Key Tronic Ousts Wenninger As Chief Executive Declining Revenues Set Stage For Board’s Decision To Make A Change

The prospect of continuing declining revenues has apparently resulted in an abrupt decision to replace Key Tronic Corp.’s chief executive.

Fred Wenninger, who replaced Stanley Hiller as president and chief executive officer of the Spokane-based company less than two years ago, has been asked to resign.

“I think basically, the time just ran out,” Wenninger said Wednesday, just 24 hours after the board of director’s decision caught him “completely by surprise.”

“The Key Tronic board did what boards can and must do,” Wenninger said. “If you don’t get results, get a new CEO. While I disagree with their decision, I understand why they took the action they did. I respect and like all of the board members of Key Tronic and I have no animosity towards them, as a board or individually.”

But, Wenninger added, “I absolutely believe the course corrections made in the last six months will produce significant results in the next few quarters, and the company will grow and prosper.”

Key Tronic General Counsel Kathleen Nemeth, designated as company spokesman in this matter, said only, “Certainly the company’s financial results haven’t been what the board expected.”

Wenninger, 58, is succeeded as CEO by Jack W. Oehlke, Key Tronic’s chief operating officer since 1995. Oehlke joined the company in 1993 as vice president of manufacturing operations.

Founded in 1969, Key Tronic is among Spokane’s oldest high-technology companies, but much of its recent history has been shaped by management instability.

Lewis G. Zirkle Sr., founder of the computer keyboard manufacturer, ran the company throughout most of its history. Under his guidance, Key Tronic hit its peak in 1984 when it employed 2,500 and produced $11 million in profits on sales of $131 million.

But as the computer hardware industry matured and manufacturers fled the United States, driving prices down, Key Tronic was unable to remain competitive in the global market.

On several occasions Zirkle withdrew from the company, appointing his own successors, only to retake control when he wasn’t satisfied with company performance. The final such transition occurred when Zirkle named his son, Fred, president and CEO, only to fire him a year later, in 1991.

By that time, Key Tronic was struggling for survival.

It was losing millions, and the stock price had sunk well below $3 per share - a point at which industry analysts said the company’s shareholders would be better served if its assets were liquidated.

But Lew Zirkle and Key Tronic’s board brought in corporate turn-around wizard Stanley Hiller in 1992 and gave him control of the company.

Hiller succeeded in rescuing the company. A key element of the rescue was acquisition of a manufacturing plant in Juarez, Mexico, and transfer of many product lines from Spokane to the lower-cost manufacturing environment.

Hiller and his team returned Key Tronic to profitability in fiscal 1995. For the year, Key Tronic earned almost $4.5 million on sales of $207 million. Company stock hit its historical peak of $18.25 in mid-1995.

True to the pattern he established in his long string of previously successful corporate rescue projects, Hiller began his withdrawal from Key Tronic after that third quarter of fiscal 1995.

The board named Wenninger - formerly an executive of Hewlett-Packard, president of Allied Signal’s Bendix/King avionics subsidiary, and CEO of Iomega Corp. - as Hiller’s successor. Hiller became board chairman.

At almost the moment Wenninger arrived, the worldwide personal computer industry went into a slump and several of the companies that are Key Tronic’s major customers found themselves with too much inventory. They responded by reducing or eliminating orders from Key Tronic.

Problems at the company’s Irish manufacturing facility also produced losses. A year ago, Wenninger moved those production lines to Juarez.

Lost orders and costs associated with shifting production from Ireland to Mexico added up to a fiscal nightmare in 1996. Key Tronic lost almost $1.9 million during fiscal 1996. Things began to turn around with a thin profit of $200,000 for the first quarter of fiscal 1997. But those profits dwindled to only $19,000 for the second quarter.

Then, last month, Wenninger announced that another industry slow-down would take its toll. He said earnings for the current quarter would fall short of analysts’ expectations. Analysts anticipated $52 million in sales for the quarter, and earnings of five cents a share. Key Tronic officials said their new projections put sales expectations at only $45 million.

Key Tronic stock closed Wednesday at $5.44.

Those are the circumstances that, Wenninger believes, convinced the board to make a change. But he said several initiatives he has taken during his tenure have positioned the company to succeed.

Those include guiding the company to markets beyond computer input devices; continued cost reductions by shifting more operations to Juarez; the potential of fingerprint recognition devices and Smart Card technologies being developed by Key Tronic through strategic partnerships; and preparing to establish a manufacturing presence in the Pacific Rim.

“I believe Jack Oehlke will do a great job of driving the company to execute the changes that are required,” Wenninger said.

“We have already done much in recent years to modernize and streamline our operations,” Oehlke, 51, said in a news release Wednesday. “Though we still face considerable challenges ahead, I have great confidence in our management team, our employees and the unique core strengths of the company.”

“Jack has been instrumental in improving our manufacturing capability and product quality,” Hiller said in the same news release. “He has the leadership capabilities to help Key Tronic move forward and realize its full potential.”

Wenninger said he hasn’t had time to think of his future plans. He owns 7,000 acres of wheatland in Oklahoma and Colorado, and says he will spend the next few weeks managing those harvests. But he said he and his wife plan to maintain their home in Spokane for the foreseeable future.

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