(33
|
)
|
(69
|
)
|
(132
|
)
|
||||
Net
earnings available to common shareholders
|
$
|
2,658
|
$
|
3,615
|
$
|
5,627
|
||||
EARNINGS
PER SHARE—Basic
|
$
|
0.53
|
$
|
0.74
|
$
|
1.18
|
||||
EARNINGS
PER SHARE—Diluted
|
$
|
0.52
|
$
|
0.71
|
$
|
1.15
|
||||
SHARES
USED IN PER SHARE CALCULATION—Basic
|
5,041
|
4,909
|
4,774
|
|||||||
SHARES
USED IN PER SHARE CALCULATION—Diluted
|
5,219
|
5,222
|
4,989
|
KEY
TECHNOLOGY, INC. AND SUBSIDIARIES
|
|||||||||||||||||||
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
|
|||||||||||||||||||
THREE
YEARS ENDED SEPTEMBER 30, 2005
|
|||||||||||||||||||
(Dollars
in thousands)
|
|||||||||||||||||||
Common
Stock
|
|||||||||||||||||||
Shares
|
Amount
|
Deferred
Stock- Based Compensation
|
Retained
Earnings
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
|
||||||||||||||
Balance
at September 30, 2002
|
4,767,206
|
$
|
9,456
|
$
|
0
|
$
|
14,970
|
$
|
(824
|
)
|
$
|
23,602
|
|||||||
Components
of comprehensive income:
|
|||||||||||||||||||
Net
earnings
|
5,759
|
5,759
|
|||||||||||||||||
Comprehensive
income—foreign currency translation adjustment, net of tax of
$385
|
746
|
746
|
|||||||||||||||||
Total
comprehensive income
|
6,505
|
||||||||||||||||||
Issuance
of common stock upon exercise of stock options
|
11,837
|
67
|
67
|
||||||||||||||||
Issuance
of stock for Employee Stock Purchase Plan
|
6,918
|
45
|
0
|
45
|
|||||||||||||||
Balance
at September 30, 2003
|
4,785,961
|
9,568
|
0
|
20,729
|
(78
|
)
|
30,219
|
||||||||||||
Components
of comprehensive income:
|
|||||||||||||||||||
Net
earnings
|
3,684
|
3,684
|
|||||||||||||||||
Comprehensive
income—foreign currency translation adjustment, net of tax of
$111
|
216
|
216
|
|||||||||||||||||
Total
comprehensive income
|
3,900
|
||||||||||||||||||
Tax
benefits from share-based payments
|
300
|
300
|
|||||||||||||||||
Shares
converted from mandatorily redeemable preferred stock
|
6,524
|
98
|
98
|
||||||||||||||||
Issuance
of common stock upon exercise of stock options
|
186,218
|
1,483
|
1,483
|
||||||||||||||||
Issuance
of stock for Employee Stock Purchase Plan
|
3,797
|
44
|
|
|
|
44
|
|||||||||||||
Balance
at September 30, 2004
|
4,982,500
|
11,493
|
0
|
24,413
|
138
|
36,044
|
|||||||||||||
Components
of comprehensive income:
|
|||||||||||||||||||
Net
earnings
|
2,691
|
2,691
|
|||||||||||||||||
Comprehensive
income—foreign currency translation adjustment, net of tax of
$8
|
(15
|
)
|
(15
|
)
|
|||||||||||||||
Total
comprehensive income
|
2,676
|
||||||||||||||||||
Tax
benefits from share-based payments
|
30
|
30
|
|||||||||||||||||
Shares
converted from mandatorily redeemable preferred stock
|
52
|
||||||||||||||||||
Shares
converted from warrants
|
230
|
6
|
6
|
||||||||||||||||
Reclass
expired warrants to equity
|
127
|
127
|
|||||||||||||||||
Issuance
of common stock upon exercise of stock options
|
191,858
|
1,481
|
1,481
|
||||||||||||||||
Issuance
of stock for Employee Stock Purchase Plan
|
3,644
|
34
|
34
|
||||||||||||||||
Stock
grants - employment-based
|
54,500
|
751
|
(751
|
)
|
-
|
||||||||||||||
Stock
grants - performance-based
|
115,000
|
1,379
|
(1,379
|
)
|
-
|
||||||||||||||
Amortization
of deferred stock-based compensation
|
|
|
73
|
|
|
73
|
|||||||||||||
Balance
at September 30, 2005
|
5,347,784
|
$
|
15,301
|
$
|
(2,057
|
)
|
$
|
27,104
|
$
|
123
|
$
|
40,471
|
KEY
TECHNOLOGY, INC. AND SUBSIDIARIES
|
||||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||
THREE
YEARS ENDED SEPTEMBER 30, 2005
|
||||||||||
(In
thousands)
|
||||||||||
2005
|
2004
|
2003
|
||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||
Net
earnings
|
$
|
2,691
|
$
|
3,684
|
$
|
5,759
|
||||
Adjustments
to reconcile net earnings to net cash
provided by operating activities:
|
||||||||||
Equity
in (earnings) loss of joint venture
|
659
|
170
|
-
|
|||||||
Gain
on sale of assets
|
(28
|
)
|
(5
|
)
|
(4
|
)
|
||||
Foreign
currency exchange (gain) loss
|
165
|
(33
|
)
|
(242
|
)
|
|||||
Depreciation
and amortization
|
3,153
|
3,176
|
3,698
|
|||||||
Share
based payments
|
73
|
-
|
-
|
|||||||
Tax
savings from share-based payments
|
197
|
133
|
-
|
|||||||
Deferred
income taxes
|
235
|
566
|
2,080
|
|||||||
Deferred
rent
|
(79
|
)
|
(53
|
)
|
66
|
|||||
Bad
debt expense
|
(43
|
)
|
172
|
162
|
||||||
Changes
in assets and liabilities:
|
||||||||||
Trade
accounts receivable
|
(1,054
|
)
|
46
|
(1,646
|
)
|
|||||
Inventories
|
(980
|
)
|
636
|
799
|
||||||
Prepaid
expenses and other current assets
|
613
|
172
|
365
|
|||||||
Income
taxes receivable
|
(255
|
)
|
(199
|
)
|
76
|
|||||
Accounts
payable
|
563
|
(21
|
)
|
27
|
||||||
Accrued
payroll liabilities and commissions
|
(96
|
)
|
(802
|
)
|
1,702
|
|||||
Accrued
customer support and warranty costs
|
495
|
212
|
35
|
|||||||
Income
taxes payable
|
(116
|
)
|
(166
|
)
|
237
|
|||||
Other
accrued liabilities
|
1,151
|
(383
|
)
|
317
|
||||||
Customers’
deposits
|
152
|
(2,335
|
)
|
1,275
|
||||||
Other
|
83
|
126
|
(183
|
)
|
||||||
Cash
provided by operating activities
|
7,579
|
5,096
|
14,523
|
|||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||
Investment
in joint venture
|
-
|
(2,084
|
)
|
-
|
||||||
Proceeds
from sale of property
|
28
|
193
|
12
|
|||||||
Purchases
of property, plant, and equipment
|
(977
|
)
|
(1,175
|
)
|
(836
|
)
|
||||
Acquisition
of Freshline Machines, Pty. Ltd., net of cash acquired
|
(1,059
|
)
|
-
|
-
|
||||||
Cash
used in investing activities
|
(2,008
|
)
|
(3,066
|
)
|
(824
|
)
|
KEY
TECHNOLOGY, INC. AND SUBSIDIARIES
|
||||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||
THREE
YEARS ENDED SEPTEMBER 30, 2005
|
||||||||||
(In
thousands)
|
||||||||||
2005
|
2004
|
2003
|
||||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||
Repayments
of short-term borrowings
|
$
|
-
|
$
|
-
|
$
|
(6,650
|
)
|
|||
Payments
on long-term debt
|
(1,199
|
)
|
(1,073
|
)
|
(1,740
|
)
|
||||
Proceeds
from issuance of long-term debt
|
-
|
-
|
500
|
|||||||
Redemption
of warrants
|
(185
|
)
|
(40
|
)
|
(296
|
)
|
||||
Redemption
of mandatorily redeemable preferred stock
|
(1,278
|
)
|
(150
|
)
|
(1,289
|
)
|
||||
Proceeds
from issuance of common stock
|
1,512
|
1,527
|
112
|
|||||||
Proceeds
from exercise of warrants
|
6
|
-
|
-
|
|||||||
Cash
provided by (used in) financing activities
|
(1,144
|
)
|
264
|
(9,363
|
)
|
|||||
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
(63
|
)
|
81
|
399
|
||||||
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
4,364
|
2,375
|
4,735
|
|||||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
8,817
|
6,442
|
1,707
|
|||||||
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
$
|
13,181
|
$
|
8,817
|
$
|
6,442
|
||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW
INFORMATION:
|
||||||||||
Cash
paid during the year for interest
|
$
|
178
|
$
|
208
|
$
|
443
|
||||
Cash
paid during the year for income taxes
|
850
|
1,275
|
306
|
|||||||
SUPPLEMENTAL
DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
|
||||||||||
Equipment
obtained through capital leases
|
$
|
-
|
$
|
245
|
$
|
-
|
1.
|
THE
COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Years
|
|
Buildings
and improvements
|
7
to 40
|
Manufacturing
equipment
|
5
to 10
|
Office
equipment, furniture, and fixtures
|
3
to 7
|
2005
|
2004
|
||||||
Beginning
balance
|
$
|
889
|
$
|
837
|
|||
Warranty
costs incurred
|
(1,801
|
)
|
(1,703
|
)
|
|||
Warranty
expense accrued
|
2,109
|
1,741
|
|||||
Translation
adjustments
|
(3
|
)
|
14
|
||||
Ending
balance
|
$
|
1,191
|
$
|
889
|
For
the year ended September 30, 2005
|
||||||||||
Earnings
|
Shares
|
Per-Share
Amount
|
||||||||
Net
earnings from continuing operations
|
$
|
2,691
|
||||||||
Less:
Assumed dividends on mandatorily redeemable preferred
stock
|
(33
|
)
|
||||||||
Basic
EPS:
|
||||||||||
Net
earnings available to common shareholders
|
2,658
|
5,041
|
$
|
0.53
|
||||||
Effect
of dilutive securities:
|
||||||||||
Common
stock options
|
-
|
115
|
||||||||
Mandatorily
redeemable preferred stock
|
33
|
63
|
||||||||
Diluted
EPS:
|
||||||||||
Income
available to common shareholders plus assumed conversions
|
$
|
2,691
|
5,219
|
$
|
0.52
|
For
the year ended September 30, 2004
|
||||||||||
Earnings
|
Shares
|
Per-Share
Amount
|
||||||||
Net
earnings from continuing operations
|
$
|
3,684
|
||||||||
Less:
Assumed dividends on mandatorily redeemable preferred
stock
|
(69
|
)
|
||||||||
Basic
EPS:
|
||||||||||
Net
earnings available to common shareholders
|
3,615
|
4,909
|
$
|
0.74
|
||||||
Effect
of dilutive securities:
|
||||||||||
Common
stock options
|
-
|
219
|
||||||||
Mandatorily
redeemable preferred stock
|
69
|
94
|
||||||||
Diluted
EPS:
|
||||||||||
Income
available to common shareholders plus assumed conversions
|
$
|
3,684
|
5,222
|
$
|
0.71
|
For
the year ended September 30, 2003
|
||||||||||
Earnings
|
Shares
|
Per-Share
Amount
|
||||||||
Net
earnings from continuing operations
|
$
|
5,759
|
||||||||
Less:
Assumed dividends on mandatorily redeemable preferred
stock
|
(132
|
)
|
||||||||
Basic
EPS:
|
||||||||||
Net
earnings available to common shareholders
|
5,627
|
4,774
|
$
|
1.18
|
||||||
Effect
of dilutive securities:
|
||||||||||
Common
stock options
|
-
|
96
|
||||||||
Mandatorily
redeemable preferred stock
|
132
|
119
|
||||||||
Diluted
EPS:
|
||||||||||
Income
available to common shareholders plus assumed conversions
|
$
|
5,759
|
4,989
|
$
|
1.15
|
For
the year ended September 30
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Common
shares from:
|
||||||||||
Assumed
exercise of stock options
|
249,100
|
183,600
|
714,125
|
|||||||
Assumed
conversion of warrants
|
-
|
31,636
|
35,553
|
|||||||
Assumed
exercise of:
|
||||||||||
-
employment based stock grants
|
52,500
|
-
|
-
|
|||||||
-
performance based stock grants
|
115,000
|
-
|
-
|
|||||||
-
non-employee stock grants
|
2,000
|
-
|
-
|
2005
|
2004
|
2003
|
|
Risk-free
interest rate
|
4.24
%
|
2.91
%
|
2.36
%
|
Expected
dividend yield
|
0
%
|
0
%
|
0
%
|
Expected
lives
|
5
years
|
5
years
|
4.55
years
|
Expected
volatility
|
62
%
|
70
%
|
74
%
|
Year
Ended September 30, 2005
|
Year
Ended September 30, 2004
|
Year
Ended September 30, 2003
|
||||||||
Net
earnings, as reported
|
$
|
2,691
|
$
|
3,684
|
$
|
5,759
|
||||
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effects
|
(361
|
)
|
(670
|
)
|
(498
|
)
|
||||
Plus:
Stock-based employee compensation expense already included in the
determination of net earnings, net of related tax effects
|
47
|
-
|
-
|
|||||||
Pro
forma net earnings
|
$
|
2,377
|
$
|
3,014
|
$
|
5,261
|
||||
Earnings
per share
|
||||||||||
Basic
- as reported
|
$
|
0.53
|
$
|
0.74
|
$
|
1.18
|
||||
Basic
- pro forma
|
$
|
0.47
|
$
|
0.61
|
$
|
1.15
|
||||
Diluted
- as reported
|
$
|
0.52
|
$
|
0.71
|
$
|
1.15
|
||||
Diluted
- pro forma
|
$
|
0.46
|
$
|
0.58
|
$
|
1.06
|
2.
|
ACQUISITIONS
|
Fair
value of assets acquired
|
||||
Tangible
assets
|
$
|
1,041
|
||
Note
receivable from previous owner
|
672
|
|||
Patents
/ developed technologies
|
152
|
|||
Liabilities
assumed
|
(806
|
)
|
||
Cash
paid for common stock, less cash acquired of $418
|
$
|
1,059
|
3.
|
GOODWILL
AND OTHER INTANGIBLE
ASSETS
|
Cost
|
Net
Book Value
|
||||||
Patents
and developed technologies
|
$
|
11,083
|
$
|
4,973
|
|||
Purchased
trademarks and trade names
|
1,700
|
808
|
|||||
Customer
related intangibles
|
900
|
428
|
|||||
$
|
13,683
|
$
|
6,209
|
4.
|
TRADE
ACCOUNTS RECEIVABLE
|
September
30,
|
|||||||
2005
|
2004
|
||||||
Trade
accounts receivable
|
$
|
11,332
|
$
|
9,910
|
|||
Allowance
for doubtful accounts
|
(504
|
)
|
(574
|
)
|
|||
Total
trade accounts receivable, net
|
$
|
10,828
|
$
|
9,336
|
5.
|
INVENTORIES
|
September
30,
|
|||||||
2005
|
2004
|
||||||
Purchased
components and raw materials
|
$
|
6,170
|
$
|
6,460
|
|||
Sub-assemblies
|
1,390
|
1,473
|
|||||
Work-in-process
|
4,310
|
3,276
|
|||||
Finished
goods
|
2,990
|
2,424
|
|||||
Total
inventories
|
$
|
14,860
|
$
|
13,633
|
6.
|
PROPERTY,
PLANT, AND EQUIPMENT
|
September
30,
|
|||||||
2005
|
2004
|
||||||
Land
|
$
|
258
|
$
|
267
|
|||
Buildings
and improvements
|
3,891
|
3,939
|
|||||
Manufacturing
equipment
|
12,313
|
12,104
|
|||||
Office
equipment, furniture, and fixtures
|
11,582
|
11,376
|
|||||
28,044
|
27,686
|
||||||
Accumulated
depreciation
|
(23,780
|
)
|
(22,640
|
)
|
|||
Total
property, plant, and equipment, net
|
$
|
4,264
|
$
|
5,046
|
7.
|
INVESTMENT
IN JOINT VENTURE
|
September
30
|
|||||||
2005
|
2004
|
||||||
Balance
Sheet
|
|||||||
Current
assets
|
$
|
1.7
|
$
|
1.9
|
|||
Patents
and developed technologies
|
3.3
|
3.7
|
|||||
Total
assets
|
5.2
|
5.6
|
|||||
Current
liabilities
|
1.1
|
0.3
|
|||||
Long-term
debt
|
1.5
|
1.5
|
|||||
Equity
|
2.6
|
3.8
|
September
30
|
|||||||
2005
|
since
inception 2004
|
||||||
Results
of Operations
|
|||||||
Sales
|
$
|
2.6
|
$
|
0.3
|
|||
Gross
profit
|
1.2
|
0.1
|
|||||
Operating
expenses
|
1.9
|
0.3
|
|||||
Amortization
of intangibles
|
0.4
|
0.1
|
|||||
Net
loss before taxes
|
(1.3
|
)
|
(0.3
|
)
|
8.
|
FINANCING
AGREEMENTS
|
September
30,
|
|||||||
2005
|
2004
|
||||||
Term
loan dated August 2002, variable interest payable quarterly at
the bank’s
prime rate (6.75% at September 30, 2005), due in quarterly principal
payments of $200,000 through July 2007. Secured by business
property.
|
$
|
1,600
|
$
|
2,400
|
|||
Note
payable, interest rate of 4.10%, due in quarterly principal and
interest
installments through August 2012, secured by certain land and
buildings.
|
436
|
512
|
|||||
Note
payable, interest rate of 4.25%, due in quarterly principal
and
interest installments through October 2006, secured by certain
land and
buildings.
|
109
|
203
|
|||||
Capital
leases, interest rates between 6% and 11%, due in
principal and interest installments through March 2007, secured
by certain
office and manufacturing equipment.
|
175
|
418
|
|||||
2,320
|
3,533
|
||||||
Current
portion
|
(1,121
|
)
|
(1,210
|
)
|
|||
Total
long-term debt
|
$
|
1,199
|
$
|
2,323
|
Year
Ending September 30
|
||||
2006
|
$
|
1,121
|
||
2007
|
883
|
|||
2008
|
60
|
|||
2009
|
60
|
|||
2010
|
60
|
|||
Thereafter
|
136
|
|||
Total
|
$
|
2,320
|
9.
|
LEASES
|
Year
Ending September 30
|
Rental
Payments
|
Rental
Expense
|
|||||
2006
|
$
|
1,455
|
$
|
1,390
|
|||
2007
|
1,311
|
1,254
|
|||||
2008
|
1,037
|
1,042
|
|||||
2009
|
848
|
853
|
|||||
2010
|
848
|
853
|
|||||
Thereafter
|
9,138
|
8,527
|
|||||
Total
|
$
|
14,637
|
$
|
13,919
|
10.
|
MANDATORILY
REDEEMABLE PREFERRED STOCK AND
WARRANTS
|
11.
|
CONTRACTUAL
GUARANTEES AND INDEMNITIES
|
12.
|
INCOME
TAXES
|
Year
Ended September 30,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Current:
|
||||||||||
Federal
|
$
|
372
|
$
|
1,089
|
$
|
42
|
||||
Foreign
|
31
|
(104
|
)
|
310
|
||||||
State
|
67
|
66
|
261
|
|||||||
|
470
|
1,051
|
613
|
|||||||
Deferred:
|
||||||||||
Federal
|
481
|
605
|
2,133
|
|||||||
Foreign
|
(25
|
)
|
-
|
-
|
||||||
State
|
(24
|
)
|
(39
|
)
|
(53
|
)
|
||||
|
432
|
566
|
2,080
|
|||||||
Total
income tax expense
|
$
|
902
|
$
|
1,617
|
$
|
2,693
|
September
30,
|
|||||||
2005
|
2004
|
||||||
Deferred
tax asset:
|
|||||||
Reserves
and accruals
|
$
|
2,726
|
$
|
2,416
|
|||
Net
operating loss and other tax credit carryforwards
|
1,131
|
1,980
|
|||||
Tax
benefits of share-based payments
|
27
|
158
|
|||||
Translation
adjustment to equity
|
(63
|
)
|
(71
|
)
|
|||
Deferred
tax liability:
|
|||||||
Accumulated
depreciation
|
(99
|
)
|
(141
|
)
|
|||
Intangible
assets
|
(1,956
|
)
|
(2,353
|
)
|
|||
Net
deferred tax asset
|
$
|
1,766
|
$
|
1,989
|
|||
Deferred
tax:
|
|||||||
Current
asset
|
$
|
2,382
|
$
|
2,119
|
|||
Long-term
asset
|
10
|
6
|
|||||
Long-term
liability
|
(626
|
)
|
(136
|
)
|
|||
Net
deferred tax asset
|
$
|
1,766
|
$
|
1,989
|
Year
Ended September 30,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Statutory
rates
|
34.0
|
%
|
34.0
|
%
|
34.0
|
%
|
||||
Increase
(reduction) in income taxes resulting from:
|
||||||||||
Extraterratorial
income exclusion
|
(5.4
|
)
|
(2.8
|
)
|
(2.3
|
)
|
||||
Foreign
tax credit effects of acquisition
|
(2.2
|
)
|
-
|
-
|
||||||
Research
and development credit
|
(1.7
|
)
|
(1.0
|
)
|
(0.3
|
)
|
||||
State
income taxes, net of federal benefit
|
0.6
|
0.5
|
1.6
|
|||||||
Change
in tax laws
|
-
|
-
|
(1.8
|
)
|
||||||
Other
permanent differences
|
0.3
|
(0.2
|
)
|
0.7
|
||||||
Tax
exempt interest
|
(0.5
|
)
|
-
|
-
|
||||||
Income
tax combined effective rate
|
25.1
|
%
|
30.5
|
%
|
31.9
|
%
|
13.
|
STOCK
COMPENSATION PLANS
|
Number
of Shares
|
Weighted-
Average Exercise Price
|
||||||
Balance
at September 30, 2002
|
818,933
|
$
|
10.14
|
||||
Options
granted
|
182,500
|
$
|
8.98
|
||||
Options
exercised
|
(11,837
|
)
|
$
|
5.71
|
|||
Options
forfeited
|
(52,033
|
)
|
$
|
9.32
|
|||
Balance
at September 30, 2003
|
937,563
|
$
|
10.02
|
||||
Options
granted
|
30,000
|
$
|
14.83
|
||||
Options
exercised
|
(186,218
|
)
|
$
|
7.97
|
|||
Options
forfeited
|
(17,238
|
)
|
$
|
9.60
|
|||
Balance
at September 30, 2004
|
764,107
|
$
|
10.71
|
||||
Options
granted
|
25,000
|
$
|
9.64
|
||||
Options
exercised
|
(191,858
|
)
|
$
|
7.73
|
|||
Options
forfeited
|
(65,960
|
)
|
$
|
11.28
|
|||
Balance at September 30, 2005 | 531,289 | $ | 11.67 |
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
Range
of Exercise Prices
|
Number
Outstanding
|
Weighted
Average Remaining Contractual Life (years)
|
Weighted
Average Exercise Price
|
Number
of Shares Exercisable
|
Weighted
Average Exercise Price
|
|||||||||||
$2.51
- 5.00
|
79,689
|
2.4
|
$
|
2.91
|
48,849
|
$
|
2.89
|
|||||||||
$5.00
- 10.00
|
182,500
|
4.4
|
8.89
|
102,000
|
8.66
|
|||||||||||
$10.01
- 15.00
|
105,800
|
2.9
|
11.46
|
92,050
|
11.61
|
|||||||||||
$15.01
- 20.00
|
98,000
|
2.8
|
16.93
|
98,000
|
16.93
|
|||||||||||
$20.01
- 23.25
|
65,300
|
0.6
|
22.59
|
65,300
|
22.59
|
|||||||||||
$2.51
- 23.25
|
531,289
|
3.0
|
$
|
11.67
|
406,199
|
$
|
12.87
|
14.
|
EMPLOYEE
BENEFIT PLANS
|
15.
|
SEGMENT
INFORMATION
|
Year
Ended September 30,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Net
sales by product category:
|
||||||||||
Automated
inspection systems
|
$
|
20,647
|
$
|
28,675
|
$
|
30,230
|
||||
Process
systems
|
31,853
|
27,713
|
31,759
|
|||||||
Aftermarket
|
27,822
|
24,222
|
20,633
|
|||||||
Total
net sales by product category
|
$
|
80,322
|
$
|
80,610
|
$
|
82,622
|
Year
Ended September 30,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Net
sales:
|
||||||||||
Domestic
|
$
|
38,475
|
$
|
45,263
|
$
|
41,538
|
||||
International
|
41,847
|
35,347
|
41,084
|
|||||||
Total
net sales
|
$
|
80,322
|
$
|
80,610
|
$
|
82,622
|
||||
Long-lived
assets:
|
||||||||||
Domestic
|
$
|
11,658
|
$
|
14,270
|
$
|
14,067
|
||||
International
|
2,593
|
2,606
|
2,675
|
|||||||
Total
long-lived assets
|
$
|
14,251
|
$
|
16,876
|
$
|
16,742
|
2005
Quarter Ended
|
December
31,
|
March
31,
|
June
30,
|
September
30,
|
Total
|
|||||||||||
Net
sales
|
$
|
14,571
|
$
|
18,269
|
$
|
25,917
|
$
|
21,565
|
$
|
80,322
|
||||||
Gross
profit
|
5,305
|
6,864
|
11,087
|
8,051
|
31,307
|
|||||||||||
Net
earnings (loss)
|
(442
|
)
|
62
|
2,646
|
425
|
2,691
|
||||||||||
Net
earnings (loss) per share—basic
|
$
|
(0.09
|
)
|
$
|
0.01
|
$
|
0.52
|
$
|
0.08
|
$
|
0.53
|
|||||
Net
earnings (loss) per share—diluted
|
$
|
(0.09
|
)
|
$
|
0.01
|
$
|
0.51
|
$
|
0.08
|
$
|
0.52
|
2004
Quarter Ended
|
December
31,
|
March
31,
|
June
30,
|
September
30,
|
Total
|
|||||||||||
Net
sales
|
$
|
18,743
|
$
|
20,761
|
$
|
22,170
|
$
|
18,936
|
$
|
80,610
|
||||||
Gross
profit
|
7,056
|
8,892
|
10,216
|
7,560
|
33,723
|
|||||||||||
Net
earnings
|
505
|
1,138
|
2,008
|
34
|
3,684
|
|||||||||||
Net
earnings per share—basic
|
$
|
0.10
|
$
|
0.23
|
$
|
0.40
|
$
|
0.01
|
$
|
0.74
|
||||||
Net
earnings per share—diluted
|
$
|
0.10
|
$
|
0.22
|
$
|
0.38
|
$
|
0.01
|
$
|
0.71
|
Quarter
ended
|
|||||||||||||
Fiscal
year 2005
|
March
31,
|
June
30,
|
September
30,
|
Year
ended September
30,
|
|||||||||
Net
earnings - as adjusted
|
$
|
62
|
$
|
2,646
|
$
|
425
|
$
|
2,691
|
|||||
Net
earnings - as reported
|
167
|
2,709
|
569
|
3,003
|
|||||||||
Net
earnings per share (basic) - as adjusted
|
$
|
0.01
|
$
|
0.52
|
$
|
0.08
|
$
|
0.53
|
|||||
Net
earnings per share (basic) - as reported
|
$
|
0.03
|
$
|
0.53
|
$
|
0.11
|
$
|
0.59
|
|||||
Net
earnings per share (diluted) - as adjusted
|
$
|
0.01
|
$
|
0.51
|
$
|
0.08
|
$
|
0.52
|
|||||
Net
earnings per share (diluted) - as reported
|
$
|
0.03
|
$
|
0.52
|
$
|
0.11
|
$
|
0.58
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES.
|
1.
|
Deficiencies
existed with respect to the documentation of accounting guidance
applicable to significant non-recurring events and transactions
which,
when considered in the aggregate, constitute a material weakness
over
financial reporting. These deficiencies included failures to prepare
concurrent documentation of the application of generally accepted
accounting principles to significant non-recurring transactions
during the
year as related to, for example, the accounting for lease terminations
and
the expiration of redeemable
warrants.
|
2.
|
Deficiencies
existed with respect to reconciliation procedures and policies
related to
the Company's monthly closing process. These deficiencies included
deficiencies in areas related to, among others, accounts payable
cut-off
procedures, accounting estimates and presentation or disclosure
matters.
|
ITEM
9B.
|
OTHER
INFORMATION.
|
ITEM
10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE
REGISTRANT.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
A
|
B
|
C
|
||||||||
Plan
Category
|
Number
of Securities to be Issued upon Exercise of Outstanding
Options
|
Weighted
Average Exercise Price of Outstanding Options
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in Column
A)
|
|||||||
Equity
Compensation Plans
Approved
by Shareholders
|
||||||||||
Restated
Employees’ Stock Incentive Plan
|
531,289
|
$
|
11.67
|
198,781(3)
|
|
|||||
1996
Employee Stock Purchase Plan
|
(1)
|
|
(1)
|
|
413,654
|
|||||
Equity
Compensation Plans Not
Approved
by Shareholders(2)
|
-
|
-
|
-
|
|||||||
Total
|
531,289
|
$
|
11.67
|
612,435
|
(1)
|
We
are unable to ascertain with specificity the number of securities
to be
issued under the 1996 Employee Stock Purchase Plan or the weighted
average
purchase price of the shares that may be purchased under the plan.
Under
the plan, eligible employees may make contributions to the plan
of not
more than five percent of the participant’s compensation during each pay
period in the offering period. The offering periods commence quarterly
beginning October 1, January 1, April 1, and July 1 of each year.
Purchases are made on the last business day of each offering period
at a
purchase price per share equal to 85% of the fair market value
of the
Common Stock on the purchase date. There are 500,000 shares of
Common
Stock reserved under the plan.
|
(2)
|
There
are no Equity Compensation Plans that have not been approved by
Shareholders.
|
(3)
|
The
number of securities remaining may be used for issuance of either
options
or restricted stock.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS.
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES.
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT
SCHEDULES.
|
PAGE
|
(a)
|
The
following documents are filed as part of this
report:
|
1.
|
Financial
Statements:
|
Reference
is made to Part II, Item 8, for a listing of required financial
statements
filed with this report
|
29
|
2.
|
Financial
Statement Schedules:
|
3.
|
Exhibits:
|
(3)
|
Articles
of Incorporation and Bylaws
|
(3.1)
|
Restated
Articles of Incorporation (filed as Exhibit 3.1 to the Registration
Statement on Form S-1 (Registration No. 33-63194) filed with the
Securities and Exchange Commission on May 24, 1993 and incorporated
herein
by reference)
|
(3.2)
|
Registrant's
Restated Bylaws dated February 7, 2001 (filed as Exhibit 3.2 to
the Form
10-Q filed with the Securities and Exchange Commission on May 15,
2002 and
incorporated herein by reference)
|
(4)
|
Instruments
defining the rights of security holders, including
indentures
|
(4.1)
|
Registrant’s
First Amended and Restated Rights Agreement, dated as of April
1, 2001,
between the Registrant and American Stock Transfer & Trust Company
(filed as Exhibit 10.1 to the Form 10-Q filed with the Securities
and
Exchange Commission on August 13, 2004 and incorporated herein
by
reference)
|
(10)
|
Material
contracts
|
(10.1)
|
Construction
and Lease Agreement dated October 17, 1989 between the Port of
Walla Walla
and Registrant (filed as Exhibit 10.1 to the Registration Statement
on
Form S-1 (Registration No. 33-63194) filed with the Securities
and
Exchange Commission on May 24, 1993 and incorporated herein by
reference)
|
(10.2)*
|
Registrant's
1989 Employees' Stock Option Plan, as amended (filed as Exhibit
10.5 to
the Registration Statement on Form S-1 (Registration No. 33-63194)
filed
with the Securities and Exchange Commission on May 24, 1993 and
incorporated herein by reference)
|
(10.3)*
|
Registrant's
401(k) Profit Sharing Plan dated May 11, 1992 (filed as Exhibit
10.6 to
Amendment No. 1 to Form S-1 (Registration No. 33-63194) filed with
the
Securities and Exchange Commission on May 24, 1993 and incorporated
herein
by reference)
|
(10.4)*
|
Registrant's
Restated 1989 Employees' Stock Option Plan, as amended (filed as
Exhibit
10.1 to the Form 10-Q filed with the Securities and Exchange Commission
on
May 12, 1995 and incorporated herein by reference)
|
(10.5)*
|
Registrant's
1996 Employees' Stock Option Plan (filed as Exhibit 10.1 to the
Form 10-Q
filed with the Securities and Exchange Commission on May 2, 1996
and
incorporated herein by reference)
|
(10.6)*
|
Registrant's
1996 Employee Stock Purchase Plan (filed as Exhibit 10.2 to the
Form 10-Q
filed with the Securities and Exchange Commission on May 2, 1996
and
incorporated herein by reference)
|
(10.7)
|
Lease
Agreement dated April 18, 1996 between the Port of Walla Walla
and
Registrant (filed as Exhibit 10.1 to the Form 10-Q filed with the
Securities and Exchange Commission on August 7, 1996 and incorporated
herein by reference)
|
(10.8)*
|
Registrant’s
Restated Employees’ Stock Option Plan (1996 Plan as amended through July
12, 2000) (filed as Exhibit 10.13 to the Form 10-K filed with the
Securities and Exchange Commission on December 19, 2002 and incorporated
herein by reference)
|
(10.9)*
|
Registrant’s
Profit Sharing and 401(k) Plan 2001 Restatement (filed as Exhibit
10.14 to
the Form 10-K filed with the Securities and Exchange Commission
on
December 19, 2002 and incorporated herein by
reference)
|
(10.10)*
|
Registrant’s
Profit Sharing and 401(k) Plan 2001 Restatement, Amendment No.
1 (filed as
Exhibit 10.15 to the Form 10-K filed with the Securities and Exchange
Commission on December 19, 2002 and incorporated herein by
reference)
|
(10.11)*
|
Registrant’s
Profit Sharing and 401(k) Plan 2001 Restatement, Amendment No.
2 (filed as
Exhibit 10.16 to the Form 10-K filed with the Securities and Exchange
Commission on December 19, 2002 and incorporated herein by
reference)
|
(10.12)*
|
Registrant’s
Profit Sharing and 401(k) Plan 2001 Restatement, Amendment No.
3 (filed as
Exhibit 10.17 to the Form 10-K filed with the Securities and Exchange
Commission on December 19, 2002 and incorporated herein by
reference)
|
(10.13)
|
Loan
Agreement dated August 9, 2002 between Registrant and Banner Bank
(filed
as Exhibit 10.18 to the Form 10-K filed with the Securities and
Exchange
Commission on December 19, 2002 and incorporated herein by
reference)
|
(10.14)
|
Revolving
Note dated August 9, 2002 between Registrant and Banner Bank (filed
as
Exhibit 10.19 to the Form 10-K filed with the Securities and Exchange
Commission on December 19, 2002 and incorporated herein by reference)
|
(10.15)
|
Term
Note dated August 9, 2002 between Registrant and Banner Bank (filed
as
Exhibit 10.20 to the Form 10-K filed with the Securities and Exchange
Commission on December 19, 2002 and incorporated herein by
reference)
|
(10.16)
|
Reducing
Non-Revolving Note dated August 9, 2002 between Registrant and
Banner Bank
(filed as Exhibit 10.21 to the Form 10-K filed with the Securities
and
Exchange Commission on December 19, 2002 and incorporated herein
by
reference)
|
(10.17)
|
Credit
Agreement dated August 8, 2002 between Suplusco Holding B.V., Key
Technology B.V. and ABN AMRO Bank N.V. (filed as Exhibit 10.22
to the Form
10-Q filed with the Securities and Exchange Commission on February
14,
2003 and incorporated herein by
reference)
|
(10.18)
|
Amendment
to Loan Documents dated December 11, 2002 between Registrant and
Banner
Bank (filed as Exhibit 10.23 to the Form 10-Q filed with the Securities
and Exchange Commission on February 14, 2003 and incorporated herein
by
reference)
|
(10.19)
|
Addendum
No. 1 to Construction and Lease Agreement executed December 31,
2002
between the Port of Walla Walla and Registrant (filed as Exhibit
10.24 to
the Form 10-Q filed with the Securities and Exchange Commission
on
February 14, 2003 and incorporated herein by
reference)
|
(10.20)
|
Amendment
to Loan Documents dated July 31, 2003 between Registrant and Banner
Bank
(filed as Exhibit 10.20 to the Form 10-K filed with the Securities
and
Exchange Commission on December 19, 2003 and incorporated herein
by
reference)
|
(10.21)*
|
Registrant’s
2003 Restated Employees’ Stock Incentive Plan, (1996 Plan as amended and
restated as of December 15, 2003) (filed as Exhibit 10.1 to Form
10-Q
filed with the Securities and Exchange Commission on May 14, 2004
and
incorporated herein by reference)
|
(10.22)
|
Second
Amendment to Loan Agreement dated March 31, 2005 between Registrant
and
Banner Bank (filed as Exhibit 10.22 to the Form 10-Q filed with
the
Securities and Exchange Commission on May 13, 2005 and incorporated
herein
by reference)
|
(10.23)
|
Addendum
No. 2 to Construction and Lease Agreement executed June 8, 2005
between
the Port of Walla Walla and Registrant (filed as Exhibit 10.1 to
the Form
8-K filed with the Securities and Exchange Commission on June 13,
2005 and
incorporated herein by reference)
|
(10.24)
|
Amended
and Restated Loan Agreement dated June 6, 2005 between Registrant
and
Banner Bank (filed as Exhibit 10.1 to the Form 8-K filed with the
Securities and Exchange Commission on June 20, 2005 and incorporated
herein by reference)
|
(10.25)
|
Amended
and Restated Revolving Note dated June 6, 2005 between Registrant
and
Banner Bank (filed as Exhibit 10.2 to the Form 8-K filed with the
Securities and Exchange Commission on June 20, 2005 and incorporated
herein by reference)
|
(10.26)*
|
Form
of Restricted Stock Bonus Agreement (Continued Employment Vesting)
(filed
as Exhibit 10.1 to the Form 8-K filed with the Securities and Exchange
Commission on September 12, 2005 and incorporated herein by
reference)
|
(10.27)*
|
Form
of Restricted Stock Bonus Agreement (Performance Vesting) (filed
as
Exhibit 10.2 to the Form 8-K filed with the Securities and Exchange
Commission on September 12, 2005 and incorporated herein by
reference)
|
(14)
|
Registrant’s
Code of Business Conduct and Ethics, dated August 12, 2004 (filed
as
Exhibit 99.1 to the Form 8-K filed with the Securities and Exchange
Commission on August 18, 2004 and incorporated herein by
reference)
|
(21)
|
List
of Subsidiaries
|
(23.1)
|
Consent
of Independent Registered Public Accounting Firm from Grant Thornton
LLP
|
(23.2)
|
Consent
of Independent Registered Public Accounting Firm from Deloitte
&
Touche LLP
|
(31.1)
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
(31.2)
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
(32.1)
|
Certification
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
(32.2)
|
Certification
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
*
|
Management
contract or compensatory plan or
arrangement.
|
KEY TECHNOLOGY, INC. | ||
By:
|
/s/
Kirk W. Morton
|
|
Kirk
W. Morton
|
||
President
and Chief Executive Officer
|
By:
|
/s/
Ronald W. Burgess
|
|
Ronald
W. Burgess
|
||
Senior
Vice President and Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
/s/
Thomas C. Madsen
|
December
22, 2005
|
|
Thomas
C. Madsen, Chairman
|
||
/s/
John E. Pelo
|
December
22, 2005
|
|
John
E. Pelo, Director
|
||
/s/
Michael L. Shannon
|
December
22, 2005
|
|
Michael
L. Shannon, Director
|
||
/s/
Charles H. Stonecipher
|
December
22, 2005
|
|
Charles
H. Stonecipher, Director
|
||
/s/
Donald A. Washburn
|
December
22, 2005
|
|
Donald
A. Washburn, Director
|
||
/s/
Kirk W. Morton
|
December
22, 2005
|
|
Kirk
W. Morton, Director, President and Chief Executive Officer
|
||
/s/
Ronald W. Burgess
|
December
22, 2005
|
|
Ronald
W. Burgess, Senior Vice President and Chief Financial
Officer
|
||
(Principal
Financial and Accounting Officer)
|
EXHIBIT
NUMBER
|
||
List
of Subsidiaries
|
||
|
Consent
of Independent Registered Public Accounting Firms from Grant Thornton
LLP
|
|
Consent
of Independent Registered Public Accounting Firms from Deloitte
&
Touche LLP
|
||
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
||
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
||
Certification
pursuant to 18 U.S. C. Section 1350 as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
||
Certification
pursuant to 18 U.S. C. Section 1350 as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of
2002
|