Key Technology Inc. has a market cap of $55 million; its shares were traded at around $9.9568 with a P/E ratio of 102.7 and P/S ratio of 0.5.
Highlight of Business Operations:Sales decreased slightly to $115.2 million for the year ended September 30, 2012 compared with $116.3 million for fiscal 2011, while orders decreased 6.7% in fiscal 2012 from fiscal 2011. We reported net earnings for fiscal 2012 of $449,000, or $.08 per diluted share, compared with net earnings of $1.5 million, or $0.27 per diluted share, for fiscal 2011. Net earnings decreased in fiscal 2012 compared to fiscal 2011 as a result of a $2.0 million decrease in gross profit, offset by slightly lower operating expenses of $34.9 million, or 30.3% of net sales, compared to $35.3 million, or 30.4% of net sales for fiscal 2011. The decline in gross margins to 31.1% in fiscal 2012 from 32.5% in fiscal 2011 was due to a higher mix of lower margin process system sales and the product mix within automated inspection systems, and continued price competition, partially offset by lower warranty and customer support costs and the effect of cost reduction initiatives. The small decrease in operating expenses in fiscal 2012 compared to fiscal 2011 consisted primarily of lower sales expenses due to cost reduction initiatives, decreased trade show costs and lower commissions due to lower net sales, partially offset by increased spending on research and development for new product development and strategic initiatives. Other expenses were $359,000 in fiscal year 2012 compared to $542,000 in fiscal year 2011.
Automated inspection systems sales were down 12%, process systems sales were up 10%, and parts and service sales increased 4% in fiscal 2012 compared to the prior fiscal year. Orders for automated inspection systems decreased 27%, process system orders increased 13%, and parts and service orders increased 4% in fiscal 2012 compared to the prior fiscal year. Automated inspection orders decreased in fiscal 2012 in the processed fruit and vegetable market as fiscal 2011 included the final year of a significant three-year contract with a major North American processor as well as due to the effects of product competition. Export and international sales for the fiscal years ended September 30, 2012, 2011 and 2010 accounted for 45%, 41% and 50% of net sales in each year, respectively.
Valuation of inventories. Inventories are stated at the lower of cost or market. Our inventory includes purchased raw materials, manufactured components, purchased components, service and repair parts, work in process, finished goods and demonstration equipment. Write downs for excess and obsolete inventories are made after periodic evaluation of historical sales, current economic trends, forecasted sales, estimated product lifecycles and estimated inventory levels. The factors that contribute to inventory valuation risks are our purchasing practices, electronic component obsolescence, accuracy of sales and production forecasts, introduction of new products, product lifecycles and the associated product support. We actively manage our exposure to inventory valuation risks by maintaining low safety stocks and minimum purchase lots, utilizing just in time purchasing practices, managing product end-of-life issues brought on by aging components or new product introductions, and by utilizing inventory minimization strategies such as vendor-managed inventories. We believe that the accounting estimate related to valuation of inventories is a “critical accounting estimate” because it is susceptible to changes from period-to-period due to the requirement for management to make estimates relative to each of the underlying factors ranging from purchasing to sales to production to after-sale support. At September 30, 2012, cumulative inventory adjustments to lower of cost or market totaled $2.6 million compared to $1.9 million as of September 30, 2011. Amounts charged to expense to record inventory at lower of cost or market for fiscal 2012 and 2011 were $1.6 million and $1.3 million, respectively. Actual charges to the cumulative inventory adjustments upon disposition or sale of inventory were $826,000 and $1.1 million for fiscal 2012 and 2011, respectively. If actual demand, market conditions or product lifecycles are adversely different from those estimated by management, inventory adjustments to lower market values would result in a reduction to the carrying value of inventory, an increase in inventory write-offs, and a decrease to gross margins.
Net sales for the year ended September 30, 2012 were $115.2 million, a 1.0% decrease from the $116.3 million reported for fiscal 2011. International sales for fiscal 2012 were 45% of net sales compared to 43% in the corresponding prior year period. The decrease in net sales in North America and Europe was partially offset by increases in net sales in Latin America and the Asia Pacific regions. Sales in our automated inspection systems product line decreased by 12% to $46.6 million in fiscal 2012, accounting for 40% of total revenues, compared to $53.0 million in fiscal 2011, or 46% of total revenues. The decrease in automated inspection system sales was due to a slow period for new capital investments, particularly in the potato market, as well as the effects of product competition. The decrease in automated inspection system sales was across most major product lines with the exception of the recently released VEO system and Manta product lines. Process systems sales in fiscal 2012 were $44.9 million, a 10% increase from the $40.7 million reported for fiscal 2011. Sales of process systems accounted for 39% of total revenues in fiscal 2012 compared to 35% in fiscal 2011. The increase in process systems sales related primarily to vibratory products, rotary sizing and grading systems and third-party equipment, partially offset by a decrease in vibratory product sales in Europe. Parts and service sales increased from the prior year by $1 million or 4% to $23.6 million, compared to $22.7 million in fiscal 2011. Parts and service sales represented 21% of sales in fiscal 2012 and 19% in fiscal 2011.
Net sales for the year ended September 30, 2011 were $116.3 million, a 0.5% increase from the $115.8 million reported for fiscal 2010. Sales in our automated inspection systems product line increased by 2% to $53.0 million in fiscal 2011, accounting for 46% of total revenues, compared to $52.0 million in fiscal 2010, or 45% of total revenues. Sales increased from the prior year in ADR, Tegra and Upgrade systems sales partially offset by a reduction in sales in the other automated inspection product lines. Process systems sales in fiscal 2011 were $40.7 million, a 2% decrease from the $41.3 million reported for fiscal 2010. A decrease in process system sales in Europe was partially offset by an increase in process equipment sales in other geographic regions. Sales of process systems accounted for 35% of total revenues in fiscal 2011 compared to 36% in fiscal 2010. Parts and service sales increased from the prior year by $140,000 or 1% to $22.7 million, compared to $22.5 million in fiscal 2010. Parts and service sales represented 19% of sales in both fiscal 2011 and fiscal 2010.
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