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Key Tronic announces plans to cut 10 positions

Valley manufacturer says first-quarter income fell

Spokane Valley contract manufacturer Key Tronic Corp. plans to lay off about 10 of its local employees to cut costs after projecting a loss of at least $1.5 million in its latest quarter.

The publicly traded company had 200 workers in the Spokane area before the cuts. The positions eliminated were across the board, Key Tronic Chief Financial Officer Ron Klawitter said.

He said the company will announce its fiscal year first-quarter results Nov. 4. Klawitter said Key Tronic is projecting a loss of 14 cents to 17 cents per share.

“This is the first loss we’ll have since 2004,” Klawitter said. “We will make the needed adjustments because we don’t want to deal with another loss beyond this one,” he added.

Down the line, Key Tronic is considering additional pay cuts to some employees. But that might happen only after executives evaluate the company’s performance over the next two quarters, he said.

He also said the loss in the first quarter came unexpectedly. On Sept. 1, Key Tronic announced it would pay about $49 million for CDR, a Kentucky-based electronics manufacturer.

That purchase was expected to reduce earnings by about 6 cents a share, the company said.

But two other factors hurt the bottom line, Klawitter said. The first was a reduction in orders by one of its larger customers.

The other involved unexpected high production costs associated with a rushed order for a new manufacturing customer, Klawitter said.

In order to help the new customer introduce the product, Key Tronic went through a series of early test runs and a series of costly production adjustments, Klawitter said.

“We had to eat those costs in order to keep that customer,” Klawitter said. He did not identify that new customer.

The Nov. 4 report will include guidance for Key Tronic’s second-quarter financials, which Chief Executive Officer Craig Gates has said should show a return to profitability.

Gates said the acquisition of CDR will be a source of new revenue in the next quarter. CDR has seen annual sales of $120 million. While company officials have carefully avoided projecting the exact benefit it will get in the deal, analysts say CDR should contribute about $30 million to Key Tronic’s second-quarter revenue.

Key Tronic’s fiscal year second quarter will end in late December.

Key Tronic started in 1969 as a maker of computer mice and keyboards.

It later shifted to contract manufacturing, which in 2013 accounted for 98 percent of all Key Tronic’s sales.

Its global workforce is about 3,300 and includes production sites in the United States, Mexico and China.

In the last quarterly loss reported by Key Tronic in 2004, a major factor was a $7 million settlement the company made with two inventors who sued over alleged misuse of trade secrets. The settlement followed a Seattle jury verdict of $19.6 million against Key Tronic. Key Tronic denied any wrongdoing but agreed to settle to end the litigation.

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