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raw/filings/0000719733/2001/0001021408-01-506598/filing_metadata.csv

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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000719733,KTCC,KEY TRONIC CORP,10-K,2001-09-12,2001-06-30,2001-09-12T04:00:00.000Z,0001021408-01-506598,d10k.htm,"FORM 10-K FOR THE PERIOD ENDED JUNE 30, 2001",586433,0,0,https://www.sec.gov/Archives/edgar/data/719733/000102140801506598/d10k.htm,https://www.sec.gov/Archives/edgar/data/719733/000102140801506598/,2001,2001,1

raw/filings/0000719733/2001/0001021408-01-506598/item1.txt

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+Item 1. BUSINESS 
+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 engaged in electronic manufacturing services (EMS) for original equipment manufacturers (OEMs) and manufacturing of keyboards for personal computers, terminals, and workstations. The Company operates on a fiscal year that
+ends on the Saturday closest to June 30. The following discussion relates to three fiscal years of the Company. In previous filings EMS was referred to as contract design and manufacturing (CDM). 
+BACKGROUND 
+Historically Key Tronic was a manufacturer of electronic keyboards, but during the course of the past two fiscal years, its focus has changed to electronic manufacturing services (EMS).
+Presently Key Tronic is known as an independent provider of a mix of EMS services for OEMs. The Company's manufacturing capabilities include circuit board assemblies, tool making, precision molding, proto building, liquid plastic injection molding
+and printed circuit board assembly (both through-hole and surface mounting). 
+Operations are currently conducted in facilities in the United States, China, Ireland and Mexico. This global production capability provides customers with benefits of improved supply chain
+management, reduced inventory, lower transportation costs and reduced product fulfillment time. 
+The EMS industry is comprised of companies that provide a range of manufacturing services for OEMs. The EMS industry has experienced rapid growth over the past several years as more and more
+OEMs shift to external manufacturing. Equity Research reports have stated that the EMS market is expected to grow at a rate of 25% over the next three to five years. 
+KEYBOARD PRODUCTS 
+During fiscal years 2001, 2000, and 1999, the Company realized revenues of approximately $39.2 million, $70.5 million, and $134.7 million, respectively, from the sale of keyboards representing
+approximately 24%, 43%, and 76% of total sales. The keyboard market has continued to trend toward standard keyboard layouts. In order to accommodate the demand for standard products, the Company maintains a purchase-from-stock program. The most
+popular standard layouts are built and stocked for immediate availability. These products serve as enhancements to or replacements for the original system-supplied keyboard. 
+MANUFACTURING 
+Since inception, the Company has made substantial investments in developing and expanding its now extensive capital equipment base to achieve selective vertical integration in its manufacturing
+processes. The Company designs and develops tooling for injection molding machines and manufactures the majority of plastic parts used in the products it manufactures. Additionally, the Company has invested in equipment to produce switch membranes
+as a means to reduce cost and improve quality. 
+The OEM keyboard 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
+¯ 
+3 
+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
+that meet their technical specifications and aesthetic considerations and to deliver in accordance with production schedules. The processes and skills the Company developed and uses in the keyboard market are transferable to and valued in the EMS
+market. This has resulted in the Company gaining new customers and EMS programs. 
+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 jointly increase
+productivity and reduce response time to the market place. Key Tronic uses computer-aided design techniques and unique software to assist in preparation of the tool design layout and tool fabrication, to reduce tooling costs, improve component and
+product quality and 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 the products it manufactures. Designs by Key Tronic
+engineers in both tooling and molding have improved standard processing time and thereby increased productivity. During fiscal 1998, Key Tronic introduced stack molding technology to the manufacturing process. Stacked molds allow the Company to
+utilize two molds simultaneously thereby producing twice as many parts in nearly the same cycle time used for one part. 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 and improved component quality. The Company also
+produces blank keytops for certain models. The print legends are later added using a laser technology to produce entire key configuration layouts in local languages for the European market. 
+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, surface mount technology, flexible robotic assembly, computerized vision system quality inspection, automated switch and keytop installation, and automated functional testing. 
+The Company purchases materials for its products 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 provides manufacturing services for outsourced OEM products. The Company also manufactures and supplies custom keyboards to leading OEMs in the keyboard market. 
+Hewlett Packard accounted for approximately 39 percent, 38 percent, and 24 percent of net sales in 2001, 2000, and 1999, respectively. Lexmark accounted for 27 percent of net sales in 2001 and
+13 percent in 2000. Microsoft accounted for approximately 5 percent, 9 percent, and 11 percent of net sales in 2001, 2000, and 1999, respectively. Gateway accounted for approximately 1 percent, 8 percent, and 13 percent of net sales in fiscal years
+2001, 2000, and 1999, respectively. No other customer accounted for more than 10 percent of net sales during any of the last three years. In 2001, 2000, and 1999, the five largest customers accounted for 81 percent, 72 percent, and 60 percent of
+total sales, respectively. 
+The Company markets its products and services primarily through its direct sales organization aided by distribution sales in the U.S., Canada and Europe. In fiscal 2001, the Company hired a
+number of outside sales organizations to help promote its electronic manufacturing services. 
+All OEM keyboards are accompanied by a manufacturer's three-year warranty that provides for repair or replacement of defective products. Retail products carry a one-year to a limited lifetime
+warranty. The limited lifetime warranty is product specific. 
+¯ 
+4 
+FOREIGN MARKETS 
+Information concerning geographic areas for the years ended June 30, 2001, July 1, 2000, and July 3, 1999 is summarized in the following table. 
+(in thousands) 
+Domestic Exports 
+U.S. Operations 
+Mexico Operations 
+Ireland Operations 
+Far East Operations 
+Eliminations 
+Consolidated 
+2001
+Net sales:
+Unaffiliated
+customers 
+$ 
+77,842 
+$ 
+76,950 
+$ 
+– 
+$ 
+9,617 
+$ 
+1,456 
+$ 
+– 
+$ 
+165,865 
+Affiliates 
+– 
+6,355 
+41,829 
+12 
+22,312 
+(70,508 
+) 
+– 
+Total 
+$ 
+77,842 
+$ 
+83,305 
+$ 
+41,829 
+$ 
+9,629 
+$ 
+23,768 
+$ 
+(70,508 
+) 
+$ 
+165,865 
+Income (loss) 
+before income 
+taxes 
+$ 
+– 
+$ 
+(14,714 
+) 
+$ 
+2,955 
+$ 
+(978 
+) 
+$ 
+1,865 
+$ 
+142 
+$ 
+(10,730 
+) 
+Total assets 
+$ 
+– 
+$ 
+68,394 
+$ 
+20,703 
+$ 
+5,879 
+$ 
+8,056 
+$ 
+(28,661 
+) 
+$ 
+74,371 
+2000
+Net sales:
+Unaffiliated
+customers 
+$ 
+53,657 
+$ 
+97,956 
+$ 
+– 
+$ 
+11,616 
+$ 
+1,124 
+$ 
+– 
+$ 
+164,353 
+Affiliates 
+– 
+10,571 
+22,311 
+142 
+20,987 
+(54,011 
+) 
+– 
+Total 
+$ 
+53,657 
+$ 
+108,527 
+$ 
+22,311 
+$ 
+11,758 
+$ 
+22,111 
+$ 
+(54,011 
+) 
+$ 
+164,353 
+Income (loss)
+before income
+taxes 
+$ 
+– 
+$ 
+(6,016 
+) 
+$ 
+1,318 
+$ 
+(1,786) 
+) 
+$ 
+1,418 
+$ 
+(103 
+) 
+$ 
+(5,169 
+) 
+Total assets 
+$ 
+– 
+$ 
+103,271 
+$ 
+7,714 
+$ 
+11,401 
+$ 
+18,854 
+$ 
+(45,425 
+) 
+$ 
+95,815 
+1999
+Net sales:
+Unaffiliated
+customers 
+$ 
+57,192 
+$ 
+102,872 
+$ 
+– 
+$ 
+17,650 
+$ 
+590 
+$ 
+– 
+$ 
+178,304 
+Affiliates 
+– 
+9,581 
+20,297 
+190 
+3,493 
+(33,561 
+) 
+– 
+Total 
+$ 
+57,192 
+$ 
+112,453 
+$ 
+20,297 
+$ 
+17,840 
+$ 
+4,083 
+$ 
+(33,561 
+) 
+$ 
+178,304 
+Income (loss)
+before income
+taxes 
+$ 
+– 
+$ 
+1,989 
+$ 
+1,631 
+$ 
+499 
+$ 
+26 
+$ 
+600 
+$ 
+4,745 
+Total assets 
+$ 
+– 
+$ 
+91,552 
+$ 
+13,585 
+$ 
+15,655 
+$ 
+7,022 
+$ 
+(26,867 
+) 
+$ 
+100,947 
+Transfers to affiliates are made at prices which approximate market. Intercompany margins are eliminated upon consolidation. 
+In 2001, $88.9 million, or 53.6% percent of the Company's revenues were from foreign sales, primarily sales in Europe, the Far East, Canada, Mexico and South America. Foreign sales in 2000 and
+1999 were $65.3 million and $75.4 million, respectively. Foreign sales are made primarily through the Company's direct sales force in the U.S. and Ireland. Key Tronic Shanghai (KTS), the Company's facility in Shanghai, China, began operations in the
+third quarter of 1999 and is used to support customers in that area as well as for export. 
+For additional financial information about foreign operations, see Note 12 to the Consolidated Financial Statements. 
+BACKLOG 
+At August 11, 2001, the Company had an order backlog of approximately $81.5 million. This compares with a backlog of approximately $35 million at August 5, 2000. The increase in backlog is
+attributable in part to increased customer orders from a new EMS customer for fiscal year 2002. The Company also supports two major OEM customers that have expanded their Just-In-Time (JIT) inventory systems, so that orders are not placed in advance
+but are pulled from a stock location maintained by Key Tronic. Order backlog is not necessarily indicative of future sales. Order backlog consists of purchase orders received for products expected to be shipped approximately within the next fiscal
+year, 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 $2.7 million, $2.8 million, and $4.9 million in 2001, 2000, and 1999, respectively. Research, development and engineering
+expenses as a percentage of sales were 1.6 percent, 1.7 percent, and 2.7 percent in 2001, 2000, and 1999, respectively. The slight decrease in fiscal year 2001 is a result of greater recovery of engineering design costs. 
+¯ 
+5 
+COMPETITION 
+The Company believes that its principal competitors in the EMS market are: Plexus Corp, SCI Systems, ACT Manufacturing, Celestica, Flextronics International, Jabil Circuits, and Solectron. The
+principal methods of competition are price, quality and capability. 
+The Company believes that its principal competitors in the keyboard market are: Chicony, NMB and Siletek. 
+TRADEMARKS AND PATENTS 
+The Company owns several keyboard patents. However, since the Company's focus is now electronic manufacturing services, management believes that these patents will not have a significant impact
+on future revenues. The Key Tronic name and logo are federally registered trademarks, and the Company believes they are valuable assets in its business. In fiscal 2001, Key Tronic began operating under the trade name "KeyTronicEMS" to
+better represent its primary business concentration. 
+EMPLOYEES 
+As of July 28, 2001, the Company had approximately 2,151 employees compared to 2,007 on August 5, 2000. Management considers its employee relations to be excellent. The Company's employees in
+Ireland and Reynosa are represented by local unions. 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 before-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 employee's contribution, and also provides group health, life, and disability insurance plans. The Company also offers an Executive Stock Option Plan and
+an Employee Stock Ownership Plan to certain individuals.

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+Item 13. 
+Certain Relationships and Related Transactions 
+27

raw/filings/0000719733/2001/0001021408-01-506598/rp_note.txt

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+4. RELATED PARTY TRANSACTIONS 
+The Company has life insurance policies on the life of its founder with net death benefits totaling approximately $3,000,000. Of these, policies with death benefits totaling $750,000 have been
+designated to fund obligations of the Company to the founder's spouse in the event of his death and, accordingly, such obligations are not recorded in the financial statements. Net cash values of such policies are recorded in the amount of $40,000
+and $339,000 in 2001 and 2000, respectively, and are included in other noncurrent assets.

raw/filings/0000719733/2002/0001032210-02-001358/filing_metadata.csv

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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000719733,KTCC,KEY TRONIC CORP,10-K,2002-09-11,2002-06-29,2002-09-11T19:59:02.000Z,0001032210-02-001358,d10k.htm,"FORM 10-K FOR FISCAL YEAR ENDED JUNE 29, 2002",808215,0,0,https://www.sec.gov/Archives/edgar/data/719733/000103221002001358/d10k.htm,https://www.sec.gov/Archives/edgar/data/719733/000103221002001358/,2002,2002,1

raw/filings/0000719733/2002/0001032210-02-001358/item1.txt

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+Item 1. 
+Business 
+Key Tronic Corporation (dba KeyTronicEMS), 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 electronic manufacturing services (EMS) for original
+equipment manufacturers (OEMs). The Company also manufactures keyboards for personal computers, terminals, and workstations primarily in standard layouts that can be sold directly from stock. 
+BACKGROUND 
+Historically, Key Tronic was a
+manufacturer of only electronic keyboards, but about four years ago, after assessing its strengths and capabilities, the Company’s focus was shifted to electronic manufacturing services (EMS). Presently, Key Tronic is known as an independent
+provider of a mix of EMS services for OEMs. The Company’s manufacturing capabilities include tool making, precision molding, prototype design, liquid plastic injection molding, printed circuit board assembly (both through-hole and surface-
+mount), and full box build. 
+Operations are currently conducted in facilities in the United States, China, Ireland
+and Mexico. This global production capability provides customers with benefits of improved supply-chain management, reduced inventory, lower transportation costs and reduced product fulfillment time. 
+The EMS industry is comprised of companies that provide a range of manufacturing services for OEMs. The EMS industry has experienced rapid
+growth over the past several years as more and more OEMs shift to external manufacturing, and it is expected to continue in this growth pattern for several years. 
+CUSTOMERS AND MARKETING 
+OEM MARKETS 
+The Company provides manufacturing services for outsourced OEM products. Key Tronic is capable of providing a mix of EMS services
+including product design, tool making, precision molding, prototype design, liquid plastic injection molding, printed circuit board assembly, full box build, and screened silver flexible circuit membranes. The percentage of revenues from EMS
+services for the fiscal years ended June 29, 2002, June 30, 2001, and July 1, 2000 were 89.4%, 76.2%, and 55.5%, respectively. Sales of such products are generally not seasonal in nature. 
+Hewlett Packard accounted for approximately 10%, 39%, and 38% of the Company’s consolidated revenues in fiscal years 2002, 2001, and 2000, respectively. Lexmark
+accounted for 13%, 27%, and 13% of consolidated revenues in fiscal years 2002, 2001, and 2000, respectively. During fiscal year 2002, the Company performed product design, plastic injection molding, and manufacturing for Clorox Products
+Manufacturing Company, a new customer who accounted for 39% of consolidated revenue. No other customers accounted for 10% or more of consolidated revenues in the three fiscal years presented. In the fiscal years ended June 29, 2002, June 30, 2001,
+and July 1, 2000, the five largest customers accounted for 76%, 81%, and 72% of total sales, respectively. 
+Although keyboard manufacturing is still included in the Company’s product offerings, annual sales continue to decline. During the fiscal years ended June 29, 2002, June 30, 2001, and July 1, 2000, the Company realized revenues
+of approximately $18.3 million, $38.6 million, and $70.5 million, respectively, from the sale of keyboards representing approximately 10.4%, 23.3%, and 42.9% of consolidated revenues. The keyboard market has continued to trend toward standard
+keyboard layouts. In order to accommodate the demand for standard products, the Company maintains a purchase-from-stock program. The most popular standard layouts are built and stocked for immediate availability. These products serve as enhancements
+to or replacements for the original system-supplied 
+3 
+Table of Contents 
+keyboards. Keyboard sales can increase somewhat during the last half of each calendar year in conjunction with the holiday season, but generally
+sales of these products are not seasonal in nature. 
+The Company markets its products and services primarily
+through its direct sales organization aided by strategically located field sales people and distributors. Although the Company established relationships with several independent sales organizations to assist in marketing the Company’s EMS
+product lines in the U.S., commissions earned and paid during fiscal year 2002 were insignificant. 
+MANUFACTURING 
+Since inception, the Company has made substantial investments in developing and expanding its now extensive capital equipment
+base to achieve selective vertical integration in its manufacturing processes. The Company designs and develops tooling for injection molding machines and manufactures the majority of plastic parts used in the products it manufactures. Additionally,
+the Company has invested in equipment to produce screened silver flexible circuit membranes. 
+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 jointly increase productivity and reduce response time to the marketplace. Key Tronic uses
+computer-aided design techniques and unique software to assist in preparation of the tool design layout and tool fabrications, to reduce tooling costs, improve component and product quality and enhance turnaround time during product development.
+Key Tronic uses a variety of manual and highly automated assembly processes in its facilities, depending upon
+product complexity and degree of customization. Automated processes include component insertion, surface-mount technology, flexible robotic assembly, computerized vision system quality inspection, automated switch and keytop installation, and
+automated functional testing. 
+The Company purchases materials and components for its products from a number of
+different suppliers both domestic and international. Key Tronic develops close working relationships with its suppliers, many of whom have been supplying products to the Company for several years. 
+FOREIGN MARKETS 
+Information concerning geographic areas for the years ended June 29, 2002, June 30, 2001, and July 1, 2000 is summarized in the following table. 
+Domestic Exports 
+U.S. Operations 
+Mexico Operations 
+Ireland Operations 
+Far East Operations 
+Eliminations 
+Consolidated 
+(in thousands) 
+2002 
+Net sales: 
+Unaffiliated Customers 
+$ 
+26,888 
+$ 
+143,324 
+$ 
+— 
+$ 
+5,291 
+$ 
+88 
+$ 
+— 
+$ 
+175,591 
+Affiliates 
+3,187 
+40,438 
+(60 
+) 
+19,037 
+62,602 
+— 
+Total 
+$ 
+26,888 
+$ 
+146,511 
+$ 
+40,438 
+$ 
+5,231 
+$ 
+19,125 
+$ 
+(62,602 
+) 
+$ 
+175,591 
+Income (loss) before income Taxes 
+$ 
+— 
+$ 
+(22,242 
+) 
+$ 
+2,023 
+$ 
+(885 
+) 
+$ 
+948 
+$ 
+210 
+$ 
+(19,946 
+) 
+Total assets 
+$ 
+— 
+$ 
+38,940 
+$ 
+14,658 
+$ 
+3,161 
+$ 
+9,511 
+$ 
+(8,831 
+) 
+$ 
+57,439 
+2001 
+Net sales: 
+Unaffiliated customers 
+$ 
+77,842 
+$ 
+76,950 
+$ 
+— 
+$ 
+9,617 
+$ 
+1,456 
+$ 
+— 
+$ 
+165,865 
+Affiliates 
+— 
+6,355 
+41,829 
+12 
+22,312 
+(70,508 
+) 
+— 
+Total 
+$ 
+77,842 
+$ 
+83,305 
+$ 
+41,829 
+$ 
+9,629 
+$ 
+23,768 
+$ 
+(70,508 
+) 
+$ 
+165,865 
+Income (loss) before income Taxes 
+$ 
+— 
+$ 
+(14,714 
+) 
+$ 
+2,955 
+$ 
+(978 
+) 
+$ 
+1,865 
+$ 
+142 
+$ 
+(10,730 
+) 
+Total assets 
+$ 
+— 
+$ 
+68,394 
+$ 
+20,703 
+$ 
+5,879 
+$ 
+8,056 
+$ 
+(28,661 
+) 
+$ 
+74,371 
+4 
+Table of Contents 
+2000 
+Net sales: 
+Unaffiliated customers 
+$ 
+53,657 
+$ 
+97,956 
+$ 
+— 
+$ 
+11,616 
+$ 
+1,124 
+$ 
+— 
+$ 
+164,353 
+Affiliates 
+— 
+10,571 
+22,311 
+142 
+20,987 
+(54,011 
+) 
+— 
+Total 
+$ 
+53,657 
+$ 
+108,527 
+$ 
+22,311 
+$ 
+11,758 
+$ 
+22,111 
+$ 
+(54,011 
+) 
+$ 
+164,353 
+Income (loss) before income taxes 
+$ 
+— 
+$ 
+(6,016 
+) 
+$ 
+1,318 
+$ 
+(1,786 
+) 
+$ 
+1,418 
+$ 
+(103 
+) 
+$ 
+(5,169 
+) 
+Total assets 
+$ 
+— 
+$ 
+103,271 
+$ 
+7,714 
+$ 
+11,401 
+$ 
+18,854 
+$ 
+(45,425 
+) 
+$ 
+95,815 
+In fiscal year 2002, $32.3 million, or 18.4% of the Company’s
+revenues were from foreign sales, primarily sales in Europe, the Far East, and Mexico. Foreign sales in fiscal years 2001 and 2000 were $88.9 million and $65.3 million, respectively. Foreign sales are made primarily through the Company’s direct
+sales force in the U.S. and Ireland. Key Tronic Shanghai (KTS), the Company’s facility in Shanghai, China, is used to support customer requirements within the local area as well as for export. 
+For additional financial information about foreign operations, see Note 12 to the Consolidated Financial Statements. 
+BACKLOG 
+At August 3, 2002, the Company had an order backlog of approximately $24.6 million. This compares with a backlog of approximately $81.5 million at August 11, 2001. The decrease in backlog is primarily attributable to a different
+order placement process by a major EMS customer in the current fiscal year. As of August 11, 2001, this customer had placed a blanket purchase order with the Company that covered its forecasted annual requirement of product. A few months after this
+date, the customer chose instead to cancel the blanket purchase order and replace it with more accurate purchase orders on a monthly basis. Order backlog is not necessarily indicative of future sales. Order backlog consists of purchase orders
+received for products expected to be shipped approximately within the next fiscal year, although shipment dates are subject to change due to design modifications or other customer requirements. 
+RESEARCH, DEVELOPMENT, AND ENGINEERING 
+The
+Company’s research, development, and engineering expenses (RD&E) were $2.6 million, $2.7 million, and $2.8 million in fiscal years 2002, 2001, and 2000, respectively. Research, development and engineering expenses as a percentage of sales
+were 1.5%, 1.6%, and 1.7% in fiscal years 2002, 2001, and 2000, respectively. RD&E expenses have remained relatively consistent. 
+COMPETITION 
+The Company believes that its principal competitors in the EMS market are:
+Plexus Corp, SCI Systems, ACT Manufacturing, Celestica, Flextronics International, Jabil Circuits, and Solectron. The principal methods of competition are price, quality, and the range of services offered. 
+TRADEMARKS AND PATENTS 
+The Company owns several keyboard patents; however, since the Company’s focus is now electronic manufacturing services, management believes that these patents will not have a significant impact on future revenues. The Key Tronic
+name and logo are federally registered trademarks, and the Company believes they are valuable assets in its business. In fiscal year 2001, Key Tronic began operating under the trade name “KeyTronicEMS” to better represent its primary
+business concentration. 
+EMPLOYEES 
+As of July 25, 2002, the Company had approximately 1,953 employees compared to 2,151 on July 28, 2001. The Company’s employees in Ireland and Reynosa are represented by local unions. 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 before-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 employee’s contribution, and also provides group health, life, and disability insurance plans. The Company also offers an Executive Stock Option Plan and an Employee Stock Ownership Plan to certain individuals. 
+5 
+Table of Contents

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+Item 13: Certain Relationships and Related Transactions 
+Information appearing under the caption “Certain Relationships and Transaction” and “Compensation Committee Interlocks and Insider Participation” in the Company’s 2002 Proxy Statement is incorporated herein
+by this reference.

raw/filings/0000719733/2002/0001032210-02-001358/rp_note.txt

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+4. RELATED PARTY
+TRANSACTIONS 
+The Company has life insurance policies on the life of its founder with net death benefits
+totaling approximately $3,000,000. Of these, policies with death benefits totaling $750,000 have been designated to fund obligations of the Company to the founder’s spouse in the event of his death and, accordingly, such obligations are not
+recorded in the financial statements. Net cash values of such policies are recorded in the amount of $91,000 and $40,000 in fiscal 2002 and fiscal 2001, respectively, and are included in other noncurrent assets.

raw/filings/0000719733/2002/0001032210-02-001358/rpt_disclosure.txt

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+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+See Compensation Committee Interlocks and Insider Participation in Compensation Decisions, page 9. 
+In October 2002, the Board of Directors approved retention bonus plans for Messrs. Oehlke, Gates and Klawitter. Under the retention bonus plan, Mr. Oehlke is eligible to
+receive retention bonus payments in August of 2003, 2004 and 2005, if he is then employed by the Company or has been terminated by the Company without cause. Maximum payment amounts under Mr. Oehlke’s retention bonus plan are $211,250 for 2003,
+$243,750 for 2004 and $276,250 for 2005. The maximum retention bonus payment in each year is reduced by the amount of any payments earned by Mr. Oehlke pursuant to any Company incentive plans during the fiscal year immediately preceding the
+retention bonus payment date. 
+Under the retention bonus plan, Mr. Gates is
+eligible to receive retention bonus payments in August of 2003, 2004 and 2005 if he is then employed by the Company or has been terminated by the Company without cause. Maximum payment amounts under Mr. Gates retention bonus plan are $119,000 for
+2003, $142,800 for 2004 and $166,600 for 2005. The maximum retention bonus payment in each year is reduced by the amount of any payments earned by Mr. Gates pursuant to any Company incentive plans during the fiscal year immediately preceding the
+retention bonus payment date. 
+Under the retention bonus plan, Mr. Klawitter is
+eligible to receive retention bonus payments in August of 2003, 2004 and 2005 if he is then employed by the Company or has been terminated by the Company without cause. Maximum payment amounts under Mr. Klawitter’s retention bonus plan are
+$119,000 for 2003, $142,800 for 2004 and $166,600 for 2005. The maximum retention bonus payment in each year is reduced by the amount of any payments earned by Mr. Klawitter pursuant to any Company incentive plans during the fiscal year immediately
+preceding the retention bonus payment date.

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+Item 1. BUSINESS 
+Overview 
+Key Tronic Corporation (dba KeyTronicEMS Co.), a Washington corporation organized in 1969, and its subsidiaries (hereinafter collectively called the “Company”, “Key Tronic”, or “we” unless the context otherwise
+requires) are principally engaged in electronic manufacturing services (EMS) and consumer related products manufacturing for original equipment manufacturers (OEMs). The Company also manufactures keyboards and other input devices for personal
+computers, terminals, and workstations primarily in standard layouts that can be sold directly from inventory on hand. 
+Key Tronic is now known as an
+independent provider of product realization services for OEMs in a variety of industries. Historically, Key Tronic was principally a manufacturer of electronic keyboards, but after assessing market conditions and the Company’s strengths and
+capabilities, approximately seven years ago the Company shifted its focus to EMS. The EMS industry is comprised of companies that provide a range of manufacturing services for OEMs. The EMS industry has experienced rapid growth over the past several
+years as more OEMs shift to outsourcing manufacturing, and this trend is expected to continue in the future. 
+Operations are currently conducted in
+facilities in the United States, Mexico and China. The Company’s global production capability provides customers with benefits of improved supply-chain management, reduced inventory, lower labor costs, lower transportation costs and reduced
+product fulfillment time. 
+Marketing 
+The Company
+provides manufacturing services for outsourced OEM products. Key Tronic provides a mix of EMS services including: product design, surface mount technologies (SMT) for printed circuit board assembly, tool making, precision plastic molding, liquid
+injection molding, prototype design, full product builds, and printing screened silver flexible circuit membranes. 
+Revenues from EMS services for the
+fiscal years ended July 1, 2006, July 2, 2005, and July 3, 2004 were 96.4%, 95.0% and 91.0%, respectively. Sales of the majority of the Company’s products have historically not been seasonal in nature, but may be seasonal in
+the future, if there are changes in the types of products manufactured. 
+Although keyboard manufacturing is still included in the Company’s product
+offerings, annual keyboard sales continue to decline. During the fiscal years ended July 1, 2006, July 2, 2005, and July 3, 2004, the Company realized revenues of approximately $7.3 million, $10.1 million and $13.4 million,
+respectively, from the sale of keyboards representing approximately 3.6%, 5.0% and 9.0% of consolidated revenues. The keyboard market has continued to trend toward standard keyboard layouts. In order to accommodate the demand for standard products,
+the Company maintains a purchase-from-stock program. The most popular standard layouts are built and stocked for immediate availability. 
+The Company
+markets its products and services primarily through its direct sales department aided by strategically located field sales people and distributors. Although the Company maintains relationships with several independent sales organizations to assist
+in marketing the Company’s EMS product lines in the U.S., commissions earned and paid are insignificant. 
+3 
+Table of Contents 
+The following customers accounted for 10% or more of consolidated revenues in the three
+fiscal years presented below: 
+Fiscal Year 
+2006 
+2005 
+2004 
+Zebra Technologies Corporation 
+20 
+% 
+19 
+% 
+12 
+% 
+International Game Technology, Inc. 
+18 
+% 
+14 
+% 
+4 
+% 
+Lexmark International, Inc. 
+17 
+% 
+19 
+% 
+14 
+% 
+The Clorox Company 
+8 
+% 
+8 
+% 
+16 
+% 
+Transaction Printer Group, Inc. 
+6 
+% 
+9 
+% 
+10 
+% 
+For the fiscal years ended July 1, 2006, July 2, 2005, and July 3, 2004, the five largest
+customers in each year accounted for 71%, 68% and 58% of total sales, respectively. 
+Manufacturing 
+Since inception, the Company has made substantial investments in developing and expanding a capital equipment base to achieve selective vertical integration and
+efficiencies in its manufacturing processes. The Company has invested significant capital into surface mount technologies (SMT) for high volume manufacturing of complex printed circuit board assemblies. The Company also designs and develops tooling
+for injection molding and manufactures the majority of plastic parts used in the products it manufactures. Additionally, the Company has equipment to produce printed flexible circuit membranes. 
+Key Tronic uses a variety of manual and highly automated assembly processes in its facilities, depending upon product complexity and degree of customization. Automated
+processes include component insertion, SMT, flexible robotic assembly, computerized vision system quality inspection, automated switch and keytop installation, and automated functional testing. 
+The Company’s automated manufacturing processes enable it to work closely with its customers during the design and prototype stages of production and to jointly
+increase productivity and reduce response time to the marketplace. Key Tronic uses computer-aided design techniques and unique software to assist in preparation of the tool design layout and tool fabrications, to reduce tooling costs, improve
+component and product quality, and enhance turnaround time during product development. 
+The Company purchases materials and components for its products
+from many different suppliers both domestic and international. Key Tronic develops close working relationships with its suppliers, many of whom have been supplying products to the Company for several years. 
+Backlog 
+On July 29, 2006, the Company had an order backlog of
+approximately $65.9 million. This compares with a backlog of approximately $63.4 million on July 30, 2005. Order backlog is not necessarily indicative of future sales but can be indicative of trends in expected future sales revenue. Order
+backlog consists of purchase orders received for products expected to be shipped approximately within the next twelve months, although shipment dates are subject to change due to design modifications, customer forecast changes, or other customer
+requirements. 
+Research, Development, and Engineering 
+Research, development, and engineering (RD&E) expenses consist principally of employee related costs, third party development costs, program materials costs, depreciation and allocated information technology and facilities costs. The
+Company’s RD&E expenses were $2.8 million, $2.9 million and $2.6 million in fiscal years 2006, 2005, and 2004, respectively. In each of these years, the Company focused most of its RD&E efforts on current customer EMS programs. The
+lower cost in fiscal year 2004 compared to fiscal years 2006 and 2005 is due primarily to a 10% pay reduction during part of fiscal year 2004. 
+Competition 
+The market for the products and services the Company provides is highly competitive. There are numerous competitors in the EMS
+industry, many of which have substantially more resources and are more geographically diverse. Key Tronic competes primarily on the basis of responsiveness, creativity, vertical production capability, quality, and price. 
+Trademarks and Patents 
+The Key Tronic name and logo are federally
+registered trademarks, and the Company believes they are valuable assets of its business. During 2001, Key Tronic began operating under the trade name “KeyTronicEMS Co.” to better identify its primary business concentration. The Company
+also owns several keyboard patents; however, since the Company’s focus is EMS, management believes that these patents will not have a significant impact on future revenues. 
+4 
+Table of Contents 
+Employees 
+As of
+July 1, 2006, the Company had 2,840 employees compared to 2,849 on July 2, 2005 and 2,847 on July 3, 2004. Since the Company can have significant fluctuations in product demand, it seeks to maintain flexibility in its workforce by
+utilizing skilled temporary and short-term contract labor in its manufacturing facilities in addition to full-time employees. The Company’s employees in Reynosa, Mexico, which represent approximately 6% of the Company’s employees, are
+represented by a local union. The Company has no history of any material interruption of production due to labor disputes. 
+The Company considers its
+employees its primary strength and makes considerable efforts to maintain a well-qualified staff. The Company’s employee benefits include bonus programs involving periodic payments to all employees based on meeting quarterly or fiscal year
+performance targets. The Company maintains a 401(k) plan for U.S. employees, which provides a matching company contribution of up to 4% of an employee’s salary, and also provides group health, life, and disability insurance plans. The Company
+also maintains stock option plans and other long term incentive plans for certain employees and outside directors. 
+Foreign Markets 
+Information concerning net sales and long-lived assets (property, plant, and equipment) by geographic areas is set forth in footnote 9 of the consolidated financial
+statements of this Annual Report on Form 10-K, under the caption “Enterprise-Wide Disclosures”, and that information is incorporated herein by reference.

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+Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+Information appearing under the caption “Certain
+Relationships and Transactions” and “Compensation Committee Interlocks and Insider Participation” in the Company’s 2006 Proxy Statement is incorporated herein by this reference.

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+Item 9A: CONTROLS AND PROCEDURES 
+a) 
+As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s chief executive
+officer and chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the chief executive officer and chief
+financial officer concluded that the Company’s disclosure controls and procedures are effective. 
+b) 
+There have been no changes in the Company’s internal controls over financial reporting during the quarter ended July 1, 2006 that have materially affected, or are
+reasonable likely to materially affect, the Company’s internal control over financial reporting.

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+Related Person Transactions 
+In April 2007, the Board of Directors
+adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested
+Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may
+be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent
+beneficial owner of another entity). 
+The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last
+fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent 
+4 
+beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing.
+Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home
+(other than a tenant or employee). 
+The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In
+determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an
+unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. The Company had no related Party Transactions during fiscal year 2007. 
+Compensation Committee Interlocks and Insider Participation in Compensation Decisions 
+The Board of Directors has a Compensation Committee presently consisting of Messrs. Shamash and Pilz. No member of the Compensation Committee was an officer or employee of the Company or any of its subsidiaries during
+fiscal year 2007. None of the executive officers of the Company has served on the Board of Directors or on the Compensation Committee of any other entity, any of whose officers served either on the Board of Directors or on the Compensation Committee
+of the Company.

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raw/filings/0000719733/2008/0001193125-08-195739/item1.txt

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+Item 1. 
+BUSINESS 
+Overview 
+Key Tronic Corporation (dba: KeyTronicEMS Co.), was organized in 1969 as a Washington corporation that locally manufactured computer keyboards. Our goal was to become the
+world’s largest manufacturer of input devices for terminals, word processors and personal computers. The ability to design, build and deliver a quality product led to a reputation in the industry, allowing us to be a leading independent
+manufacturer of keyboards for computers in the United States. Our fully integrated design, tooling and automated manufacturing capabilities enabled us to rapidly respond to customers’ needs for keyboards in production quantities worldwide. We
+supported our sales growth through the development and purchase of international manufacturing facilities. As the computer keyboard market matured with increasing competition from other international providers, we determined that our business could
+no longer solely rely on keyboard sales. 
+After assessing market conditions and our strengths and capabilities in 1999, we shifted focus from keyboard
+manufacturing to contract manufacturing for a wide range of products. Our new strategy was based on our original core strengths of innovative design and engineering expertise in electronics, mechanical engineering and precision plastics combined
+with high-quality, low cost production and assembly on a global basis. These strengths have made our company a strong competitor in the electronic manufacturing services “EMS” market. As we fully transitioned into an EMS provider, our new
+customer base became comprised of world-class customers from a wide range of industries. 
+The EMS industry has experienced growth over the past several
+years as more original equipment manufacturers “OEMs” seek to outsource manufacturing and this trend is expected to continue in the future. This expansion of the EMS industry has allowed us to continue to expand our customer base and the
+industries that we serve. We currently offer our customers the following services: integrated electronic and mechanical engineering; precision plastic molding; assembly, component selection, sourcing and procurement; worldwide logistics; competitive
+pricing; and new product testing and production. 
+We operate in facilities in the United States, Mexico and China. This global production capability
+provides our customers with the benefits of improved supply-chain management, reduced inventory, lower labor costs, lower transportation costs and reduced product fulfillment time. 
+Our principal executive offices are located at N. 4424 Sullivan Road, Spokane Valley, Washington 99216, and our telephone number is (509) 928-8000. Our website is located at http://www.keytronicems.com where
+filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q or current reports on Form 8-K are available after they have been filed with the Securities and Exchange Commission. The information presented on our website currently and in
+the future is not considered to be part of this document or any document incorporated by reference in this document. 
+Marketing 
+We provide a mix of manufacturing services for outsourced OEM products. We provide the following EMS services: product design, surface mount technologies “SMT”
+for printed circuit board assembly, tool making, precision plastic molding, liquid injection molding, automated tape winding, prototype design and full product builds. 
+4 
+Table of Contents 
+Sales of the majority of our products have historically not been seasonal in nature, but may be seasonal in the future if
+there are changes in the types of products manufactured. Sales can, however, fluctuate significantly between quarters from changes in customers’ demand due to our revenue concentration in a few specific customers. 
+For the fiscal years ended June 28, 2008, June 30, 2007, and July 1, 2006, the five largest customers in each year accounted for 68%, 73% and 71% of
+total sales, respectively. The following customers represented 10 percent or more of total net sales over the last three fiscal years: International Game Technology, Inc. (18%, 17%, 18%), Zebra Technologies Corporation (18%, 22%, 20%) and Lexmark
+International, Inc. (15%, 18%, 17%). It is anticipated that our new customer program wins will dilute our concentration of revenue in our current top five customers in the future. 
+Although keyboard manufacturing is still included in our product offerings, we expect annual keyboard sales to decline over time. During the fiscal years ended June 28, 2008, June 30, 2007, and
+July 1, 2006, we realized revenues of approximately $5.8 million, $5.6 million and $7.3 million, respectively, from the sale of keyboards. In order to accommodate the demand for standard keyboard layouts, we maintain a purchase-from-stock
+program. The more popular standard layouts are built and stocked for immediate availability. 
+We market our products and services primarily through our
+direct sales department aided by strategically located field sales people and distributors. Although we maintain relationships with several independent sales organizations to assist in marketing our EMS product lines, commissions earned and paid are
+not material to the consolidated financial statements. 
+Manufacturing 
+Since inception, we have made substantial investments in developing and expanding a capital equipment base to achieve vertical integration and efficiencies in our manufacturing processes. We have invested significant
+capital into SMT for volume manufacturing of complex printed circuit board assemblies. We also design and develop tooling for injection molding and manufacture the majority of plastic parts used in the products we manufacture. Additionally, we have
+equipment to maintain a controlled clean environment for manufacturing processes that require a high level of precise control. 
+We use a variety of manual
+and highly automated assembly processes in our facilities, depending upon product complexity and degree of customization. Some examples of automated processes include component insertion, SMT, flexible robotic assembly, automated storage tape
+winding, computerized vision system quality inspection, automated switch and key top installation, and automated functional testing. 
+Our engineering
+expertise and automated manufacturing processes enable us to work closely with our customers during the design and prototype stages of production and to jointly increase productivity and reduce response time to the marketplace. We use computer-aided
+design techniques and software to assist in preparation of the tool design layout and component placement, to reduce tooling and production costs, improve component and product quality, and enhance turnaround time during product development.
+We purchase materials and components for our products from many different suppliers, including both domestic and international sources. We develop close
+working relationships with our suppliers, many of whom have been supplying products to us for several years. 
+Research, Development, and Engineering
+Research, development, and engineering “RD&E” expenses consist principally of employee related costs, third party development costs,
+program materials costs, depreciation and allocated information technology and facilities costs. Our RD&E expenses were $2.7 million, $3.2 million and $2.8 million in fiscal years 2008, 2007, and 2006 respectively. In each of these years, we
+focused most of our RD&E efforts on current customer EMS programs. The decrease in RD&E during fiscal 2008 is related to lower incentive compensation and the transfer of certain engineers and support personnel from RD&E to manufacturing
+costs of sales as their job roles changed to support the new SMT production line in Spokane Valley, Washington. 
+Competition 
+The market for the products and services we provide is highly competitive. There are numerous competitors in the EMS industry, many of which have substantially more
+resources and are more geographically diverse than we are. Some of our competitors have similar international production capabilities, large financial resources and some have substantially greater manufacturing, research and development, and
+marketing resources. There is also competition from the manufacturing operations of our current and potential customers, who are continually evaluating the merits of manufacturing their products internally versus the advantages of 
+5 
+Table of Contents 
+outsourcing. We believe that we can currently compete favorably to these factors primarily on the basis of our global footprint, responsiveness, creativity,
+vertical production capability, quality, and cost. 
+Trademarks and Patents 
+Our name and logo are federally registered trademarks, and we believe they are valuable assets of our business. During 2001, we began operating under the trade name “KeyTronicEMS Co.” to better identify our
+primary business concentration. We also own several keyboard patents; however, since our focus is EMS, management believes that these patents will not have a significant impact on future revenues. 
+Employees 
+We consider our employees to be our primary strength and
+we make considerable efforts to maintain a well-qualified workforce. Our employee benefits include bonus programs involving periodic payments to all employees based on meeting quarterly or fiscal year performance targets. We regularly provide
+transportation, medical services and meals to all of our employees in foreign locations. We maintain a 401(k) plan for U.S. employees, which provides a discretionary matching company contribution of up to 4% of an employee’s salary. We provide
+group health, life, and disability insurance plans. We also maintain stock option plans and other long term incentive plans for certain employees and outside directors. 
+As of June 28, 2008, we had 2,502 employees compared to 2,227 on June 30, 2007 and 2,840 on July 1, 2006. Since we can have significant fluctuations in product demand, we seek to maintain flexibility in
+our workforce by utilizing skilled temporary and short-term contract labor in our manufacturing facilities in addition to full-time employees. The change in the number of employees was a result of a change in product mix. Certain products require
+more hand assembly than others. Our employees in Reynosa, Mexico, which represent approximately 7% of the Company’s employees, are represented by a local union. We have no history of any material interruption of production due to labor
+disputes. 
+Backlog 
+On July 27, 2008, our order
+backlog was valued at approximately $42.2 million, compared to approximately $34.1 million on July 29, 2007. Even though our order backlog is comprised of firm purchase orders, the amount of backlog is not necessarily indicative of future sales
+but can be indicative of trends in expected future sales revenue. Due to the relationships with our customers, we will occasionally allow orders to be canceled or rescheduled and as a result is not a meaningful indicator of future financial results.
+If there are canceled or rescheduled orders, we will attempt to negotiate fees to cover the costs we have incurred. The change in backlog at July 27, 2008, when compared to July 29, 2007, was in part due to our increasing customer base and
+the timing of purchase orders of existing customers. Order backlog consists of purchase orders received for products expected to be shipped approximately within the next twelve months, although shipment dates are subject to change due to design
+modifications, customer forecast changes, or other customer requirements. 
+Foreign Markets 
+Information concerning net sales and long-lived assets (property, plant, and equipment) by geographic areas is set forth in footnote 9 of the consolidated financial
+statements of this Annual Report on Form 10-K, under the caption “Enterprise-Wide Disclosures”, and that information is incorporated herein.

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+Item 13: 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+Information appearing under the caption “Related Person Transactions”, “Compensation Committee Interlocks and Insider Participation” and “Directors’ Independence” in the Company’s 2008 Proxy Statement
+is incorporated herein by this reference.

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+Item 9A(T): 
+CONTROLS AND PROCEDURES 
+Evaluation of Disclosure Controls
+and Procedures 
+It is the responsibility of our management to establish, maintain, and monitor disclosure controls and procedures that are designed
+to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
+Commission rules and forms. Additionally, these disclosure controls include controls and procedures that are designed to accumulate and communicate the information required to be disclosed to our company’s Chief Executive Officer and Chief
+Financial Officer, allowing for timely decisions regarding required disclosures. As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of the Chief Executive
+Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(f). Based on our assessment, we believe that as of June 28, 2008, the
+Company’s disclosure controls and procedures are effective based on that criteria. 
+38 
+Table of Contents 
+Management’s Report on Internal Control over Financial Reporting 
+Our management has the responsibility to establish and maintain adequate internal controls over our financial reporting, as defined in Rule 13a-15(f) under the Securities
+and Exchange Act of 1934. Our internal controls are designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our external financial statements in accordance with generally accepted
+accounting principles (GAAP). 
+Due to inherent limitations of any internal control system, management acknowledges that there are limitations as to the
+effectiveness of internal controls over financial reporting and therefore recognize that only reasonable assurance can be gained from any internal control system. Accordingly, our internal control system may not detect or prevent material
+misstatements in our financial statements and projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
+policies or procedures may deteriorate. 
+Under the supervision and participation of management, including the Chief Executive Officer and Chief Financial
+Officer, we have performed an assessment of the effectiveness of our internal controls over financial reporting as of June 28, 2008. This assessment was based on the criteria established in Internal Control-Integrated Framework, issued by the
+Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we believe that as of June 28, 2008, the Company’s internal control over financial reporting is effective based on that criteria. 
+This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s
+report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report. 
+Changes in Internal Control over Financial Reporting 
+There
+have been no significant changes in our internal controls over financial reporting during our fourth fiscal quarter ended June 28, 2008 that have materially affected, or are reasonable likely to materially affect, the Company’s internal
+control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)).

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+Related Person Transactions 
+In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The
+policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the
+aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a
+director or a less than 10 percent beneficial owner of another entity). 
+The policy defines a “Related Party” as any (a) person who is or
+was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director,
+(b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren,
+siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). 
+The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into
+account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related
+Party’s interest in the Transaction. With the exception of the Transition Agreement with Mr. Oehlke (see “Employment Contracts”, pages 11-12), the Company had no related Party Transactions during fiscal year 2009. 
+Compensation Committee Interlocks and Insider Participation in Compensation Decisions 
+The Board of Directors has a Compensation Committee presently consisting of Messrs. Shamash and Pilz. No member of the Compensation Committee was an officer or employee of the Company or any of its subsidiaries during
+fiscal year 2009. None of the executive officers of the Company has served on the Board of Directors or on the Compensation Committee of any other entity, any of whose officers served either on the Board of Directors or on the Compensation Committee
+of the Company.

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+0000719733,KTCC,KEY TRONIC CORP,10-K,2009-09-11,2009-06-27,2009-09-11T19:35:04.000Z,0001193125-09-190584,d10k.htm,FORM 10-K,814626,0,0,https://www.sec.gov/Archives/edgar/data/719733/000119312509190584/d10k.htm,https://www.sec.gov/Archives/edgar/data/719733/000119312509190584/,2009,2009,1

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+Item 1. 
+BUSINESS 
+Overview 
+Key Tronic Corporation (dba: KeyTronicEMS Co.), was organized in 1969 as a Washington corporation that locally manufactured computer keyboards. Our goal was to become the
+world’s largest manufacturer of input devices for terminals, word processors and personal computers. The ability to design, build and deliver a quality product led to a reputation in the industry, allowing us to be a leading independent
+manufacturer of keyboards for computers in the United States. Our fully integrated design, tooling, and automated manufacturing capabilities enabled us to rapidly respond to customers’ needs for keyboards in production quantities worldwide. We
+supported our sales growth through the development and purchase of international manufacturing facilities. As the computer keyboard market matured with increasing competition from other international providers, we determined that our business could
+no longer solely rely on keyboard sales. 
+After assessing market conditions and our strengths and capabilities in 1999, we shifted focus from keyboard
+manufacturing to contract manufacturing for a wide range of products. Our new strategy was based on our original core strengths of innovative design and engineering expertise in electronics, mechanical engineering, and precision plastics combined
+with high-quality, low cost production, and assembly on a global basis. These strengths have made our company a strong competitor in the electronic manufacturing services (EMS) market. As we fully transitioned into an EMS provider, our new customer
+base became comprised of world-class customers from a wide range of industries. 
+The EMS industry experienced growth over the past several years as more
+original equipment manufacturers (OEMs) chose to outsource manufacturing. This expansion of the EMS industry allowed us to continue to expand our customer base and the industries that we serve. However, the challenging global economic environment
+has had a negative impact on our results of operations as the demand from our customers has declined. We successfully confronted the challenging global economic environment in fiscal year 2009 by reducing our costs while ramping up new customer
+programs, which allowed us to maintain profitability and strengthen our balance sheet. The ramp up for our new programs was slowed by the recession, but these new programs continue to represent a growing portion of our revenue and a promising
+foundation for our future. In keeping with our long-term strategic objectives, we have been successfully building a more diversified customer portfolio and a less concentrated revenue base, spanning a wider range of industries. We currently offer
+our customers the following services: integrated electronic and mechanical engineering, precision plastic molding, assembly, component selection, sourcing and procurement, worldwide logistics, and new product testing and production all at
+competitive pricing due to our global footprint. 
+We believe that we are well positioned in the EMS industry to continue the expansion of our customer base
+and achieve long term growth. Our core strengths continue to support our growth and our customers’ needs. We continue to focus on controlling operating expenses and leveraging the synergistic capabilities of our world-class facilities in the
+United States, Mexico, and China. This global production capability provides our customers with the benefits of improved supply-chain management, reduced inventory, lower labor costs, lower transportation costs, and reduced product fulfillment time.
+Given our competitive advantages and the growing need for some potential customers to move forward with their outsourcing strategies, we are strongly positioned to win new business in coming periods and grow our revenue and profits as the global
+economic environment improves. 
+3 
+Table of Contents 
+The EMS industry is intensely competitive. We have less than 1% of the potential global market and our revenue can
+fluctuate significantly due to reliance on a concentrated base of customers. We are planning for new customer growth in the coming quarters by securing new programs, increasing our worldwide manufacturing capacity, and continuing to improve our
+manufacturing processes. Ongoing challenges that we face include the following: continuing to win programs from new and existing customers, balancing production capacity and key personnel in each of our manufacturing locations, improving operating
+efficiencies, controlling costs while developing competitive pricing strategies, and successfully transitioning new program wins to full production. 
+Our
+principal executive offices are located at N. 4424 Sullivan Road, Spokane Valley, Washington 99216, and our telephone number is (509) 928-8000. Our website is located at http://www.keytronicems.com where filings of our Annual Report on Form
+10-K, Quarterly Reports on Form 10-Q or current reports on Form 8-K are available after they have been filed with the Securities and Exchange Commission. The information presented on our website currently and in the future is not considered to be
+part of this document or any document incorporated by reference in this document. 
+Marketing 
+We provide a mix of manufacturing services for outsourced OEM products. We provide the following EMS services: product design, surface mount technologies (SMT) for
+printed circuit board assembly, tool making, precision plastic molding, liquid injection molding, automated tape winding, prototype design and full product builds. 
+Sales of the majority of our products have historically not been seasonal in nature, but may be seasonal in the future if there are changes in the types of products manufactured. Sales can, however, fluctuate significantly between quarters
+from changes in customer demand due to our revenue concentration in a few specific customers. 
+For the fiscal years ended June 27,
+2009, June 28, 2008, and June 30, 2007, the five largest customers in each year accounted for 52%, 68%, and 73% of total sales, respectively. The following customers represented 10 percent or more of total net sales over the last
+three fiscal years: Lexmark International, Inc. (14%, 15%, 18%), International Game Technology, Inc. (13%, 18%, 17%), Zebra Technologies Corporation (less than 10%, 18%, 22%), and Imation Corporation (10%, less than 10%, less than 10%). It is
+anticipated that our new customer program wins will dilute our concentration of revenue in our current top five customers in the future. 
+Although keyboard
+manufacturing is still included in our product offerings, we expect annual keyboard sales to decline over time. We realized revenues of approximately $4.2 million, $5.8 million, and $5.6 million in fiscal years 2009, 2008, and 2007, respectively,
+from the sale of keyboards. In order to accommodate the demand for standard keyboard layouts, we maintain a purchase-from-stock program. The more popular standard layouts are built and stocked for immediate availability. 
+We market our products and services primarily through our direct sales department aided by strategically located field sales people and distributors. Although we
+maintain relationships with several independent sales organizations to assist in marketing our EMS product lines, commissions earned and paid are not material to the consolidated financial statements. 
+Manufacturing 
+Since inception, we have made substantial investments
+in developing and expanding a capital equipment base to achieve vertical integration and efficiencies in our manufacturing processes. We have invested significant capital into SMT for volume manufacturing of complex printed circuit board assemblies.
+We also design and develop tooling for injection molding and manufacture the majority of plastic parts used in the products we manufacture. Additionally, we have equipment to maintain a controlled clean environment for manufacturing processes that
+require a high level of precise control. 
+We use a variety of manual and highly automated assembly processes in our facilities, depending upon product
+complexity and degree of customization. Some examples of automated processes include component insertion, SMT, flexible robotic assembly, automated storage tape winding, computerized vision system quality inspection, automated switch and key top
+installation, and automated functional testing. 
+Our engineering expertise and automated manufacturing processes enable us to work closely with our
+customers during the design and prototype stages of production and to jointly increase productivity and reduce response time to the marketplace. We use computer-aided design techniques and software to assist in preparation of the tool design layout
+and component placement, to reduce tooling and production costs, improve component and product quality, and enhance turnaround time during product development. 
+4 
+Table of Contents 
+We purchase materials and components for our products from many different suppliers, including both domestic and
+international sources. We develop close working relationships with our suppliers, many of whom have been supplying products to us for several years. 
+Research, Development, and Engineering 
+Research, development, and engineering (RD&E) expenses consist principally of employee related
+costs, third party development costs, program materials costs, depreciation, and allocated information technology and facilities costs. Our RD&E expenses were $2.3 million, $2.7 million, and $3.2 million in fiscal years 2009, 2008, and 2007
+respectively. In each of these years, we focused most of our RD&E efforts on current customer EMS programs. The decrease in RD&E in fiscal year 2009 compared to fiscal year 2008 is the result of cost reduction efforts and lower incentive and
+bonus expenses. The decrease in RD&E in fiscal year 2008 compared to fiscal year 2007 is related to transferring engineers and support personnel from RD&E to manufacturing costs of sales as their job roles changed to support the new SMT line
+in Spokane Valley, Washington. 
+Competition 
+The market
+for the products and services we provide is highly competitive. There are numerous competitors in the EMS industry, many of which have substantially more resources and are more geographically diverse than we are. Some of our competitors have similar
+international production capabilities, large financial resources and some have substantially greater manufacturing, research and development, and marketing resources. There is also competition from the manufacturing operations of our current and
+potential customers, who are continually evaluating the merits of manufacturing their products internally versus the advantages of outsourcing. We believe that we can currently compete favorably to these factors primarily on the basis of our global
+footprint, responsiveness, creativity, vertical production capability, quality, and cost. 
+Trademarks and Patents 
+Our name and logo are federally registered trademarks, and we believe they are valuable assets of our business. During 2001, we began operating under the trade name
+“KeyTronicEMS Co.” to better identify our primary business concentration. We also own several keyboard patents; however, since our focus is EMS, management believes that these patents will not have a significant impact on future revenues.
+Employees 
+We consider our employees to be our primary
+strength and we make considerable efforts to maintain a well-qualified workforce. Our employee benefits include bonus programs involving periodic payments to all employees based on meeting quarterly or fiscal year performance targets. We regularly
+provide transportation, medical services, and meals to all of our employees in foreign locations. We maintain a 401(k) plan for U.S. employees, which provides a discretionary matching company contribution of up to 4% of an employee’s salary. We
+provide group health, life, and disability insurance plans. We also maintain stock option plans and other long term incentive plans for certain employees and outside directors. 
+As of June 27, 2009, we had 1,963 employees compared to 2,502 on June 28, 2008, and 2,227 on June 30, 2007. Since we can have significant fluctuations in product demand, we seek to maintain flexibility
+in our workforce by utilizing skilled temporary and short-term contract labor in our manufacturing facilities in addition to full-time employees. The change in the number of employees was a result of a change in product mix. Certain products require
+more hand assembly than others. Our employees in Reynosa, Mexico, which represent approximately 13% of the Company’s employees, are represented by a local union. We have no history of any material interruption of production due to labor
+disputes. 
+Backlog 
+On July 25, 2009, our order
+backlog was valued at approximately $29.9 million, compared to approximately $42.2 million on July 27, 2008. Even though our order backlog is comprised of firm purchase orders, the amount of backlog is not necessarily indicative of future sales
+but can be indicative of trends in expected future sales revenue. Due to the relationships with our customers, we will occasionally allow orders to be canceled or rescheduled and as a result is not a meaningful indicator of future financial results.
+If there are canceled or rescheduled orders, we will attempt to negotiate fees to cover the costs we have incurred. The change in backlog at July 25, 2009, when compared to July 27, 2008, is due to a decrease in demand from our customers
+as the result of the unfavorable global economic environment. Order backlog consists of purchase orders received for products expected to be shipped approximately within the next twelve months, although shipment dates are subject to change due to
+design modifications, customer forecast changes, or other customer requirements. 
+5 
+Table of Contents 
+Foreign Markets 
+Information concerning net sales and long-lived assets (property, plant, and equipment) by geographic areas is set forth in footnote 12 of the consolidated financial statements of this Annual Report on Form 10-K, under the caption
+“Enterprise-Wide Disclosures”, and that information is incorporated herein.

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+Item 13: 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+Information appearing under the caption “Related Person Transactions”, “Compensation Committee Interlocks and Insider Participation”, and “Directors’ Independence” in the Company’s 2009 Proxy
+Statement is incorporated herein by this reference.

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+Item 9A (T): CONTROLS AND PROCEDURES 
+Evaluation of Disclosure Controls and
+Procedures 
+It is the responsibility of our management to establish, maintain, and monitor disclosure controls and procedures that are designed to
+ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange
+Commission rules and forms. Additionally, these disclosure controls include controls and procedures that are designed to accumulate and communicate the information required to be disclosed to our company’s Chief Executive Officer and Chief
+Financial Officer, allowing for timely decisions regarding required disclosures. As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of the Chief Executive
+Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(f). Based on our assessment, we believe that as of June 27, 2009, the
+Company’s disclosure controls and procedures are effective based on that criteria. 
+Management’s Report on Internal Control over Financial
+Reporting 
+Our management has the responsibility to establish and maintain adequate internal controls over our financial reporting, as defined in
+Rule 13a-15(f) under the Securities and Exchange Act of 1934. Our internal controls are designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our external financial statements in
+accordance with generally accepted accounting principles (GAAP). 
+43 
+Table of Contents 
+Due to inherent limitations of any internal control system, management acknowledges that there are limitations as to the
+effectiveness of internal controls over financial reporting and therefore recognize that only reasonable assurance can be gained from any internal control system. Accordingly, our internal control system may not detect or prevent material
+misstatements in our financial statements and projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
+policies or procedures may deteriorate. 
+Under the supervision and participation of management, including the Chief Executive Officer and Chief Financial
+Officer, we have performed an assessment of the effectiveness of our internal controls over financial reporting as of June 27, 2009. This assessment was based on the criteria established in Internal Control-Integrated Framework, issued by the
+Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we believe that as of June 27, 2009, the Company’s internal control over financial reporting is effective based on that criteria. 
+This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s
+report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report. 
+Changes in Internal Control over Financial Reporting 
+There
+have been no significant changes in our internal controls over financial reporting during our fourth fiscal quarter ended June 27, 2009 that have materially affected, or are reasonable likely to materially affect, the Company’s internal
+control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)).

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+Related Person Transactions 
+In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related Parties. The policy and procedures supplement the Company’s Code of Conduct. The
+policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the
+aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related Party has or will have a direct or indirect interest (other than solely as a result of being a
+director or a less than 10 percent beneficial owner of another entity). 
+The policy defines a “Related Party” as any (a) person who is or
+was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director,
+(b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren,
+siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). 
+The Audit Committee is responsible for review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into
+account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related
+Party’s interest in the Transaction. With the exception of the Transition Agreement with Mr. Oehlke (see “Employment Contracts”, pages 11-12), the Company had no related Party Transactions during fiscal year 2009. 
+Compensation Committee Interlocks and Insider Participation in Compensation Decisions 
+The Board of Directors has a Compensation Committee presently consisting of Messrs. Shamash and Pilz. No member of the Compensation Committee was an officer or employee of the Company or any of its subsidiaries during
+fiscal year 2009. None of the executive officers of the Company has served on the Board of Directors or on the Compensation Committee of any other entity, any of whose officers served either on the Board of Directors or on the Compensation Committee
+of the Company.

raw/filings/0000719733/2010/0001193125-10-209062/filing_metadata.csv

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raw/filings/0000719733/2010/0001193125-10-209062/item1.txt

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+Item 1. 
+BUSINESS 
+Background 
+Key
+Tronic Corporation (dba: KeyTronicEMS Co.), was organized in 1969 as a Washington corporation that locally manufactured computer keyboards. The ability to design, build and deliver a quality product led to a reputation in the industry, allowing us
+to be a leading independent manufacturer of keyboards for computers in the United States. Our fully integrated design, tooling, and automated manufacturing capabilities enabled us to rapidly respond to customers’ needs for keyboards in
+production quantities worldwide. We supported our sales growth through the development and purchase of international manufacturing facilities. As the computer keyboard market matured with increasing competition from other international providers, we
+determined that our business could no longer solely rely on keyboard sales. After assessing market conditions and our strengths and capabilities, we shifted focus from keyboard manufacturing to contract manufacturing for a wide range of products.
+This strategy was based on our core strengths of innovative design and engineering expertise in electronics, mechanical engineering, and precision plastics combined with high-quality, low cost production, and assembly on an international basis.
+These strengths have made our company a strong competitor in the electronic manufacturing services (EMS) market. 
+Our
+Industry and Strategy 
+The expansion of the EMS industry during the last decade allowed us to continue to expand our customer base and
+the industries that we serve. The recent challenging global macroeconomic environment has had a negative impact on previously held customer programs. However, we successfully confronted the challenging global macroeconomic environment by reducing
+our costs while winning new customer programs, which allowed us to increase our profitability and strengthen our balance sheet during the global economic downturn. The increase in new programs represents a growing portion of our revenue and a
+promising foundation for our future. In keeping with our long-term strategic objectives, we have been successfully building a more diversified customer portfolio and a less concentrated revenue base, spanning a wider range of industries. We
+currently offer our customers the following services: integrated electronic and mechanical engineering, precision plastic molding, assembly, component selection, sourcing and procurement, worldwide logistics, and new product testing and production
+all at competitive pricing due to our global footprint. 
+We believe that we are well positioned in the EMS industry to continue the expansion
+of our customer base and achieve long term growth. Our core strengths continue to support our growth and our customers’ needs. We continue to focus on controlling operating expenses and leveraging the synergistic capabilities of our world-class
+facilities in the United States, Mexico, and China. This international production capability provides our customers with the benefits of improved supply-chain management, reduced inventory, lower labor costs, lower transportation costs, and reduced
+product fulfillment time. Given our competitive advantages and the growing need for some potential customers to move forward with their outsourcing strategies, we are strongly positioned to win new business in coming periods and grow our revenue and
+profits. 
+The EMS industry is intensely competitive. Although our customer base is growing we still have less than 1% of the potential global
+market and our revenue can fluctuate significantly due to reliance on a concentrated base of customers. We are planning for new customer growth in the coming quarters by securing new programs, increasing our worldwide manufacturing capacity, and
+continuing to improve our manufacturing and procurement processes. Ongoing challenges that we face include the following: Continuing to win programs from new and existing customers, balancing production capacity and key personnel in support of new
+customer programs, improving operating efficiencies, controlling costs while 
+4 
+Table of Contents 
+developing competitive pricing strategies, successfully transitioning new program wins to full production and successfully addressing industry-wide shortages in the global supply chain.
+Customers and Marketing 
+We provide a mix of manufacturing services for outsourced Original Equipment Manufacturing (OEM) products. We provide the following EMS services: Product
+design, surface mount technologies (SMT) and pin through hole capability for printed circuit board assembly, tool making, precision plastic molding, liquid injection molding, automated tape winding, prototype design and full product builds.
+Sales of the majority of our products have historically not been seasonal in nature, but may be seasonal in the future if there are changes
+in the types of products manufactured. Sales can, however, fluctuate significantly between quarters from changes in customers and customer demand due to our concentrated customer base. 
+For the fiscal years ended July 3, 2010, June 27, 2009, and June 28, 2008, the five largest customers in each year accounted for 57%,
+52%, and 68% of total sales, respectively. The following customers represented 10% or more of total net sales over the last three fiscal years: KAZ Inc. (18%, less than 10%, less than 10%) International Game Technology, Inc. (12%, 13%, 18%), and
+Lexmark International, Inc. (less than 10%, 14%, 15%). It is anticipated that our new customer program wins will dilute our concentration of revenue in the future. 
+Although keyboard manufacturing is still included in our product offerings, we do not expect annual keyboard sales to be a material component of our
+business. We realized revenues of approximately $4.5 million, $4.2 million, and $5.8 million in fiscal years 2010, 2009, and 2008, respectively, from the sale of keyboards. In order to accommodate the demand for standard keyboard layouts, we
+maintain a purchase-from-stock program. The more popular standard layouts are built and stocked for immediate availability. Although we are recognized as a reputable contract manufacturer we still market our products and services primarily through
+our direct sales department aided by strategically located field sales people and distributors. Although we maintain relationships with several independent sales organizations to assist in marketing our EMS product lines, commissions earned and paid
+are not material to the consolidated financial statements. 
+Manufacturing 
+We have continually made investments in developing and expanding a capital equipment base to achieve vertical integration and efficiencies in our
+manufacturing processes. We have invested significant capital into SMT for volume manufacturing of complex printed circuit board assemblies. We also design and develop tooling for injection molding and manufacture the majority of plastic parts used
+in the products we manufacture. Additionally, we have equipment to maintain a controlled clean environment for manufacturing processes that require a high level of precise control. 
+We use a variety of manual and automated assembly processes in our facilities, depending upon product complexity and degree of customization. Some
+examples of automated processes include component insertion, SMT, flexible robotic assembly, automated storage tape winding, computerized vision system quality inspection, automated switch and key top installation, and automated functional testing.
+Our engineering expertise and automated manufacturing processes enable us to work closely with our customers during the design and prototype
+stages of production and to jointly increase productivity and reduce response time to the marketplace. We use computer-aided design techniques and software to assist in preparation of the tool design layout and component placement, to reduce tooling
+and production costs, improve component and product quality, and enhance turnaround time during product development. 
+We purchase materials
+and components for our products from many different suppliers, including both domestic and international sources. We develop close working relationships with our suppliers, many of whom have been supplying products to us for several years.
+5 
+Table of Contents 
+Research, Development, and Engineering 
+Research, development, and engineering (RD&E) expenses consist principally of employee related costs, third party development costs, program materials
+costs, depreciation, and allocated information technology and facilities costs. Our RD&E expenses were $2.8 million, $2.3 million, and $2.7 million in fiscal years 2010, 2009, and 2008 respectively. In each of these years, we focused most of our
+RD&E efforts on current customer EMS programs. The increase in RD&E in fiscal year 2010 compared to fiscal year 2009 is primarily the result of higher incentive compensation and increased headcount. The decrease in RD&E in fiscal year
+2009 compared to fiscal year 2008 is the result of cost reduction efforts and lower incentive and bonus expenses. 
+Competition 
+The
+market for the products and services we provide is highly competitive. There are numerous competitors in the EMS industry, many of which have substantially more resources and are more geographically diverse than we are. Some of our competitors have
+similar international production capabilities, large financial resources and some have substantially greater manufacturing, research and development, and marketing resources. There is also competition from the manufacturing operations of our current
+and potential customers, who are continually evaluating the merits of manufacturing their products internally versus the advantages of outsourcing. We believe that we can currently compete favorably to these factors primarily on the basis of our
+international footprint, responsiveness, creativity, vertical production capability, quality, and cost. 
+Trademarks and
+Patents 
+Our name and logo are federally registered trademarks, and we believe they are valuable assets of our business. During 2001,
+we began operating under the trade name “KeyTronicEMS Co.” to better identify our primary business concentration. We also own several keyboard patents; however, since our focus is EMS, management believes that these patents will not have a
+significant impact on future revenues. 
+Employees 
+We consider our employees to be our primary strength and we make considerable efforts to maintain a well-qualified workforce. Our employee benefits
+include bonus programs involving periodic payments to all employees based on meeting quarterly or fiscal year performance targets. We regularly provide transportation, medical services, and meals to all of our employees in foreign locations. We
+maintain a 401(k) plan for U.S. employees, which provides a discretionary matching company contribution of up to 4% of an employee’s salary. We provide group health, life, and disability insurance plans. We also maintain stock option plans and
+other long term incentive plans for certain employees and outside directors. As of July 3, 2010 we had 2,036 employees compared to 1,963 on June 27, 2009, and 2,502 on June 28, 2008. Since we can have significant fluctuations in
+product demand, we seek to maintain flexibility in our workforce by utilizing skilled temporary and short-term contract labor in our manufacturing facilities in addition to full-time employees. Our employees in Reynosa, Mexico, are represented by a
+local union. We have no history of any material interruption of production due to labor disputes. We anticipate that this particular subsidiary will cease its operations during fiscal year 2011. As a result, we will no longer retain employees in
+Reynosa, Mexico. 
+Backlog 
+On July 31, 2010 our order backlog was valued at approximately $56.9 million, compared to approximately $29.9 million on July 25, 2009, which
+reflects an increase in expected revenue during fiscal year 2011. Even though our order backlog is comprised of firm purchase orders, the amount of backlog is not necessarily indicative of future sales but can be indicative of trends in expected
+future sales revenue. Due to the relationships with our customers, we will occasionally allow orders to be canceled or rescheduled and as a result is not a meaningful indicator of future financial results. If there are canceled or rescheduled
+orders, we will attempt to negotiate fees to cover the costs we have incurred. Order backlog consists of 
+6 
+Table of Contents 
+purchase orders received for products expected to be shipped approximately within the next twelve months, although shipment dates are subject to change due to design modifications, customer
+forecast changes, or other customer requirements. 
+Foreign Markets 
+Information concerning net sales and long-lived assets (property, plant, and equipment) by geographic areas is set forth in footnote 12 of the
+consolidated financial statements of this Annual Report on Form 10-K, under the caption “Enterprise-Wide Disclosures”, and that information is incorporated herein. 
+Executive Officers of the Registrant 
+The table below sets forth the name, current age and current position of our executive officers and other significant employees as of July 3, 2010:
+Name 
+Age 
+Positions Held 
+Executive Officers 
+Craig D. Gates 
+51 
+President and Chief Executive Officer 
+Ronald F. Klawitter 
+58 
+Executive Vice President of Administration, Chief Financial Officer and Treasurer 
+Douglas G. Burkhardt 
+52 
+Executive Vice President of Worldwide Operations 
+Lawrence J. Bostwick 
+58 
+Vice President of Engineering and Quality 
+Phil Hochberg 
+48 
+Vice President of Business Development 
+Brett R. Larsen 
+37 
+Vice President of Finance, and Controller 
+Don Sinclair* 
+57 
+Vice President of Materials 
+* 
+Subsequent to July 3, 2010, Mr. Sinclair announced his resignation with the Company effective August 31, 2010. 
+Executive Officers 
+CRAIG D. GATES – President and Chief Executive Officer 
+Mr. Gates, age 51, has been President and Chief Executive officer of the Company since April 2009. Previously he was Executive Vice President and
+General Manager from August 2002 to April 2009. He served as Executive Vice President of Marketing, Engineering and Sales from July 1997 to August 2002 and served as Vice President and General Manager of New Business Development from October 1995 to
+July 1997. He joined the Company as Vice President of Engineering in October of 1994. From 1982 he held various engineering and management positions within the Microswitch Division of Honeywell, Inc., in Freeport, Illinois, and from 1991 to October
+1994 he served as Director of Operations, Electronics for Microswitch. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. 
+RONALD F. KLAWITTER – Executive Vice President of Administration, Chief Financial Officer, and Treasurer 
+Mr. Klawitter, age 58, has been Executive Vice President of Administration, CFO, and Treasurer since July 1997. Previously he was Vice President of
+Finance, Secretary, and Treasurer of the Company from October 1995 to July 1997. He was Acting Secretary from November 1994 to October 1995 and Vice President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter
+was Vice President of Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. Mr. Klawitter has a BA degree from Wittenberg University and is a Certified Public Accountant. 
+7 
+Table of Contents 
+DOUGLAS G. BURKHARDT – Executive Vice President of Worldwide Operations 
+Mr. Burkhardt, age 52, has been Executive Vice President of Worldwide Operations of the company since July 22, 2010. Previously
+Mr. Burkhardt was Vice President of Worldwide Operations from July 2008 to July 2010 and Director of China Operations and Program Management from January 2006 to July 2008. Mr. Burkhardt also served as Director of Northwest and China
+Operations from November of 1998 to January of 2006. Mr. Burkhardt also served as Director of Customer Satisfaction from March 1997 to November 1998 and Director of Molding from September of 1995 to March of 1997. Prior to this,
+Mr. Burkhardt served in other various senior management positions within the company. Mr. Burkhardt has been with the company since May of 1989. Prior to joining Key Tronic, Mr. Burkhardt worked for House of Aluminum and Glass for 12
+years where he was the plant manager. 
+LAWRENCE J. BOSTWICK – Vice President of Engineering and Quality 
+Mr. Bostwick, age 58, has been Vice President of Engineering and Quality since July 2008. Previously he was Director of Engineering and Quality from
+February 2007 to July 2008 and served as Corporate Director of Quality from February 2006 to February 2007. From 2003 to 2006 he was Director of Supply Chain Management and Quality for the Lancer Corporation and from 1998 to 2003 he was Vice
+President of Operations for Thermacore International. He is a graduate of the Westinghouse and General Electric – Engineering and Manufacturing Professional Development Programs. He is certified in both Quality and Industrial Engineering and is
+a Lean – Six Sigma Master Black Belt. Mr. Bostwick has a combined B.S. degree in Production and Operation and Industrial Engineering from Bowling Green State University and a Masters degree in Industrial Engineering and Business
+Administration from Syracuse University. 
+PHIL HOCHBERG – Vice President of Business Development 
+Mr. Hochberg, age 48, has been Vice President of Business Development since October 2009. Previously he was Director of Business Development and
+Program Management from July 2008 to October 2009. Mr. Hochberg served as Director of Business Development from October 2004 to July 2008 and as Director of EMS Sales and Marketing from July 2000 to October 2004. Prior to joining Key Tronic,
+Mr. Hochberg worked for Quinton Instrument Company as their Director of Marketing and Product Management from 1992 to 2000. From 1988 to 1992, he was employed by SpaceLabs Medical as their Business Development Marketing Manager.
+Mr. Hochberg has an MBA from the University of British Columbia, a BA Psychology, with a minor in Business from Washington University in St. Louis. 
+BRETT R. LARSEN – Vice President of Finance, and Controller 
+Mr. Larsen, age 37, has served as Vice President of Finance and Controller since February 2010. He was Chief Financial Officer of FLSmidth Spokane,
+Inc. from December 2008 to February 22, 2010. From October 2005 through November 2008, Mr. Larsen served as Controller of Key Tronic Corporation. From May 2004 to October 2005, Mr. Larsen served as Manager of Financial Reporting of
+Key Tronic Corporation. From 2002 to May 2004, Mr. Larsen was an audit manager for the public accounting firm BDO Seidman, LLP. He also held various auditing and supervisory positions with Grant Thornton LLP from 1997 to 2002. Mr. Larsen
+has a Bachelor of Science degree in Accounting and a Masters degree in Accounting from Brigham Young University and is a Certified Public Accountant. 
+DON SINCLAIR – Vice President of Material 
+Mr. Sinclair, age 57, has served as the Vice President of Materials since January 2010. Prior to joining Key Tronic, Mr. Sinclair was employed
+by Advanced Input Systems Division of Esterline Corporation, where he held various positions such as: Director of Materials, Managing Director – Offshore Operations, and Vice President of Business Development from 1998 to 2009. Prior to 1998,
+Mr. Sinclair held management positions at companies including Intermec Technologies, Honeywell and Westinghouse. Mr. Sinclair has a Bachelor of Science Degree in Business from Washington State University. 
+8 
+Table of Contents 
+Available Information 
+Our principal executive offices are located at N. 4424 Sullivan Road, Spokane Valley, Washington 99216, and our telephone number is (509) 928-8000.
+Our website is located at http://www.keytronicems.com where filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q or current reports on Form 8-K are available after they have been filed with the Securities and Exchange
+Commission. The information presented on our website currently and in the future is not considered to be part of this document or any document incorporated by reference in this document.

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+Item 13: 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+Information appearing under the caption “Related Person Transactions”, “Compensation Committee Interlocks and Insider Participation”,
+and “Directors’ Independence” in the Company’s 2010 Proxy Statement is incorporated herein by this reference.

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+Item 9A (T): CONTROLS AND PROCEDURES 
+Evaluation of Disclosure Controls and Procedures 
+It is the responsibility of our management to establish, maintain, and monitor disclosure controls and procedures that are designed to ensure that
+information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and
+forms. Additionally, these disclosure controls include controls and procedures that are designed to accumulate and communicate the information required to be disclosed to our company’s Chief Executive Officer and Chief
+46 
+Table of Contents 
+Financial Officer, allowing for timely decisions regarding required disclosures. As of the end of the period covered by this report, our management carried out an evaluation, under the
+supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(f). Based on our
+assessment, we believe that as of July 3, 2010, the Company’s disclosure controls and procedures are effective based on that criteria. 
+Management’s Report on Internal Control over Financial Reporting 
+Our management has the responsibility to establish and maintain adequate internal controls over our financial reporting, as defined in Rule 13a-15(f)
+under the Securities and Exchange Act of 1934. Our internal controls are designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our external financial statements in accordance with
+generally accepted accounting principles (GAAP). 
+Due to inherent limitations of any internal control system, management acknowledges that
+there are limitations as to the effectiveness of internal controls over financial reporting and therefore recognize that only reasonable assurance can be gained from any internal control system. Accordingly, our internal control system may not
+detect or prevent material misstatements in our financial statements and projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
+degree of compliance with the policies or procedures may deteriorate. 
+Under the supervision and participation of management, including the
+Chief Executive Officer and Chief Financial Officer, we have performed an assessment of the effectiveness of our internal controls over financial reporting as of July 3, 2010. This assessment was based on the criteria established in Internal
+Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we believe that as of July 3, 2010, the Company’s internal control over financial reporting is effective
+based on that criteria. 
+This annual report does not include an attestation report of our registered public accounting firm regarding internal
+control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.
+Changes in Internal Control over Financial Reporting 
+There have been no significant changes in our internal controls over financial reporting during our fourth fiscal quarter ended July 3, 2010 that
+have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)).

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+Related Person Transactions 
+In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related
+Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or
+relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related
+Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). 
+The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company
+has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock,
+or (c) immediate family member of any of the foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and
+sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). 
+The Audit Committee is responsible for
+review, approval, ratification or disapproval of Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested
+Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. 
+6

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+0000719733,KTCC,KEY TRONIC CORP,10-K,2011-09-12,2011-07-02,2011-09-12T21:24:18.000Z,0001193125-11-245992,d224529d10k.htm,FORM 10-K,1101504,0,0,https://www.sec.gov/Archives/edgar/data/719733/000119312511245992/d224529d10k.htm,https://www.sec.gov/Archives/edgar/data/719733/000119312511245992/,2011,2011,1

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+Item 1. 
+BUSINESS 
+Background 
+Key Tronic Corporation (dba: KeyTronicEMS Co.), was organized in 1969 as a Washington corporation that locally manufactured computer keyboards. The
+ability to design, build and deliver a quality product led us to become a leading independent manufacturer of keyboards for computers in the United States. Our fully integrated design, tooling, and automated manufacturing capabilities enabled us to
+rapidly respond to customers’ needs for keyboards in production quantities worldwide. We supported our sales growth through the development and purchase of international manufacturing facilities. As the computer keyboard market matured with
+increasing competition from other international providers, we determined that our business could no longer solely rely on keyboard sales. 
+After assessing market conditions and our strengths and capabilities, we shifted focus from keyboard manufacturing to contract manufacturing for a wide
+range of products. Our unique strategic attributes are based on our core strengths of innovative design and engineering expertise in electronics, mechanical engineering, and precision plastics combined with high-quality, low cost production, and
+assembly on an international basis while providing exceptional customer service. These strengths have made our company a strong competitor in the electronic manufacturing services (EMS) market. 
+Our Industry and Strategy 
+The expansion
+of the EMS industry during the last decade allowed us to continue to expand our customer base and the industries that we serve. The challenging global macroeconomic environment has had a negative impact on previously held customer programs. However,
+we successfully confronted the challenging global macroeconomic environment by controlling our costs while winning new customer programs, which allowed us to maintain our profitability and maintain a strong balance sheet during the global economic
+downturn. The increase in new programs represents a growing portion of our revenue and a promising foundation for our future. In keeping with our long-term strategic objectives, we have been successfully building a more diversified customer
+portfolio, spanning a wider range of industries. We currently offer our customers the following services: integrated electronic and mechanical engineering, precision plastic molding, assembly, component selection, sourcing and procurement, worldwide
+logistics, and new product testing and production all at competitive pricing due to our global footprint. 
+We believe that we are well
+positioned in the EMS industry to continue the expansion of our customer base and achieve long term growth. Our unique blend of multinational facilities, centralized management, and core strengths continue to support our growth and our
+customers’ needs. We continue to focus on controlling operating expenses and leveraging the synergistic capabilities of our world-class facilities in the United States, Mexico, and China. This international production capability provides our
+customers with the benefits of improved supply-chain management, reduced inventory, lower labor costs, lower transportation costs, and reduced product fulfillment time. Given our competitive advantages and the growing need for some potential
+customers to move forward with their outsourcing strategies, we are strongly positioned to win new business in coming periods and grow our revenue and profits. 
+The EMS industry is intensely competitive. Although our customer base is growing we still have less than 1% of the potential global market and our revenue can fluctuate significantly due to reliance on a
+concentrated base of customers. We are planning for new customer growth in the coming quarters by securing new programs, increasing our worldwide manufacturing capacity, and continuing to improve our manufacturing and procurement processes. Ongoing
+challenges that we face include the following: Continuing to win programs from new and existing customers, balancing production capacity and key personnel in support of new customer programs, improving operating efficiencies, controlling costs while
+developing competitive pricing strategies, and successfully transitioning new program wins to full production during a time of macroeconomic uncertainty. 
+3 
+Table of Contents 
+Customers and Marketing 
+We provide a mix of manufacturing services for outsourced Original Equipment Manufacturing (OEM) products. We provide the following EMS services: Product design, surface mount technologies (SMT) and pin
+through hole capability for printed circuit board assembly, tool making, precision plastic molding, liquid injection molding, automated tape winding, prototype design and full product assembly. 
+Sales of the majority of our products have historically not been seasonal in nature, but may be seasonal in the future if there are changes in the types
+of products manufactured. Sales can, however, fluctuate significantly between quarters from changes in customers and customer demand due to our concentrated customer base. 
+For the fiscal years ended July 2, 2011, July 3, 2010, and June 27, 2009, the five largest customers in each year accounted for 62%, 57%, and 52% of total net sales, respectively. At the
+end of fiscal year 2011, we were generating revenue from 30 EMS customers as compared with 20 at the end of fiscal year 2010. New customer program wins would dilute our concentration of revenue in the future. 
+The following table represents all customers that represented 10% or more of total net sales during the last three fiscal years: 
+Percentage of Net Sales by 
+Fiscal Year 
+2011 
+2010 
+2009 
+Customer A 
+16 
+% 
+12 
+% 
+13 
+% 
+Customer B 
+16 
+% 
+18 
+% 
+* 
+Customer C 
+15 
+% 
+* 
+* 
+Customer D 
+* 
+10 
+% 
+* 
+Customer E 
+* 
+* 
+14 
+% 
+* 
+Amount was less than 10% of total. 
+Although
+keyboard manufacturing is still included in our product offerings, we do not expect annual keyboard sales to be a material component of our business. We realized revenues of approximately $3.9 million, $4.5 million, and $4.2 million in fiscal years
+2011, 2010, and 2009, respectively, from the sale of keyboards. In order to accommodate the demand for standard keyboard layouts, we maintain a purchase-from-stock program. The more popular standard layouts are built and stocked for immediate
+availability. 
+We market our products and services primarily through our direct sales department aided by strategically located field sales
+people and distributors. Although we maintain relationships with several independent sales organizations to assist in marketing our EMS product lines, commissions earned and paid are not material to the consolidated financial statements. 
+Manufacturing 
+We have continually made
+investments in developing and expanding a capital equipment base to achieve vertical integration and efficiencies in our manufacturing processes. We have invested significant capital into SMT for volume manufacturing of complex printed circuit board
+assemblies. We also design and develop tooling for injection molding and manufacture the majority of plastic parts used in the products we manufacture. Additionally, we have equipment to maintain a controlled clean environment for manufacturing
+processes that require a high level of precise control. 
+We use a variety of manual and automated assembly processes in our facilities,
+depending upon product complexity and degree of customization. Some examples of automated processes include component insertion, SMT, flexible robotic assembly, automated storage tape winding, computerized vision system quality inspection, automated
+switch and key top installation, and automated functional testing. 
+Our engineering expertise and automated manufacturing processes enable us
+to work closely with our customers during the design and prototype stages of production and to jointly increase productivity and reduce response time to the marketplace. We use computer-aided design techniques and software to assist
+4 
+Table of Contents 
+in preparation of the tool design layout and component placement, to reduce tooling and production costs, improve component and product quality, and enhance turnaround time during product
+development. 
+We purchase materials and components for our products from many different suppliers, including both domestic and international
+sources. We develop close working relationships with our suppliers, many of whom have been supplying products to us for several years. 
+Research, Development, and Engineering 
+As part of our long-term strategy, we are committed to supporting our customers by providing research, development, and engineering services. These
+services allow us to facilitate in optimizing new product designs, and the production processes of our customers programs. 
+Research,
+development, and engineering (RD&E) expenses consist principally of employee related costs, third party development costs, program materials costs, depreciation, and allocated information technology and facilities costs. Our RD&E expenses
+were $3.8 million, $2.8 million, and $2.3 million in fiscal years 2011, 2010, and 2009, respectively. In each of these years, we focused most of our RD&E efforts on current customer EMS programs. The increase in RD&E in fiscal years 2011 and
+2010 as compared to their respective prior fiscal year periods is primarily the result of increased headcount and to a lesser extent higher incentive compensation. 
+Competition 
+The market for the products and services we provide is highly competitive.
+There are numerous competitors in the EMS industry, many of which have substantially more resources and are more geographically diverse than we are. Some of our competitors have similar international production capabilities, large financial
+resources and some have substantially greater manufacturing, research and development, and marketing resources. There is also competition from the manufacturing operations of our current and potential customers, who are continually evaluating the
+merits of manufacturing their products internally versus the advantages of outsourcing. We believe that we can currently compete favorably in these areas primarily on the basis of our international footprint, responsiveness, creativity, vertical
+production capability, quality, and cost. 
+Trademarks and Patents 
+Our name and logo are federally registered trademarks, and we believe they are valuable assets of our business. During 2001, we began operating under the trade name “KeyTronicEMS Co.” to better
+identify our primary business concentration. We also own several keyboard patents; however, since our focus is EMS, management believes that these patents will not have a significant impact on future revenues. 
+Employees 
+We consider our employees to
+be our primary strength and we make considerable efforts to maintain a well-qualified workforce. Our employee benefits include bonus programs involving periodic payments to all employees based on meeting quarterly or fiscal year performance targets.
+We regularly provide transportation, medical services, and meals to all of our employees in foreign locations. We maintain a 401(k) plan for U.S. employees, which provides a discretionary matching company contribution of up to 4% of an
+employee’s salary. We provide group health, life, and disability insurance plans. We also maintain stock option plans and other long term incentive plans for certain employees and outside directors. 
+As of July 2, 2011 we had 1,997 employees compared to 2,036 on July 3, 2010, and 1,963 on June 27, 2009. Since we can have significant
+fluctuations in product demand, we seek to maintain flexibility in our workforce by utilizing skilled temporary and short-term contract labor in our manufacturing facilities in addition to full-time employees. 
+Backlog 
+On July 30, 2011 our order
+backlog was valued at approximately $54.9 million, compared to approximately $56.9 million on July 31, 2010. Even though our order backlog is comprised of firm purchase orders, the amount of backlog is not necessarily indicative of future sales
+but can be indicative of trends in expected future sales revenue. Due to the relationships with our customers, we will occasionally allow orders to be canceled or rescheduled and as a result it is not a meaningful indicator of future financial
+results. If there 
+5 
+Table of Contents 
+are canceled or rescheduled orders, we will attempt to negotiate fees to cover the costs we have incurred. Order backlog consists of purchase orders received for products expected to be shipped
+approximately within the next twelve months, although shipment dates are subject to change due to design modifications, customer forecast changes, or other customer requirements. 
+Foreign Markets 
+Information concerning net sales and long-lived assets (property, plant,
+and equipment) by geographic areas is set forth in Note 12, “Enterprise-Wide Disclosures” of the consolidated financial statements of this Annual Report on Form 10-K and that information is incorporated herein. 
+Executive Officers of the Registrant 
+The table below sets forth the name, current age and current position of our executive officers and other significant employees as of July 2, 2011:
+Name 
+Age 
+Positions Held 
+Executive Officers 
+Craig D. Gates 
+52 
+President and Chief Executive Officer 
+Ronald F. Klawitter 
+59 
+Executive Vice President of Administration, Chief Financial 
+Officer and Treasurer 
+Douglas G. Burkhardt 
+53 
+Executive Vice President of Worldwide Operations 
+Lawrence J. Bostwick 
+59 
+Vice President of Engineering and Quality 
+Phil S. Hochberg 
+49 
+Vice President of Business Development 
+Brett R. Larsen 
+38 
+Vice President of Finance, and Controller 
+Executive Officers 
+CRAIG D. GATES – President and Chief Executive Officer 
+Mr. Gates, age 52, has
+been President and Chief Executive officer of the Company since April 2009. Previously he was Executive Vice President and General Manager from August 2002 to April 2009. He served as Executive Vice President of Marketing, Engineering and Sales from
+July 1997 to August 2002 and served as Vice President and General Manager of New Business Development from October 1995 to July 1997. He joined the Company as Vice President of Engineering in October of 1994. From 1982 he held various engineering
+and management positions within the Microswitch Division of Honeywell, Inc., in Freeport, Illinois, and from 1991 to October 1994 he served as Director of Operations, Electronics for Microswitch. Mr. Gates has a Bachelor of Science Degree in
+Mechanical Engineering and a Masters in Business Administration from the University of Illinois, Urbana. 
+RONALD F. KLAWITTER –
+Executive Vice President of Administration, Chief Financial Officer, and Treasurer 
+Mr. Klawitter, age 59, has been Executive Vice
+President of Administration, CFO, and Treasurer since July 1997. Previously he was Vice President of Finance, Secretary, and Treasurer of the Company from October 1995 to July 1997. He was Acting Secretary from November 1994 to October 1995 and Vice
+President of Finance and Treasurer from 1992 to October 1995. From 1987 to 1992, Mr. Klawitter was Vice President of Finance at Baker Hughes Tubular Service, a subsidiary of Baker Hughes, Inc. Mr. Klawitter has a BA degree from Wittenberg
+University and is a Certified Public Accountant. 
+6 
+Table of Contents 
+DOUGLAS G. BURKHARDT – Executive Vice President of Worldwide Operations 
+Mr. Burkhardt, age 53, has been Executive Vice President of Worldwide Operations of the Company since 
+July 22, 2010. Previously Mr. Burkhardt was Vice President of Worldwide Operations from July 2008 to July 2010 and Director of China Operations
+and Program Management from January 2006 to July 2008. Mr. Burkhardt also served as Director of Northwest and China Operations from November of 1998 to January of 2006. Mr. Burkhardt also served as Director of Customer Satisfaction from
+March 1997 to November 1998 and Director of Molding from September of 1995 to March of 1997. Prior to this, Mr. Burkhardt served in other various senior management positions within the Company. Mr. Burkhardt has been with the Company since
+May of 1989. Prior to joining Key Tronic, Mr. Burkhardt worked for House of Aluminum and Glass for 12 years where he was the plant manager. 
+LAWRENCE J. BOSTWICK – Vice President of Engineering and Quality 
+Mr. Bostwick,
+age 59, has been Vice President of Engineering and Quality since July 2008. Previously he was Director of Engineering and Quality from February 2007 to July 2008 and served as Corporate Director of Quality from February 2006 to February 2007. From
+2003 to 2006 he was Director of Supply Chain Management and Quality for the Lancer Corporation and from 1998 to 2003 he was Vice President of Operations for Thermacore International. He is a graduate of the Westinghouse and General Electric –
+Engineering and Manufacturing Professional Development Programs. He is certified in both Quality and Industrial Engineering and is a Lean – Six Sigma Master Black Belt. Mr. Bostwick has a combined B.S. degree in Production and Operation
+and Industrial Engineering from Bowling Green State University and a Masters degree in Industrial Engineering and Business Administration from Syracuse University. 
+PHIL S. HOCHBERG – Vice President of Business Development 
+Mr. Hochberg, age 49,
+has been Vice President of Business Development since October 2009. Previously he was Director of Business Development and Program Management from July 2008 to October 2009. Mr. Hochberg served as Director of Business Development from October
+2004 to July 2008 and as Director of EMS Sales and Marketing from July 2000 to October 2004. Prior to joining Key Tronic, Mr. Hochberg worked for Quinton Instrument Company as their Director of Marketing and Product Management from 1992 to
+2000. From 1988 to 1992, he was employed by SpaceLabs Medical as their Business Development Marketing Manager. Mr. Hochberg has an MBA from the University of British Columbia, a BA Psychology, with a minor in Business from Washington University
+in St. Louis. 
+BRETT R. LARSEN – Vice President of Finance, and Controller 
+Mr. Larsen, age 38, has served as Vice President of Finance and Controller since February 2010. He was Chief Financial Officer of FLSmidth Spokane,
+Inc. from December 2008 to February 22, 2010. From October 2005 through November 2008, Mr. Larsen served as Controller of Key Tronic Corporation. From May 2004 to October 2005, Mr. Larsen served as Manager of Financial Reporting of
+Key Tronic Corporation. From 2002 to May 2004, Mr. Larsen was an audit manager for the public accounting firm BDO Seidman, LLP. He also held various auditing and supervisory positions with Grant Thornton LLP from 1997 to 2002. Mr. Larsen
+has a Bachelor of Science degree in Accounting and a Masters degree in Accounting from Brigham Young University and is a Certified Public Accountant. 
+Available Information 
+Our principal executive offices are located at N. 4424 Sullivan
+Road, Spokane Valley, Washington 99216, and our telephone number is (509) 928-8000. Our website is located at http://www.keytronicems.com where filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q or current reports on Form
+8-K are available after they have been filed with the Securities and Exchange Commission. The information presented on our website currently and in the future is not considered to be part of this document or any document incorporated by reference in
+this document.

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+Item 13: 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+Information appearing under the caption “Related Person Transactions”, “Compensation Committee Interlocks and Insider Participation”, and “Directors’ Independence” in
+the Company’s 2011 Proxy Statement is incorporated herein by this reference.

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+Item 9A: 
+CONTROLS AND PROCEDURES 
+Evaluation
+of Disclosure Controls and Procedures 
+It is the responsibility of our management to establish, maintain, and monitor disclosure
+controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized, and reported within the time periods
+specified in the Securities and Exchange Commission rules and forms. Additionally, these disclosure controls include controls and procedures that are designed to accumulate and communicate the information required to be disclosed to our
+Company’s Chief Executive Officer and Chief Financial Officer, allowing for timely decisions regarding required disclosures. As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and
+with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(f). Based on our assessment, we
+believe that as of July 2, 2011, the Company’s disclosure controls and procedures are effective based on that criteria. 
+Management’s Report on Internal Control over Financial Reporting 
+Our management has the responsibility to establish and maintain adequate internal controls over our financial reporting, as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934. Our
+internal controls are designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our external financial statements in accordance with generally accepted accounting principles (GAAP).
+Due to inherent limitations of any internal control system, management acknowledges that there are limitations as to the effectiveness of
+internal controls over financial reporting and therefore recognize that only reasonable assurance can be gained from any internal control system. Accordingly, our internal control system may not detect or prevent material misstatements in our
+financial statements and projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
+may deteriorate. 
+Under the supervision and participation of management, including the Chief Executive Officer and Chief Financial Officer, we
+have performed an assessment of the effectiveness of our internal controls over financial reporting as of July 2, 2011. This assessment was based on the criteria established in Internal Control-Integrated Framework, issued by the Committee of
+Sponsoring Organizations of the Treadway 
+50 
+Table of Contents 
+Commission. Based on our assessment, we believe that as of July 2, 2011, the Company’s internal control over financial reporting is effective based on that criteria. 
+This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
+Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report. 
+Changes in Internal Control over Financial Reporting 
+There have been no significant changes in our internal controls over financial reporting during our fourth fiscal quarter ended July 2, 2011 that have materially affected, or are reasonable likely to
+materially affect, the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)).

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+Related Person Transactions 
+In April 2007, the Board of Directors adopted a written policy and procedures for the approval or ratification of Interested Transactions with Related
+Parties. The policy and procedures supplement the Company’s Code of Conduct. The policy defines an “Interested Transaction” as any transaction, arrangement or relationship or series of similar transactions, arrangements or
+relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company is a participant, and (3) any Related
+Party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). 
+The policy defines a “Related Party” as any (a) person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if
+they do not presently serve in that role) an executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of the Company’s common stock, or (c) immediate family member of any of the
+foregoing. Immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such
+person’s home (other than a tenant or employee). 
+The Audit Committee is responsible for review, approval, ratification or disapproval of
+Interested Transactions. In determining whether to approve or ratify an Interested Transaction, the Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than
+terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the Related Party’s interest in the Transaction. 
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