Financial: Key Tronic Corporation Reports Stronger First Quarter Results and Growing ODM Sales - Company Financial Information

Edge: Work-Group Computing Report, Oct 26, 1998

Key Tronic Corporation (Nasdaq:KTCC) Tuesday announced its results for the quarter ended September 26, 1998.

For its first quarter of fiscal 1999, Key Tronic reported sales of $42.3 million, up from $40.3 million for the first quarter of fiscal 1998. Operating income for the first quarter was $1.2 million, an increase of 66% from the same period of the previous year. Net income for the first quarter was $493,000 or $0.05 per share, up from $143,000 or $0.01 per share for the first quarter of fiscal 1998.

ODM products accounted for 16% of total sales in the first quarter, up from 7% in the previous quarter. Keyboard shipments increased 39% from the first quarter of fiscal 1998, with increased demand from the Company's major OEM customers. Increasing keyboard shipments, however, were offset by a 21% reduction in the average selling price of keyboards.

Key Tronic's ODM sales included a variety of engineered devices, such as printer components and the ClienTerm device which integrates thin-client technology into a computer-in-a-keyboard. Many of these ODM products had been in the engineering stage during the past year and have recently moved into the manufacturing stage. Moreover, Key Tronic has built larger sales and engineering teams focused on expanding the ODM product pipeline. Driven by its growing ODM marketing and development activity, the Company expects its ODM revenue to continue to grow in coming periods.

Key Tronic also increased its gross margin to nearly 17%, up from 14% for the same period of fiscal 1998. The significant improvement in operating efficiency was a result of sustained efforts to reduce material costs and shift the Company's production to more efficient, high-quality manufacturing facilities in Mexico and China.

"We are very pleased with our improving performance and progress," said Jack Oehlke, President and Chief Executive Officer. "We continue to strengthen our operating efficiencies, remain competitive in keyboards and expand our base of ODM products and customers. Our ODM strategy, which represents a larger market opportunity and better return-on-investment than keyboards alone, is beginning to pay off. We are well-positioned to make Key Tronic a global player in the $100 billion contract manufacturing market and excited about our prospects for continued growth in coming periods."

Key Tronic is a global leader in the design and manufacture of computer keyboards, advanced input products and engineered devices. Its customers include Hewlett-Packard, Microsoft, IBM, Compaq, Nortel, Gateway 2000, Kodak and other leading international companies. The Company has approximately 2,700 employees and operates facilities in the United States, Mexico, Ireland and China. For more information about Key Tronic see: www.keytronic.com.

             KEY TRONIC CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF INCOME
            (In thousands, except per share amounts)
                                          First Quarter Ended
                                      September 27    September28
                                          1998            1997
                                      (Unaudited)     (Unaudited)
 Net sales                             $ 42,304       $ 40,257
 Cost of sales                           35,308         34,554
                                       --------       --------
 Gross profit on sales                    6,996          5,703
 Operating Expenses:
 Research, development and engineering    1,494            884
 Selling                                  2,191          1,973
 General and administrative               2,068          2,095
                                       --------       --------
 Operating income                         1,243            751
 Interest expense                           528            531
 Other (income) expense                     (56)           (18)
                                      ---------       --------
 Income before income taxes                 771            238
 Income tax provision                       278             95
                                      ---------       --------
 Net income                                 493            143
                                      =========       ========
 Earnings per share:
 Earnings per share:
 Earnings per common share                $0.05          $0.01
 Earnings per common share - assuming
       dilution                           $0.05          $0.01
 Weighted Average Shares O/S              9,631          9,611
 Diluted Shares Outstanding               9,631          9,611
             KEY TRONIC CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED BALANCE SHEETS
                         (In thousands)
                                         September 26     June 27
                                             1998           1998
                                         (Unaudited)     (Audited)
ASSETS
Current Assets:
   Cash and cash equivalents                  $ 168         $ 288
   Trade receivables                         26,263        23,103
   Inventories                               24,037        24,723
   Real estate held for sale                  2,098         2,134
   Deferred income tax asset - current        1,352         1,681
   Other                                      7,592         7,982
                                             ------        ------
      Total current assets                   61,510        59,911
                                            -------       -------
Property, Plant and Equipment at cost       103,925       103,551
Less accumulated depreciation                75,457        73,621
                                           --------       -------
       Total property, plant and equipment   28,468        29,930
Other Assets:
   Deferred income tax asset - non-current    4,404         4,198
   Other - net                                1,314         1,770
   Goodwill                                   1,244         1,276
                                           --------      --------
       Total other assets                     6,962         7,244
                                           --------      --------
                                           $ 96,940      $ 97,085
                                           ========      ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
   Current portion of long term obligations $ 2,105       $ 2,105
   Accounts payable                          16,148        15,525
   Accrued compensation and vacation          1,911         2,750
   Accrued taxes                              1,612         1,558
   Interest payable                             128           132
   Other                                      4,282         3,257
                                            -------        ------
       Total current liabilities             26,186        25,327
Long term obligations, less current portion  21,401        22,898
Shareholders' Equity:
Common stock, no par value, authorized
   25,000 shares; issued and outstanding
              9,631 and 9,611                38,273        38,273
Retained earnings                            10,835        10,342
Foreign currency translation adjustment         245           245
                                            -------       -------
       Total shareholders' equity            49,353        48,860
                                            -------       -------
Total Liabilities and Shareholders' Equity $ 96,940      $ 97,085
                                           --------       -------