Hiller Begins Key Tronic Exit Turnaround Architect To Reduce Role As Company Progresses

We’re almost to that place in the movie where the grizzled old prospector turns to the town marshal and says, “Say, who was that masked man, anyway?”

Stanley Hiller, his work nearly done at Key Tronic Corp., is preparing to slip quietly out of town and ride off into the sunset.

After a three and one-half year ride in which he produced yet another in a string of near-miraculous corporate turnarounds, Hiller announced Tuesday that he will step down as Key Tronic’s chief executive officer on Sept. 1.

“This is just the transition phase of our working our way away from the company,” Hiller said Tuesday in a telephone interview from the offices of The Hiller Group in Menlo Park, Calif. “It will still be some time that I’ll remain involved in the company, but by the nature of the patterns we follow in our business, at some point, we step out and let the incumbent group take over.”

Hiller will be succeeded by Fred Wenninger, who will become president, chief executive officer and a member of the Key Tronic board. Wenninger was formerly an executive of Hewlett-Packard, president of Allied Signal’s Bendix/King avionics subsidiary and CEO of Iomega Corp.

Tom Cason, a longtime member of Hiller’s turnaround team, is currently Key Tronic’s president and chief operating officer. Cason will continue his association with The Hiller Group, and will remain on Key Tronic’s board.

Hiller will become board chairman, with current chairman Wendell Satre remaining on the board as chairman emeritus.

Other members of Key Tronic’s senior management who engineered the company’s turnaround will remain in their positions.

Key Tronic is only the most recent in a series of corporate turnarounds produced by Hiller over the past 25 years. But the Spokane manufacturer of computer keyboards is an almost textbook example of how Hiller built his career. He is invited into stagnant or dying companies and over a two-to-four-year period, returns them to vitality and growth.

“This is just another occurrence in the lifetime of a couple of dozen companies where we’ve restructured operations so they could stand on their own,” Hiller said Tuesday. “Key Tronic is a fine company and it has a real opportunity for growth.”

Three years ago, Key Tronic was anything but a fine company.

Founded in 1969 by Lewis G. Zirkle Sr., Key Tronic quickly became one of Spokane’s hottest success stories.

At its peak in 1984, the company employed 2,500 and earned $11 million on sales of $131 million.

But as the computer industry matured and entered into the stage of ever-increasing price competition, Key Tronic couldn’t keep up.

Key Tronic was moribund in early 1992 with its stock price sinking below $3 a share when Hiller came on the scene and began working his wonders.

After absorbing the costs of Hiller’s restructuring, the company returned to profitability in fiscal ‘95. For the three quarters ended April 1, the company earned $2.6 million on sales of $147 million.

The stock price hit a peak of $18.25 earlier this year. Trading on the NASDAQ exchange, the stock closed at $16.25 Tuesday. In its May issue of Pacific Northwest Outlook, Piper Jaffray continues to rate Key Tronic a strong buy, with a target price of $23.

So consistent has Hiller been in his turnaround successes that a number of investors have made a habit - and a good deal of money - by simply following him from project to project.

Rather than a salary, Hiller’s principal compensation in his turnaround deals is through stock options. And the Key Tronic project will pay off handsomely for Hiller.

When he came into the company, he acquired two blocks of options. Earlier this year, he exercised an option to buy 750,000 shares of Zirkle’s stock at $7 per share, and resold 500,000 of the shares at profit of $6.50 per share.

Hiller continues to hold options to purchase 2.4 million shares of Key Tronic stock at $4.50 per share.

Hiller achieved the Key Tronic turnaround by cost-cutting, consolidation and acquisition.

He bought Honeywell’s keyboard division, including a Juarez, Mexico, manufacturing plant. He then closed the company’s plant in Cheney, sending a lot of that work to Mexico.

But the company’s vitality has allowed him to rebuild Key Tronic’s employment in Spokane County to about 1,100, about 100 more than existed before the closure of the Cheney plant.

Under Hiller’s guidance, Key Tronic has also established alliances with the major players in the computer industry. The company is the exclusive manufacturer of innovative keyboards for both Microsoft and IBM. Sales of those products thus far have exceeded the expectations of all the companies involved.

“Spokane is a good place for a company like Key Tronic,” Hiller said Tuesday. “And in the company, we have a combination of excellent people and a base of some very fine customers. Its future is something we’re all looking forward to.”

If Hiller stays true to his pattern in previous companies, he will remain as board chairman for a few more months, and then move on to another project.

“But,” he said, “it’s really too soon to talk about something else. My responsibility now is to leave this company in the best shape I can.”

, DataTimes ILLUSTRATION: Graphic: Hiller’s legacy at Key Tronic

MEMO: This sidebar appeared with the story: HILLER’S LEGACY AT KEY TRONIC Key Tronic’s stock price has rallied under Stanley Hiller’s tenure as the company has become a major supplier for Microsoft and other industry heavyweights. Corporate restructuring under Hiller included the closure of the company’s Cheney manufacturing facility and the shifting of the manufacture of some product lines to Mexico. But the company now employs more people in Spokane County than it did prior to the Cheney closure. February 1992 - Hiller joins company May 1993 - Honeywell acquistion < January 1994 - Cheney plant closes September 1994 - Microsoft keyboard announced March 1995 - IBM ThinkPad contract announced