Key Tronic Corp. says its base of contract-manufacturing customers continued to grow in its latest fiscal year, while its dependence on its largest customers declined for the third straight year.


The Spokane-based contract manufacturer and keyboard maker made the disclosures in its 10-K annual report, filed last month with the U.S. Securities and Exchange Commission for its fiscal year ended July 3.


Key Tronics sales for that 12-month period jumped 14 percent to $148.9 million and it said new customers accounted for about $8.2 million of that $18 million increase, while sales to existing customers climbed about $9.8 million.


Some of these customers have programs that represent small annual sales, while others have multimillion-dollar potential, the company said in the annual report.


The report didnt say just how many significant new customers the company added, but Chief Financial Officer Ron Klawitter says that number jumped to 17 in fiscal 2004, from 13 and 12, respectively, the two previous years.


Meanwhile, Key Tronic said, its top five customers accounted for 58 percent of its total sales in its latest fiscal year, down from 64 percent and 85 percent, respectively, in the two prior years.


The company notes in the annual report that its customer base remains highly concentrated and could become even more concentrated. It typically doesnt enter into long-term volume purchase contracts, and its customers have certain rights to extend or delay the shipment of their orders, which together make forecasting future sales difficult.


Nevertheless, Klawitter says Key Tronic is making steady gains in broadening its customer base to the point where cutbacks by its larger customers have less severe impacts on its operations.


I believe the trend looks very good, he says. Were picking up share. Were holding our own against the big guys, and that says something.


In announcing Key Tronics fourth-quarter and year-end financial results in August, President and CEO Jack Oehlke said investments the company has made in its plants in Mexico and China have given us the production capacity and the logistical advantages to help us to continue to win new business.


He predicted revenue growth of 5 percent to 15 percent and earnings in the range of 3 cents to 6 cents a share in the companys fiscal 2005 first quarter, for which results will be released on Nov. 2.


Key Tronic reported net income of $265,000, or 3 cents a share, for its fiscal 2004 fourth quarter, which compared with $551,000, or 6 cents a share, in the year-earlier period.


For its entire fiscal year, it had net income of $110,000, or 1 cent a share, compared with $13.4 million, or $1.39 a share, in fiscal 2003. The 2003 figure included a one-time, $12.1 million credit representing money the company received after it settled a lawsuit filed against it by two inventors.


As of Aug. 1 of this year, the company had an order backlog of about $68.1 million, almost double the $34.9 million backlog of a year earlier.


Key Tronic employed about 2,847 employees at the end of its latest fiscal year, up about 160 from a year earlier and up about 850 from mid-2002. The increase, it said, was due mostly to the hiring of additional production workers at its Juarez, Mexico, plant.


Last May, it leased an additional 38,000-square-foot manufacturing facility in Juarez for product-assembly and warehouse use. Also during the last fiscal year, it added 9,000 square feet of space to its main manufacturing facility there to accommodate new equipment and to improve the flow of outbound product shipping.


Those additions boosted its Mexico operations to about 450,000 square feet of manufacturing and warehouse space, it said in its annual report. That compares with a combined total of about 337,000 square feet of space at its other locations, in the U.S., China, and Ireland, including about 135,000 square feet in the Spokane area.


Fewer than 200 of the companys employees work in the Spokane area. Its other U.S. operations are in El Paso, Texas, and Las Cruces, N.M.


Founded here in 1969, Key Tronic honed its skills in the design and manufacture of computer keyboards. However, rapid consolidation in the keyboard market and a steady decline in prices led the company to begin transitioning into higher-margin contract-manufacturing workmost for what it refers to as electronic manufacturing services, or EMS, customersin the late 1990s.


The products it now makes for other manufacturers range from consumer-electronics and household items, to specialty printers, educational toys, and computer accessories. In its latest fiscal year, contract manufacturing accounted for 91.1 percent of its total sales, up from 88.6 percent the previous year.


Key Tronic said in its annual report that its 14 percent increase in sales in fiscal 2004 was related to its successful expansion of the number of manufacturing programs with existing customers and acquiring new significant customers during the year, offset in part by a large decrease in demand from a single customer.


It didnt identify that customer in that narrative, but a separate table showed that Key Tronics revenues from its largest customer, the Clorox Co., had plummeted to 16 percent of its total revenues in the latest fiscal year from 31 percent the previous year.


In an interview last year, Key Tronic executives cited the Clorox ReadyMop as a departure from Key Tronics traditional manufacturing work and a huge piece of business. They said they hoped to use that as a springboard for other contract-manufacturing projects with Clorox.


Klawitter says the decrease in demand from Clorox was part of a natural new-product evolution, and that because Key Tronic has a broader customer base now, It didnt have as great an impact as it would have in the past.


He says, Were not trying to reduce revenue from any one customer, but adds, We like having no customer greater than 20 percent of our revenue. As we pick up additional new business or new customers, that will have the effect of diluting the impact of any one customer even more.


Competition in the EMS industry is intense, and Key Tronic estimates it currently has less than 1 percent of the potential market. It says, though, that it believes it can build that market share, partly by seeking out work involving innovative design and engineering, short lead times, or small initial volumes.


The companys stock price closed last week at $3.32 a share, up from an extended stay at about $1 a share early last year.