TABLE OF CONTENTS LINK

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-KAnnual Report Pursuant to Section 13 or 15(d)ofThe Securities Exchange Act of 1934

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|For the Fiscal Year Ended |  | Commission File Number             
|------------------------- |  | -----------------------------------
|June 30, 2001             |  | 0-11559                            
|                          |  |                                    
|KEY TRONIC CORPORATION   
|                          |  |                                    
|Washington                |  | 91-0849125                         
|(State of Incorporation)  |  | (I.R.S. EmployerIdentification No.)

N. 4424 Sullivan Road Spokane, Washington 99216(509) 928-8000

Securities registered pursuant to Section 12(b) of the Act: NoneSecurities registered pursuant to Section 12(g) of the Act: Common Stock

The registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months, and has been subject to such filing
requirements during the past 90 days.

Indicate by checkmark if delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

The aggregate market value of the voting stock held by non affiliates of the Registrant was $19,619,967 as of June 30, 2001.

The number of shares of Common Stock of the Registrant outstanding as of June 30, 2001 was 9,672,580 shares.

The Exhibit Index is located at page 28.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference to the extent specified herein:

|Document Description                     |  | 10-K Part
|---------------------------------------- |  | ---------
|Proxy Statement dated September 26, 2001 |  | III      

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KEY TRONIC CORPORATION2001 FORM 10-K

TABLE OF CONTENTS

|         |  |                                                                                       |  | Page   
|-------- |  | ------------------------------------------------------------------------------------- |  | -------
|         |  |                                                                                       |  |        
|         |  | Part I                                                                                |  |        
|         |  |                                                                                       |  |        
|Item 1.  |  | Business                                                                              |  | 3 - 6  
|Item 2.  |  | Properties                                                                            |  | 6      
|Item 3.  |  | Legal Proceedings                                                                     |  | 6 - 7  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 7      
|         |  |                                                                                       |  |        
|         |  | Part II                                                                               |  |        
|         |  |                                                                                       |  |        
|Item 5.  |  | Market for the Registrant's Common Stock and Related Stockholder Matters              |  | 7      
|Item 6.  |  | Selected Financial Data                                                               |  | 7      
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 8 - 12 
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 12     
|Item 8.  |  | Financial Statements and Supplementary Data                                           |  | 13 - 26
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |  | 26     
|         |  |                                                                                       |  |        
|         |  | Part III                                                                              |  |        
|         |  |                                                                                       |  |        
|Item 10. |  | Directors and Executive Officers of the Registrant                                    |  | 26 - 27
|Item 11. |  | Executive Compensation                                                                |  | 27     
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 27     
|Item 13. |  | Certain Relationships and Related Transactions                                        |  | 27     
|         |  |                                                                                       |  |        
|         |  | Part IV                                                                               |  |        
|         |  |                                                                                       |  |        
|Item 14. |  | Exhibits, Financial Statement Schedule, Reports on Form 8-K and Signatures            |  | 28 - 31

2

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FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements in addition to historical information. Forward-looking statements are subject to certain risks and uncertainties that could cause actual
results to differ materially from those reflected in the forward-looking statements. Risks and uncertainties that might cause such differences include, but are not limited to those outlined in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Risks and Uncertainties that May Affect Future Results." Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's opinions only as of the date hereof. The
Company undertakes no obligation to revise or publicly release the results of any revision to forward-looking statements. Readers should carefully review the risk factors described in other documents the Company files from time to time with the
Securities and Exchange Commission, including Quarterly Reports on Form 10-Q.

PART I

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

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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.

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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 incometaxes           |  | $ |                 |  | $ | (14,714         | ) |  | $ | 2,955             |  | $ | (978               | ) |  | $ | 1,865               |  | $ | 142          |   |  | $ | (10,730      | )
|                                         
|Total assets                              |  | $ |                 |  | $ | 68,394          |   |  | $ | 20,703            |  | $ | 5,879              |   |  | $ | 8,056               |  | $ | (28,661      | ) |  | $ | 74,371       |  
|                                         
|2000Net 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       |  
|                                         
|1999Net 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      |  

|
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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.

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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.

Item 2.    PROPERTIES

On December 27, 2000, the Company sold two contiguous parcels of land and its corporate headquarters building in Spokane to Royal Hills Associates L.L.C. (RHA) for approximately $6 million in
cash. In connection with the sale, the Company entered into a 10-year lease agreement with RHA for one floor of the two-story building, which the Company will continue to occupy as its headquarters. The initial monthly rent is $30,875 plus allocated
expenses. Under the terms of the sale agreement, the Company has guaranteed the rent on the second floor of the building for one year following the closing date of December 27, 2000 (see Capital Resources and Liquidity for further discussion).
Proceeds from the sale of these properties was used to pay off the balance of the Company's term loan with General Electrical Capital Corporation (GECC) in the amount of $2,702,000, and to pay down the Company's revolving line of credit (also with
GECC) by $2.4 million. The Company also owns a 165,000 sq. ft. assembly and molding facility in Juarez, Mexico in addition to a 45,000 sq. ft. manufacturing and assembly facility in Las Cruces, New Mexico. The Company leases manufacturing facilities
in the Spokane Industrial Park which total 156,000 sq. ft. and two warehouses in El Paso, Texas, totaling 52,800 sq. ft. One of the leases at the industrial park expired on July 31, 2001, while the other facility lease was renewed until July 31,
2003. In Dundalk, Ireland, the Company leases 24,200 sq. ft. of office and warehouse space. This lease expires on March 1, 2002. The two leases in El Paso were renewed during fiscal year 2001, and both expire on July 31, 2003. In March 2000, the
Company entered into a five-year lease for a 140,000 sq. ft. manufacturing facility in Reynosa, Mexico. In September 1997, the Company signed a five-year operating lease with a local company for property owned by the Company which is located in
Cheney, Washington. The lease terms give the lessee an option to buy the property upon notice at any time during the course of the lease. During the fourth fiscal quarter of 1998, the Company leased space of approximately 36,000 sq. ft. in a
building in Shanghai, China. The Company began an assembly operation in this facility in the third quarter of fiscal year 1999. The Company considers its properties in good condition, well maintained and suitable for operations. The Company
considers the productive capacity of its current facilities sufficient to carry on the Company's business.

Item 3.    LEGAL PROCEEDINGS

The Company currently has fifteen lawsuits by computer keyboard users that are in state or federal courts in New York. These suits allege that specific keyboard products manufactured by the
Company were sold with manufacturing, design and warning defects which caused or contributed to their injury. The alleged injuries are not specifically identified but are referred to as repetitive stress injuries (RSI) or cumulative trauma disorders
(CTD). These suits seek compensatory damages and some seek punitive damages. It is more likely than not that compensatory damages, if awarded, will be covered by insurance; however, the likelihood that punitive damages, if awarded, will be covered
by insurance is remote. A total of 123 suits have been dismissed in California, Connecticut, Florida, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania and Texas. Given the inherent uncertainty in
litigation, the inherently limited information available with respect to unasserted claims, and the complexity of the circumstances surrounding these matters, management estimates are subject to and will change or be established as facts and
circumstances warrant.

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The Company is also subject to various legal proceedings that arise in the ordinary course of business. In the opinion of management, the outcome of these matters is not expected to have any
material effect on the consolidated financial position or results of operations of the Company.

Also see Note 10 to the June 30, 2001 Consolidated Financial Statements.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

Item 5:     MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Market Information

Key Tronic Corporation's common stock is traded in the over-the-counter market and is listed on the NASDAQ National Market System under the symbol KTCC. Quarterly high and low sales prices for
Key Tronic common stock for fiscal years 2001 and 2000 were as follows:

|2001           |  | 2000 
|-------------- |  | -----
|               | 
|               |  |      
|First Quarter  |  | 5.438
|Second Quarter |  | 5.125
|Third Quarter  |  | 3.031
|Fourth Quarter |  | 2.250

High and low stock prices are based on the daily closing price reported by the NASDAQ National Market System. These quotations represent prices between dealers without adjustment for markups,
markdowns, and commissions, and may not represent actual transactions.

Holders and Dividends

As of June 30, 2001, the Company had 1,400 shareholders of record. The Company's current line of credit agreement contains a covenant that prohibits the declaration or payment of dividends (see
Note 5 to Consolidated Financial Statements). The Company has never paid a cash dividend and does not anticipate payment of dividends on its Common Stock in the foreseeable future.

The following selected consolidated financial data of the Company should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the other financial information included elsewhere in this Form 10-K.

Item 6:    SELECTED FINANCIAL DATA

KEY TRONIC TEN-YEAR FINANCIAL HIGHLIGHTS(Dollars in millions, except share amounts)

|                                                   |  |   | 2001  |   |  |   | 2000  |   |  |   | 1999  |  |   | 1998  |   |  |   | 1997  |  |   | 1996  |   |  |   | 1995  |  |   | 1994  |   |  |   | 1993  |  |   | 1992  |  
|-------------------------------------------------- |  | - | ----- | - |  | - | ----- | - |  | - | ----- |  | - | ----- | - |  | - | ----- |  | - | ----- | - |  | - | ----- |  | - | ----- | - |  | - | ----- |  | - | ----- | -
|Net sales                                          |  | $ | 165.9 |   |  | $ | 164.4 |   |  | $ | 178.3 |  | $ | 170.1 |   |  | $ | 184.9 |  | $ | 201.0 |   |  | $ | 207.5 |  | $ | 159.4 |   |  | $ | 123.3 |  | $ | 124.0 |  
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Operating income (loss)                            |  |   | (9.5  | ) |  |   | (3.5  | ) |  |   | 5.2   |  |   | 1.2   |   |  |   | 1.9   |  |   | 0.2   |   |  |   | 9.8   |  |   | (8.3  | ) |  |   | 3.7   |  |   | (7.7  | )
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Net income (loss)                                  |  |   | (11.4 | ) |  |   | (5.3  | ) |  |   | 3.0   |  |   | (0.9  | ) |  |   | 0.3   |  |   | (1.8  | ) |  |   | 4.4   |  |   | (1.1  | ) |  |   | 3.8   |  |   | (7.5  | )
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Net income (loss) per share                        |  |   | (1.18 | ) |  |   | (.55  | ) |  |   | 0.32  |  |   | (0.09 | ) |  |   | 0.03  |  |   | (0.22 | ) |  |   | 0.53  |  |   | (0.13 | ) |  |   | 0.49  |  |   | (0.97 | )
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Depreciation/amortization                          |  |   | 5.9   |   |  |   | 6.3   |   |  |   | 6.9   |  |   | 9.6   |   |  |   | 8.9   |  |   | 10.0  |   |  |   | 8.9   |  |   | 8.6   |   |  |   | 6.3   |  |   | 6.9   |  
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Total assets                                       |  |   | 74.4  |   |  |   | 95.8  |   |  |   | 101.0 |  |   | 97.0  |   |  |   | 100.2 |  |   | 93.5  |   |  |   | 115.1 |  |   | 101.9 |   |  |   | 61.8  |  |   | 62.2  |  
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Net working capital                                |  |   | 22.9  |   |  |   | 37.1  |   |  |   | 41.8  |  |   | 34.6  |   |  |   | 38.5  |  |   | 28.0  |   |  |   | 37.7  |  |   | 28.5  |   |  |   | 20.0  |  |   | 17.2  |  
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Long-term debt (netof current)                     |  |   | 9.4   |   |  |   | 17.6  |   |  |   | 20.6  |  |   | 22.9  |   |  |   | 27.0  |  |   | 17.3  |   |  |   | 28.5  |  |   | 26.6  |   |  |   | 0.8   |  |   | 0.8   |  
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Shareholders' equity                               |  |   | 35.3  |   |  |   | 46.6  |   |  |   | 51.9  |  |   | 48.8  |   |  |   | 49.8  |  |   | 49.5  |   |  |   | 51.3  |  |   | 44.5  |   |  |   | 43.4  |  |   | 40.5  |  
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Book value per share                               |  |   | 3.65  |   |  |   | 4.83  |   |  |   | 5.39  |  |   | 5.06  |   |  |   | 5.18  |  |   | 5.80  |   |  |   | 6.06  |  |   | 5.38  |   |  |   | 5.54  |  |   | 5.21  |  
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Cash dividends pershare                            |  |   | 0     |   |  |   | 0     |   |  |   | 0     |  |   | 0     |   |  |   | 0     |  |   | 0     |   |  |   | 0     |  |   | 0     |   |  |   | 0     |  |   | 0     |  
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Number of sharesoutstandingat year end (thousands) |  |   | 9,673 |   |  |   | 9,641 |   |  |   | 9,631 |  |   | 9,631 |   |  |   | 9,611 |  |   | 8,534 |   |  |   | 8,456 |  |   | 8,271 |   |  |   | 7,837 |  |   | 7,757 |  
|                                                   |  |   |       |   |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |   |  |   |       |  |   |       |  
|Number of employeesat year end                     |  |   | 2,151 |   |  |   | 1,926 |   |  |   | 1,951 |  |   | 2,721 |   |  |   | 2,429 |  |   | 2,824 |   |  |   | 2,925 |  |   | 2,163 |   |  |   | 1,204 |  |   | 1,618 |  



| ̄ | 7
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Item 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS



RESULTS OF OPERATIONS

Fiscal year 2001: Fiscal year 2001 sales increased approximately 1% from the prior year. This slight increase is primarily due to the expansion of the Company's electronic manufacturing services
(EMS) operations; the increase was smaller than the company expected due to decreased orders from one major customer. Unit keyboard sales decreased 43% from the prior year, while the average selling price increased 8.2%. The increase in average
selling price was primarily due to a higher percentage of keyboard sales to distributors. Distribution sales generally have higher margins than sales to OEM customers. The Company was successful in expanding its EMS business from 56% of total
revenue in 2000 to 75% in 2001. The Company continues to emphasize cost control to address price reductions expected by our customers.

If keyboard technology remains the same, price erosion is expected to continue in future years. The Company continues to focus its molding and manufacturing capabilities on increasing production
in the EMS market. At the present time, return on investment in this market tends to be more lucrative than for keyboards. The Company's gross profit percentage decreased 4.2% to 4.6% in fiscal year 2001 compared to fiscal year 2000. This decrease
is primarily due to the decline of orders by one significant customer resulting in lower sales and increased excess operating capacity. There were also lower sales in the distribution keyboard business which traditionally has much higher margins
than the OEM market.

Fiscal year 2000: Fiscal year 2000 sales decreased 8% from the prior year. The decrease was primarily due to a decline in the Company's distribution keyboard sales. Unit keyboard sales decreased
42.4% from the prior year, and the average selling price decreased 13.7%. This impacted the Company's gross profit in 2000 by a decrease of 6.9% to 8.8%. The Company was successful in expanding its EMS business from 21% of total revenue in 1999 to
56% in 2000. The Company continued to emphasize cost control to combat the pressures of ever decreasing unit prices for its keyboards. In 2000, the Company was working with a subcontractor in China for the assembly of keyboards and other input
devices, but ended this contract in 2001.

RISKS AND UNCERTAINTIES THAT COULD AFFECT FUTURE RESULTS

The following risks and uncertainties could affect the Company's actual results and could cause results to differ materially from past results or those contemplated by the Company's
forward-looking statements. When used in this discussion and analysis and elsewhere in this annual report, the words "expects," "believes," "anticipates" and similar expressions are intended to identify forward-looking
statements. Actual future results may differ materially due to uncertainties including risks identified in: Potential Fluctuations In Quarterly Results, Competition, Concentration of Major Customers, Dependence on Key Personnel, Litigation,
Technological Change and New Product Risk, Dilution and Stock Price Volatility. Forward-looking statements are based on management's opinions as of the date of this report.

Potential Fluctuations in Quarterly Results: The Company's quarterly operating results have varied in the past and may vary in the future due to a variety of factors, including changes in
overall demand for computer products, success of customers' programs, timing of new programs, new product introductions or technological advances by the Company, its customers and its competitors, and changes in pricing policies by the Company. For
example, the Company relies on customers' forecasts to plan its business. If those

| ̄ | 8
|- | -

---



forecasts are overly optimistic, the Company's revenues and profits may fall short of expectations. Conversely, if those forecasts are too conservative, the Company could have an unexpected
increase in revenues and profits.

Competition:   The EMS business and the keyboard industry are intensely competitive. The Company's major competitors in the EMS business are much larger and may be able to offer
customers lower prices and less risk particularly on large volume programs. Most of the Company's principal competitors in the keyboard industry are headquartered in Asian countries that have a low-cost labor force. Those competitors may be able to
offer customers lower prices on certain high-volume programs. This could result in price reductions, reduced margins and loss of market share, all of which would materially and adversely affect the Company's business, operating results and financial
condition. In addition, competitors can copy the Company's non-proprietary designs after the Company has invested in the development of products for customers, thereby enabling competitors to offer lower prices on such products due to savings in
development costs.

Concentration of Major Customers:   At present, the Company's customer base is highly concentrated and could become even more concentrated. Three of the Company's OEM customers
accounted for 39%, 27%, and 5% of net sales during fiscal year 2001. In 2000, these same customers accounted for 38%, 13%, and 9% of net sales. There can be no assurance that the Company's principal customers will continue to purchase products from
the Company at current levels. Moreover, the Company typically does not enter into long-term volume purchase contracts with its customers, and the Company's customers have certain rights to extend or delay the shipment of their orders. The loss of
one or more of the Company's major customers, or the reduction, delay or cancellation of orders from such customers, could materially and adversely affect the Company's business, operating results and financial condition.

Dependence on Key Personnel:   The Company's future success depends in large part on the continued service of its key technical, marketing and management personnel and on its
ability to continue to attract and retain qualified employees. The competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. The loss of key employees
could have a material adverse effect on the Company's business, operating results and financial condition.

Litigation:   The Company currently has fifteen lawsuits by computer keyboard users which are in state or federal courts in New York. These suits allege that specific keyboard
products manufactured by the Company were sold with manufacturing, design and warning defects which caused or contributed to injury. The alleged injuries are not specifically identified but are referred to as repetitive stress injuries (RSI) or
cumulative trauma disorders (CTD). These suits seek compensatory damages and some seek punitive damages. It is more likely than not that compensatory damages, if awarded, will be covered by insurance; however, the likelihood that punitive damages,
if awarded, will be covered by insurance is remote. A total of 123 lawsuits have been dismissed in California, Connecticut, Florida, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania and Texas.

Technological Change and New Product Risk:   The market for the Company's products is characterized by rapidly changing technology, evolving industry standards, frequent new
product introductions and relatively short product life cycles. The introduction of products embodying new technologies or the emergence of new industry standards can render existing products obsolete or unmarketable. The Company's success will
depend upon its ability to enhance its existing products, to develop and introduce, on a timely and cost-effective basis, new products that keep pace with technological developments and emerging industry standards, and to address evolving and
increasingly sophisticated customer requirements. Failure to do so could substantially harm the Company's competitive position. There can be no assurance that the Company will be successful in identifying, developing, manufacturing and marketing
products that respond to technological change, emerging industry standards or evolving customer requirements.

Dilution and Stock Price Volatility:As of June 30, 2001, there were outstanding options for the purchase of approximately 1,966,200 shares of common stock of the
Company (Common Stock), of which options for approximately 1,498,033 shares were vested and exercisable. Holders of the Common Stock will suffer immediate and substantial dilution to the extent outstanding options to purchase the Common Stock are
exercised. The stock price of the Company may be subject to wide fluctuations and possible rapid increases or decreases over a short time period. These fluctuations may be due to factors specific to the Company, such as variations in quarterly
operating results, or changes in analysts' earnings estimates, or to factors relating to the computer industry or securities markets in general, which, in recent years, have experienced significant price fluctuations. These fluctuations often have
been unrelated to the operating performance of the specific companies whose stocks are traded.

NET SALES

Net sales in 2001 were $165.9 million compared to $164.4 million and $178.3 million in 2000 and 1999, respectively. This represents an approximate increase of 1.0% in 2001. The average unit
selling prices of the Company's keyboard products increased by 8.2% in 2001 compared to 13.7% decrease in average unit selling price in 2000. The increase in 2001 is primarily due to the fact that the majority of sales were to distribution customers
where margins per keyboard are higher. EMS sales were 75.3% of total revenue in fiscal 2001 compared to 55.5% and 20.8% in fiscal years 2000 and 1999, respectively.

| ̄ | 9
|- | -

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COST OF SALES

In 2001, cost of sales was 95.4% of sales compared to 91.2% in 2000 and 84.3% in 1999. The increase in 2001 was due primarily to lower than expected revenues resulting in excess capacity in
operations. The increase in 2000 was due primarily to the decline in distribution keyboard revenues. The Company provides for warranty costs based on historical experience and anticipated product returns. The amounts charged to expense were
$220,000, $372,000, and $1,269,000 in 2001, 2000 and 1999, respectively. Also included in cost of sales is the Company's freight costs for shipping and handling to customers. The Company provides for obsolete and nonsaleable inventories based on
specific identification of inventory against current demand and recent usage. The amounts charged to expense were $435,000, $(359,000), and $1,674,000 in 2001, 2000, and 1999, respectively.

RESEARCH, DEVELOPMENT AND ENGINEERING

The Company's research, development and engineering (RD&E) expenses were $2.7 million, $2.8 million, and $4.9 million, in 2001, 2000, and 1999, respectively. As a percent of sales, these
expenses were 1.6%, 1.7%, and 2.7%, respectively. In 2001, 2000, and 1999, the Company focused most of its RD&E efforts on products for large OEMs. The number of RD&E projects has remained fairly constant over the course of the three years.
The decrease in fiscal year 2001 and 2000 was primarily the result of increased cost recovery for services performed on EMS projects.

SELLING

Selling expenses were $4.7 million, $6.3 million, and $9.3 million, in 2001, 2000, and 1999, respectively. Selling expenses as a percentage of revenues were 2.9%, 3.9%, and 5.2%, respectively.
The decrease in 2001 and 2000 was due to the decline in distribution keyboard sales, which resulted in lower costs for volume incentive rebates and cooperative advertising.

GENERAL AND ADMINISTRATIVE

General and administrative expenses were $9.6 million, $8.7 million and $8.6 million, in 2001, 2000, and 1999, respectively. General and administrative costs as a percentage of sales were 5.8%,
5.3%, and 4.9%, in 2001, 2000, and 1999, respectively. The increase in 2001 was due primarily to an increase in the Company's provision for doubtful accounts receivable of $714,000. General and administrative expenses for 1999 remained about the
same as 1998. The Company recorded $979,000 for its Incentive Compensation Program in 1999 based upon the Company's fiscal year 1999 performance.

INTEREST EXPENSE

The Company had interest expense of $2,125,000, $1,987,000, and $1,887,000 in 2001, 2000, and 1999, respectively. The increase in 2001 and 2000 was due to higher interest rates on the Company's
debt.

OTHER INCOME, NET

The Company had other income of $879,000 in 2001, $278,000 in 2000, and $1,480,000 in 1999. The increase in 2001 is primarily due to an increase in the gain from sales of fixed assets. The
decrease in 2000 was largely due to the gain due to the sale of real estate in Dundalk, Ireland recorded in 1999 (See Capital Resources and Liquidity).

INCOME TAXES

The Company had income tax expense of $643,000, $164,000, and $1,701,000 in 2001, 2000, and 1999, respectively. Income tax expense on foreign operations represented $643,000, $43,000, and
$513,000 of the income tax expense in 2001, 2000, and 1999, respectively. The Company has U.S. tax loss carryforwards of approximately $48.8 million that expire in varying amounts in the years 2006 through 2021.

The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," (See Note 7to the June 30, 2001 Consolidated Financial Statements).
Pursuant to SFAS No. 109, the Company has recorded a deferred tax asset. The balance of the deferred tax asset on June 30, 2001 was $4.5 million, which was net of a valuation allowance of $15.8 million.

INTERNATIONAL (MEXICO, EUROPE, ASIA)

The Company's Mexican subsidiary, Key Tronic Juarez, SA de CV, owns an assembly and molding facility in Juarez, Mexico. This subsidiary is primarily used to support the Company's US and European
operations. The Company's Mexican subsidiary, KTC Reynosa, S.A. de C.V., leases manufacturing facilities in Reynosa, Mexico. This subsidiary is used exclusively to manufacture products for an EMS customer.

| ̄ | 10
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Key Tronic Europe, Ltd. (KTEL), the Company's operation in Dundalk, Ireland, was restructured in fiscal years 1997 and 1996 to become a sales and distribution operation. The keyboards previously
manufactured in Dundalk, Ireland to support the European market are now assembled at the Juarez, Mexico and the Shanghai, China facilities.

Through Key Tronic Shanghai (KTS), the Company operates a facility in Shanghai, China, which began operations in 1999 and is used to support customers in that area as well as for
export.

Foreign sales from worldwide operations, including domestic exports, were $88.9 million in 2001 compared to $65.3 million and $75.4 million in 2000 and 1999, respectively. Foreign sales were
53.6% of net sales in 2001 compared to 39.7% and 42.3% in 2000 and 1999, respectively. Sales from KTEL represented 5.8% of consolidated sales to external customers in 2001, compared to 7.1% in 2000 and 9.9% in 1999, respectively. Sales from KTS
represented .9% of total sales in 2001 (See Note 12 to the June 30, 2001 Consolidated Financial Statements).

CAPITAL RESOURCES AND LIQUIDITY

The Company generated cash flows from operating activities of $7.5 million, $3.3 million, and $4.2 million in 2001, 2000, and 1999, respectively. Capital expenditures were $.7 million, $1.4
million, and $2.3 million in 2001, 2000, and 1999, respectively. The Company's cash position increased by $1.1 million and $1.6 million in fiscal years 2001 and 1999 respectively, compared to a decrease of $0.9 million in 2000. Cash generated from
operating and financing activities allowed the payment of $10.9 million in long-term debt and the purchase of $.7 million in property and equipment in fiscal 2001. The Company had working capital of $22.9 million at June 30, 2001 and $37.1 million
at July 1, 2000. The decrease in working capital was due primarily to a decrease in trade receivables. The Company's trade receivables were $21.7 million at June 30, 2001, a decrease of $12.3 million from 2000. The decrease is primarily due to
decreased sales in the last two quarters of fiscal year 2001.

On December 31, 1996, the Company entered into a secured credit agreement with General Electric Capital Corporation (GECC). The credit facility provided by this agreement originally included a
term loan in the amount of $11 million and a revolving loan for up to $30 million. During the second quarter of fiscal year 1998, the Company entered into an operating lease agreement with GECC, which reduced the borrowing limit on the revolving
loan by $4.2 million. The revolving loan and the term note were secured by the assets of the Company. The term note was paid in full on December 27, 2000 with proceeds from the sale of the Spokane headquarters facility. The agreement contained
financial covenants that related to maximum capital expenditures, minimum debt service coverage, minimum earnings before interest expense, income tax, depreciation, and amortization, and maximum leverage percentages. In addition to these financial
covenants, the credit agreement restricted investments, disposition of assets, and payment of dividends. At June 30, 2001, the Company received a waiver from GECC for non-compliance with certain debt covenants and received a letter of forbearance up
to the refinancing that occurred on August 24, 2001.

On August 24, 2001, the Company entered into a financing agreement with CIT Group/Business Credit, Inc. for a revolving credit facility of up to $25 million and paid off the GECC revolving loan.
The new revolving loan is secured by the assets of the Company. The financing agreement contains financial covenants that relate to maximum capital expenditures, minimum earnings before interest expense, income tax, depreciation, and amortization,
and minimum tangible net worth. The agreement is for a term of three years beginning on August 24, 2001 and ending on August 23, 2004. In addition to the financial covenants, the financing agreement restricts investments, disposition of assets, and
the payment of dividends.

The Company anticipates that capital expenditures of approximately $2.7 million will be required during the next fiscal year. Capital expenditures are expected to be financed through cash flow
from operating activities.

Real estate held for sale is carried at the lower of cost or net realizable value. In September of 1997, the Company entered into a five-year operating lease with a local firm for property owned
by the Company which is located in Cheney, Washington. Monthly lease payments received by the Company are $21,000. The lease terms include an option to buy the property upon notice at any time during the term of the lease.

In June of fiscal year 1999, the Company sold its real estate in Dundalk, Ireland for approximately $2.3 million. Approximately one third of this amount was received in cash at closing. In 2000
the Company collected an additional $1.0 million of the amount due. Substantially all of the remaining amount was received subsequent to year end. Under the terms of the sale agreement, the Company had rent free possession of the premises until
March 29, 2000. During March of 2000, the Company's Irish operations were moved from the premises to the Finnabair Industrial Park in Dundalk. In fiscal year 1999, the Company realized a gain of $775,000 net of Irish taxes of $251,000 on this
transaction.

The Company believes that funds available under the revolving credit facility and internally generated funds can satisfy cash requirements for a period in excess of 12 months.

| ̄ | 11
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New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." Under
SFAS No. 141, all business combinations should be accounted for using the purchase method of accounting; use of the pooling-of-interests method is prohibited. The provisions of the statement will apply to all business combinations initiated after
June 30, 2002. SFAS No. 142 includes requirements to test goodwill and indefinite lived intangible assets for impairment rather than amortize them. These standards will be adopted in fiscal 2002. The adoption of SFAS No. 141 and No. 142 are not
expected to have a material impact on the Company's financial statements.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", was adopted by the Company on July 2, 2000. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments and hedging activities. Under this statement, certain derivatives are recognized at fair market value, and changes in fair market value are recognized as gains or losses. The impact of adoption of SFAS133 was not material
to the Company's financial statements.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial Statements", which summarized the SEC's views in
applying generally accepted accounting principles to revenue recognition in financial statements. The Company's adoption of SAB No. 101 on July 2, 2000 did not have a material impact on the Company's operations or financial position.

Item 7A:     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to the risk of fluctuating interest rates in the normal course of business. The Company's major market risk relates to its secured revolving credit facility. A portion of
the Company's accounts receivable and inventories are used as collateral for its revolving debt. The interest rates applicable to the Company's revolving loan fluctuate with the JP Morgan Chase Bank prime rate. For the first year of the financing
agreement with CIT, a margin of 0.75% will be applicable as an adder to the prime rate. The agreement specifies four different levels of margin between 0.25% and 1.00% depending on the Company's earnings before interest, taxes, depreciation, and
amortization. Over the past year under the agreement with GECC, the interest rate on the Company's secured debt was based upon either LIBOR or an Index Rate. The LIBOR rate during the year fluctuated between 4.18% and 6.65%. The weighted average
variable interest rates for the Company's secured debt were 9.03% and 7.03% for fiscal years 2001 and 2000, respectively. The weighted average variable interest rates for the revolving debt for fiscal years 2001 and 2000 were 9.48% and 8.37%
respectively.

The Company does not enter into derivative transactions or leveraged swap agreements.

Although the Company does have international operations, the functional currency for all active subsidiaries is the US dollar. The Company imports for its own use raw materials that are used in
its manufacturing operations. Such purchases are denominated in US dollars and are paid for under normal trade terms.

The table below presents principal (or notional) amounts and related weighted average variable rates by fiscal year of maturity. The weighted average variable interest rates for fiscal years
2002 through 2005 are estimated based on implied forward rates in the yield curve as of June 30, 2001. These forward rates have been increased by .75% based on the financing agreement with CIT.





|                       |       |       |       |        |  |        |       
|---------------------- | ----- | ----- | ----- | ------ |  | ------ | ------
|
|
|                      
|Interest rate risk:    |       |       |       |        |  |        |       
|Secured revolving debt |       |       |       | $8,109 |  | $8,109 | $8,109
|Average interest rate  | 4.47% | 5.00% | 5.27% | 5.72%  |  |        |       





| ̄ | 12
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Item 8:     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors of Key Tronic Corporation:

We have audited the accompanying consolidated balance sheets of Key Tronic Corporation and subsidiaries (the Company) as of June 30, 2001 and July 1, 2000, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the years ended June 30, 2001, July 1, 2000, and July 3, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Key Tronic Corporation and subsidiaries at June 30, 2001 and July 1,
2000, and the results of their operations and their cash flows for the years ended June 30, 2001, July 1, 2000, and July 3, 1999, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLPDeloitte & Touche LLPSeattle, WashingtonAugust 3, 2001(August 24, 2001, as to Note 5)

| ̄ | 13
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|                                                            |        |  |     |        |   |       |         | 
|----------------------------------------------------------- | ------ |  | --- | ------ | - | ----- | ------- | 
|
|
|
|
|                                                            |        |  |     |        |   |       |        
|ASSETS                                                      |        |  |     |        |   |       |        
|                                                            |        |  |     |        |   |       |        
|Current assets:                                             |        |  |     |        |   |       |        
|Cash and cash equivalents                                   |        |  | $   | 2,137  |   | $     | 1,013  
|Trade receivables, less allowance for doubtful              |        |  |     |        |   |       |        
|accounts of $633 and $855                                   |        |  |     | 21,674 |   |       | 34,008 
|Inventories                                                 |        |  |     | 20,601 |   |       | 22,720 
|Real estate held for sale                                   |        |  |     | 1,697  |   |       | 1,843  
|Deferred income tax asset, net                              |        |  |     | 771    |   |       | 889    
|Customer tooling                                            |        |  |     | -      |   |       | 1,748  
|Other                                                       |        |  |     | 5,670  |   |       | 6,565  
|                                                           
|Total current assets                                        |        |  |     | 52,550 |   |       | 68,786 
|                                                           
|                                                            |        |  |     |        |   |       |        
|Property, plant and equipment-at cost                       |        |  |     | 99,228 |   |       | 103,175
|Less accumulated depreciation                               |        |  |     | 82,559 |   |       | 81,825 
|                                                           
|Total property, plant and equipment                         |        |  |     | 16,669 |   |       | 21,350 
|                                                           
|                                                            |        |  |     |        |   |       |        
|                                                            |        |  |     |        |   |       |        
|Other assets:                                               |        |  |     |        |   |       |        
|Deferred income tax asset, net                              |        |  |     | 3,746  |   |       | 3,627  
|Other (net of accumulated amortization of $1,849 and $964)  |        |  | 513 |        |   | 1,031
|Goodwill (net of accumulated amortization of $895 and $767) | 893    |  |     | 1,021 
|                                                           
|                                                            |        |  | $   | 74,371 |   | $     | 95,815 
|                                                           
|                                                           
|LIABILITIES AND SHAREHOLDERS' EQUITY                        |        |  |     |        |   |       |        
|                                                            |        |  |     |        |   |       |        
|Current liabilities:                                        |        |  |     |        |   |       |        
|Current portion of long-term obligations                    |        |  | $   | 150    |   | $     | 2,105  
|Accounts payable                                            |        |  |     | 21,385 |   |       | 24,315 
|Deferred sales proceeds                                     |        |  |     | 2,894  |   |       | -      
|Accrued compensation and vacation                           |        |  |     | 2,615  |   |       | 2,303  
|Accrued taxes other than income taxes                       |        |  |     | 973    |   |       | 1,146  
|Interest payable                                            |        |  |     | 69     |   |       | 54     
|Other                                                       |        |  |     | 1,578  |   |       | 1,735  
|                                                           
|Total current liabilities                                   |        |  |     | 29,664 |   |       | 31,658 
|                                                           
|                                                            |        |  |     |        |   |       |        
|                                                            |        |  |     |        |   |       |        
|Long-term liabilities:                                      |        |  |     |        |   |       |        
|Long-term obligations, less current portion                 |        |  |     | 9,389  |   |       | 17,555 
|                                                           
|Total long-term liabilities                                 |        |  |     | 9,389  |   |       | 17,555 
|                                                           
|Commitments and contingencies (Notes 5, 6, and 10)          |        |  |     |        |   |      
|                                                            |        |  |     |        |   |       |        
|                                                            |        |  |     |        |   |       |        
|Shareholders' equity                                        |        |  |     |        |   |       |        
|Common stock, no par value, authorized 25,000 shares;       |        |  |     |        |   |      
|issued and outstanding 9,673 and 9,641 shares, respectively | 38,393 |  |     | 38,304
|Retained earnings/(deficit)                                 |        |  |     | (3,320 | ) |       | 8,053  
|Accumulated other comprehensive income                      |        |  |     | 245    |   |       | 245    
|                                                           
|Total shareholders' equity                                  |        |  |     | 35,318 |   |       | 46,602 
|                                                           
|                                                            |        |  | $   | 74,371 |   | $     | 95,815 
|                                                           



| ̄ | 14
|- | --

---





CONSOLIDATED STATEMENTS OF OPERATIONS

|(In thousands, except per share amounts) |  | June 30, 2001 |         |   | Years Ended

July 1, 2000 |   |         | July 3, 1999
|---------------------------------------- |  | ------------- | ------- | - | ------------------------- | - | ------- | ------------
|                                        
|Net sales                                |  | $             | 165,865 |   |                           | $ | 164,353 |             
|Cost of sales                            |  |               | 158,309 |   |                           |   | 149,895 |             
|                                        
|Gross profit on sales                    |  |               | 7,556   |   |                           |   | 14,458  |             
|Operating expenses:                      |  |               |         |   |                           |   |         |             
|Research, development and engineering    |  |               | 2,717   |   |                           |   | 2,846   |             
|Selling                                  |  |               | 4,724   |   |                           |   | 6,333   |             
|General and administrative               |  |               | 9,599   |   |                           |   | 8,739   |             
|                                        
|Operating income (loss)                  |  |               | (9,484  | ) |                           |   | (3,460  | )           
|Interest expense                         |  |               | 2,125   |   |                           |   | 1,987   |             
|Other income, net                        |  |               | (879    | ) |                           |   | (278    | )           
|                                        
|Income (loss) before income taxes        |  |               | (10,730 | ) |                           |   | (5,169  | )           
|Income tax provision                     |  |               | 643     |   |                           |   | 164     |             
|                                        
|                                         |  |               |         |   |                           |   |         |             
|Net income (loss)                        |  | $             | (11,373 | ) |                           | $ | (5,333  | )           
|                                        
|Earnings (loss) per share:               |  |               |         |   |                           |   |         |             
|Earnings (loss) per common share         |  |               |         |   |                           |   |         |             
|Earnings (loss) per common share  basic |  |               | ($1.18  | ) |                           |   | ($0.55  | )           
| diluted                                |  |               |         |   |                           |   |         |             
|Weighted average shares outstanding      |  |               | 9,668   |   |                           |   | 9,637   |             
|Diluted shares outstanding               |  |               |         |   |                           |   |         |             
|                                        

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME

|                          |  |       |  |   |        |  |   |         |   |  | Accumulated |     |  |  
|------------------------- |  | ----- |  | - | ------ |  | - | ------- | - |  | ----------- | --- |  | -
|                         
|                         
|                         
|                         
|Balances, June 27, 1998   |  | 9,631 |  | $ | 38,273 |  | $ | 10,342  |   |  | $           | 245 |  | $
|                         
|Comprehensive income:     |  |       |  |   |        |  |   |         |   |  |             |     |  |  
|Net income  1999         |  |       |  |   |        |  | $ | 3,044   |   |  |             |     |  | $
|                         
|Balances, July 3, 1999    |  | 9,631 |  | $ | 38,273 |  | $ | 13,386  |   |  | $           | 245 |  | $
|                         
|Comprehensive income:     |  |       |  |   |        |  |   |         |   |  |             |     |  |  
|Net loss  2000           |  |       |  |   |        |  | $ | (5,333  | ) |  |             |     |  | $
|Exercise of stock options |  | 10    |  | $ | 31     |  |   |         |   |  |             |     |  | $
|                         
|Balances, July 1, 2000    |  | 9,641 |  | $ | 38,304 |  | $ | 8,053   |   |  | $           | 245 |  | $
|                         
|Comprehensive income:     |  |       |  |   |        |  |   |         |   |  |             |     |  |  
|Net loss  2001           |  |       |  |   |        |  | $ | (11,373 | ) |  |             |     |  | $
|Exercise of stock options |  | 32    |  | $ | 89     |  |   |         |   |  |             |     |  | $
|                         
|Balances, June 30, 2001   |  | 9,673 |  | $ | 38,393 |  | $ | (3,320  | ) |  | $           | 245 |  | $
|                         

See notes to consolidated financial statements.

| ̄ | 15
|- | --

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CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                   |          |   |         | Years Ended |        |        |        |       
|-------------------------------------------------- | -------- | - | ------- | ----------- | ------ | ------ | ------ | ------
|
|                                                  
|Increase (decrease) in cash and cash equivalents:  |          |   |         |             |        |        |        |       
|Cash flows from operating activities:              |          |   |         |             |        |        |        |       
|Net income (loss)                                  |          | $ | (11,373 | )           | $      | (5,333 | )      | $     
|Adjustments to reconcile net income (loss) to cash |          |   |         |             |        |        |        |       
|provided (used) by operating activities:           |          |   |         |             |        |        |        |       
|Depreciation and amortization                      |          |   | 5,886   |             |        | 6,330  |        |       
|Provision for obsolete inventory                   |          |   | 435     |             |        | (359   | )      |       
|Provision for doubtful receivables                 |          |   | 714     |             |        | 562    |        |       
|Provision for warranty                             |          |   | 220     |             |        | 372    |        |       
|Provision for litigation                           |          |   |        |             |        |       |        |       
|Gain on disposal of assets                         |          |   | (743    | )           |        | (43    | )      | (1,263
|Deferred income tax provision                      |          |   |        |             |        | 121    |        |       
|Changes in operating assets and liabilities:       |          |   |         |             |        |        |        |       
|Trade receivables                                  |          |   | 11,620  |             | (3,286 | )      | (8,516 | )     
|Inventories                                        |          |   | 1,683   |             |        | 2,535  |        | (1,847
|Customer tooling                                   |          |   | 1,258   |             |        | 701    |        |       
|Other assets                                       |          |   | 1,259   |             | (1,182 | )      | (1,951 | )     
|Accounts payable                                   |          |   | (2,931  | )           |        | 5,595  |        |       
|Accrued compensation and accrued vacation          |          |   | 312     |             |        | (966   | )      |       
|Deferred sales proceeds                            |          |   | (435    | )           |       |        |        |      
|Other liabilities                                  |          |   | (424    | )           | (1,791 | )      | (1,457 | )     
|                                                  
|Cash provided by operating activities              |          |   | 7,481   |             |        | 3,256  |        |       
|                                                  
|                                                   |          |   |         |             |        |        |        |       
|Cash flows from investing activities:              |          |   |         |             |        |        |        |       
|Purchase of property and equipment                 |          |   | (720    | )           | (1,439 | )      | (2,288 | )     
|Proceeds from sale leaseback of real estate        |          |   | 4,030   |             |       |        |        |      
|Proceeds from sale of property and equipment       |          |   | 1,226   |             |        | 92     |        |       
|                                                  
|Cash used by investing activities                  |          |   | 4,536   |             | (1,347 | )      | (1,245 | )     
|                                                  
|                                                   |          |   |         |             |        |        |        |       
|Cash flows from financing activities:              |          |   |         |             |        |        |        |       
|Payment of financing costs                         |          |   | (50     | )           |       |        |        |      
|Proceeds from issuance of common stock             |          |   | 89      |             |        | 31     |        |      
|Repayment of long-term debt                        |          |   | (3,307  | )           |       |        |        |      
|Borrowing under revolving credit agreement         | 176,008  |   |         |             |        |        |        |       
|Repayment of revolving credit agreement            | (183,633 | ) | (2,793  | )           | (1,402 | )     
|                                                  
|Cash used by financing activities                  |          |   | (10,893 | )           | (2,762 | )      | (1,402 | )     
|                                                  
|Increase (decrease) in cash and cash equivalents   |          |   | 1,124   |             |        | (853   | )      |       
|Cash and cash equivalents, beginning of year       |          |   | 1,013   |             |        | 1,866  |        |       
|Cash and cash equivalents, end of year             |          | $ | 2,137   |             | $      | 1,013  |        | $     
|                                                  

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.SIGNIFICANT ACCOUNTING POLICIES

Business

Key Tronic Corporation and subsidiaries (the Company) is engaged in electronic manufacturing services (EMS) for original equipment manufacturers (OEMs), and also manufactures keyboards and
other input devices.

Principles of Consolidation

The consolidated financial statements include the Company and its wholly owned subsidiaries in Ireland, Mexico, and China. Intercompany balances and transactions have been eliminated in
consolidation.

| ̄ | 16
|- | --

---



Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates
include the allowance for doubtful receivables, the provision for obsolete and non-saleable inventories, the valuation allowances on deferred tax assets, and the provision for warranty costs. Actual results could differ from those
estimates.

Cash Equivalents

The Company considers investments with an original maturity of three months or less to be cash equivalents. Cash equivalents are carried at cost which approximates fair value.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined principally using the first-in, first-out (FIFO) method. The provision to adjust inventory to market value for obsolete
and non-saleable inventories was approximately $2,712,000 and $2,349,000 at June 30, 2001 and July 1, 2000, respectively. The Company provides for obsolete and non-saleable inventories based on specific identification of inventory against current
demand and recent usage.

Customer Tooling

Customer tooling is the Company's prepaid tooling design and construction costs for customer specified new production tools and molds. Each new project's costs are recorded and tracked against
expected costs. These actual costs are invoiced to the Company's customers depending on the terms agreed upon during the quoting process prior to initiation of each new project.

Property, Plant and Equipment

Property, plant and equipment are carried at cost and depreciated using straight-line methods over the expected useful lives. Constructed molds and dies are expensed as incurred if there is no
future utility beyond one year. Capitalized molds and dies are depreciated over the expected useful lives of one to three years.

Valuation of Long-lived Assets

The Company, using its best estimates based on reasonable and supportable assumptions and projections, reviews assets for impairment whenever events or changes in circumstances have indicated
that the carrying amount of its assets might not be recoverable. Impaired assets are reported at the lower of cost or fair value. No assets were written down during the fiscal year ended June 30, 2001.

Goodwill

Goodwill resulted from the acquisition of substantially all of the assets and liabilities of Honeywell, Inc.'s Keyboard Division on July 30, 1993. Goodwill is amortized on a straight-line basis
over a period of 15 years (See New Accounting Pronouncements).

Long-term Liabilities

Short-term obligations that are expected to be refinanced on a long-term basis have been presented as long-term liabilities, see Note 5 for further discussion.

Accrued Warranty

An accrual is made for expected warranty costs, with the related expense recognized in cost of goods sold. Management reviews the adequacy of this accrual quarterly based on historical analysis
and anticipated product returns. Accrued warranty costs at June 30, 2001 and July 1, 2000, were $327,000 and $454,000, respectively.

Net Sales

Sales are generally recognized when products are shipped. Provisions for estimated sales returns are not significant. The Company provides for doubtful accounts receivable primarily based on
specific identification.

| ̄ | 17
|- | --

---

Cost Of Sales

Cost of sales includes related shipping and handling costs.

Research, Development and Engineering

Research, development and engineering expenses include unreimbursed costs of electronic manufacturing services (EMS) as well as design and engineering costs associated with the production of
custom keyboards. Such costs are charged to expense as incurred.

Income Taxes

The Company accounts for income taxes in accordance with provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the asset and
liability method prescribed by SFAS No. 109, deferred income taxes are provided for temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred taxes are measured using provisions of currently enacted tax
laws. Tax credits are accounted for as a reduction of income taxes in the year the credit originates.

Per Share Data

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share
is computed by dividing income available to common stockholders by the weighted average number of common and common equivalent shares outstanding during the period using the treasury stock method. The computation assumes the proceeds from the
exercise of stock options were used to repurchase common shares at the average market price during the period. The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of common stock equivalent
shares that would have an antidilutive effect on earnings per share.

Foreign Currency Translation Adjustment

The functional currency of the Company's subsidiaries in Ireland, Mexico and China is the U.S. dollar. Realized foreign currency transaction gains and losses are included in general and
administrative expenses. Assets and liabilities of the Company's subsidiary in Ireland had been translated to U.S. dollars at year-end exchange rates. Revenues and expenses had been translated at average exchange rates. Translation gains and losses
had been included in a separate component of shareholders' equity. The foreign currency translation adjustment of $245,000 for the year ended June 29, 1996, which was included in the Consolidated Statements of Shareholders' Equity, was a result of
changing the functional currency from the Punt to U.S. Dollars and was included in other comprehensive income.

Fair Value of Financial Instruments

The carrying values reflected in the balance sheets at June 30, 2001 and July 1, 2000, reasonably approximate the fair value of cash and cash equivalents. Based on the borrowing rates currently
available to the Company for loans with similar terms and average maturities, the fair value of long-term debt is estimated to be $8.1 million and $19.0 million, respectively, as of June 30, 2001 and July 1, 2000, which approximates the carrying
values of $8,109,000 as of June 30, 2001 and $19,041,557 as of July 1, 2000.

Stock-based Compensation

The Company accounts for its stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board No. 25, "Accounting for Stock Issued to
Employees", and SFAS No. 123 "Accounting for Stock-Based Compensation". Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models. These models require subjective
assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 73 months in 2001, 73 months in 2000, and 72 months in 1999, respectively; stock volatility, 64.32% in 2001, 64.34% in 2000, and 57.2% in 1999, respectively; risk free interest rates, 6.16% in 2001, 6.16% in 2000, and
6.03% in 1999, respectively and no dividends during the expected term. The Company's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 2001, 2000, and 1999
awards had been amortized to expense over the vesting period of the awards, pro forma net income (loss) would have been $(11,734,050) $(1.21) loss per share) in 2001, ($5,747,000) ($.60 loss per share) in 2000, and $2,122,000 ($.22 income per share)
in 1999. The weighted average fair values of options granted during fiscal years 2001, 2000, and 1999 were $4.26, $4.38, and $2.88 per share, respectively.

| ̄ | 18
|- | --

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New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." Under
SFAS No. 141, all business combinations should be accounted for using the purchase method of accounting; use of the pooling-of-interests method is prohibited. The provisions of the statement will apply to all business combinations initiated after
June 30, 2001. SFAS No. 142 includes requirements to test goodwill and indefinite lived intangible assets for impairment rather than amortize them. These standards will be adopted in fiscal 2002. The adoption of SFAS No. 141 and No. 142 are not
expected to have a material impact on the Company's financial statements.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended, was adopted by the Company on July 2, 2000. SFAS No. 133 and the related amendments establishes
accounting and reporting standards for derivative instruments and hedging activities. Under this statement, certain derivatives are recognized at fair market value, and changes in fair market value are recognized as gains or losses. The impact of
adoption was not material to the Company's financial statements.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial Statements", which summarized the SEC's views in
applying generally accepted accounting principles to revenue recognition in financial statements. The Company's adoption of SAB No. 101 on July 2, 2000 did not have a material impact on the Company's operations or financial position.

Reclassifications

Certain reclassifications of prior year balances have been made for consistent presentation with the current year.

Fiscal Year

The Company operates on a 52/53 week fiscal year. Fiscal years end on the Saturday nearest June 30. As such, fiscal years 2001, 2000, and 1999 ended on June 30, 2001, July 1, 2000, and July 3,
1999, respectively. Fiscal year 2002 will end on June 29, 2002.

2.    INVENTORIES

|June 30, 2001 |                          | July 1, 2000
|------------- | ------------------------ | ------------
|              |                          |             
|              |                          |             
|              | Finished goods           |             
|              | Work-in-process          |             
|              | Raw materials            |             
|              | Reserve for obsolescence |             
|              |                          |             
|              |                          |             
|              |                          |             

3.    PROPERTY, PLANT AND EQUIPMENT

|Life | June 30, 2001              |         | July 1, 2000
|---- | -------------------------- | ------- | ------------
|     |                            |         |             
|     |                            |        
|     | Land                       |         |             
|     | Buildings and improvements | 3 to 30 |             
|     | Equipment                  | 1 to 10 |             
|     | Furniture and fixtures     | 3 to 5  |             
|     |                            |         |             
|     |                            |         |             
|     |                            |         |             

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.

5.    LONG-TERM OBLIGATIONS

The Company maintained a secured credit agreement with General Electric Capital Corporation (GECC). The credit facility provided by this agreement, originally contained a term note of $11
million and a revolving loan for up to $30 million. During the second quarter of fiscal year 1998, the Company entered into an operating lease agreement with GECC, which reduced the borrowing limit on

| ̄ | 19
|- | --

---



the revolving loan by $4.2 million. The revolving loan and the term note were secured by the assets of the Company. The term note was paid in full on December 27, 2000 with proceeds from the
sale of the Spokane headquarters facility. The revolving loan with GECC bore interest based on the London Interbank Offered Rate (LIBOR). The rate fluctuated between 4.1675% and 6.6500% during fiscal year 2001. The applicable interest rates at June
30, 2001 and July 1, 2000 were 9.25% and 8.43%, respectively. The agreement contained financial covenants that related to maximum capital expenditures, minimum debt service coverage, minimum earnings before interest expense, income tax,
depreciation, and amortization, and maximum leverage percentages. In addition to these financial covenants, the credit agreement restricted investments, disposition of assets, and payment of dividends. At June 30, 2001, the Company received a waiver
from GECC for non-compliance with certain debt covenants and received a letter of forbearance up to the refinancing that occurred on August 24, 2001.

On August 24, 2001, the Company obtained a new revolving credit facility with CIT Group/Business Credit, Inc. for up to $25 million and paid off the GECC revolving loan. The new revolving loan
is secured by the assets of the Company. For the first year of the financing agreement with CIT, a margin of 0.75% will be applicable as an adder to the prime rate. The agreement specifies four different levels of margin between 0.25% and 1.00%
depending on the Company's earnings before interest, taxes, depreciation, and amortization. The agreement contains financial covenants that relate to maximum capital expenditures, minimum earnings before interest expense, income tax, depreciation,
and amortization, and minimum tangible net worth. The agreement is for a term of three years beginning on August 24, 2001 and ending on August 23, 2004. In addition to the financial covenants, the credit agreement restricts investments, disposition
of assets, and the payment of dividends.

Long-term obligations consist of:

|June 30, 2001 |                                  | July 1, 2000 |      
|------------- | -------------------------------- | ------------ | -----
|              |                                 
|              |                                 
|              | Note payable                     | $            | 0    
|              | Revolving loan                   |              | 8,109
|              | Deferred sales proceeds          |              | 701  
|              | Deferred compensation obligation |              | 729  
|              |                                  |             
|              | Total long-term obligations      |              | 9,539
|              | Less current portion             |              | (150 
|              |                                  |             
|              |                                  | $            | 9,389
|              |                                  |             

The Company accounts for its post-retirement benefits in accordance with the provisions SFAS No. 106 "Employers' Accounting for Post-retirement Benefits Other than Pensions". Under
SFAS No. 106, the Company has recorded a liability for certain compensation related agreements for two former employees. The liability was estimated based upon the present value of future cash payments as specified in the agreements. This cost of
$296,000 in 2001, $175,000 in 2000, and $181,000 in 1999 was charged against general and administrative expenses. Principal maturities of long-term obligations at June 30, 2001 are:

| | Fiscal Years Ending | (in thousands)
| | ------------------- | --------------
| |                    
| |                     |               
| | 2002                | $             
| | 2003                |               
| | 2004                |               
| | 2005                |               
| | 2006                |               
| | Future Years        |               
| |                    
| | Total               | $             
| |                    

6.    LEASES

The Company has operating leases for certain equipment and production facilities which expire over periods from one to five years. Future minimum payments under non-cancelable operating leases
with initial or remaining terms of one year or more at June 30, 2001, are summarized as follows:

|Fiscal Years Ending | (in thousands)              
|------------------- | ----------------------------
|                    |                             
|                    |                             
|                    | 2002                        
|                    | 2003                        
|                    | 2004                        
|                    | 2005                        
|                    | 2006                        
|                    | Future                      
|                    |                             
|                    | Total minimum lease payments
|                    |                             



| ̄ | 20
|- | --

---



Rental expenses under operating leases were $4,358,000, $2,908,000, and $2,313,000 in 2001, 2000, and 1999, respectively.

7. INCOME TAXES

Income taxes consist of the following:

|2001 |                               | 2000    |       | 1999  
|---- | ----------------------------- | ------- | ----- | ------
|     |                               |         |       |       
|     |                               |         |       |       
|     | Current income taxes:         |         |       |       
|     |                               | Federal | $     |      
|     |                               | Foreign |       | 643   
|     |                               | State   |       |      
|     |                               |         |       |       
|     |                               |         |       | 643   
|     | Deferred income taxes:        |         |       |       
|     |                               | Federal |       | (4,598
|     |                               | Foreign |       |      
|     |                               | State   |       | (34   
|     |                               |         |       |       
|     |                               |         |       | (4,632
|     |                               |         |       |       
|     | Change in valuation allowance |         | 4,632 |       
|     |                               |         |       |       
|     | Total income taxes            | $       | 643   |       
|     |                               |         |       |       

The Company's effective tax rate differs from the federal tax rate as follows:

|Year ended
|----------
|          
|          
|          
|          
|          
|          
|          
|          
|          
|          
|          
|          
|          
|          
|          

In fiscal year 2001, foreign income decreased the Company's effective income tax rate, because such income is taxed at a lower rate than U.S. income. In fiscal year 2000, foreign losses
increased the Company's effective income tax rate, because such losses are not deductible for U.S. tax purposes. In fiscal year 1999, foreign income decreased the Company's effective income tax rate. The domestic and foreign components of income
(loss) before income taxes were:

|Year ended
|----------
|          
|          
|          
|          
|          
|          
|          
|          



| ̄ | 21
|- | --

---

Deferred income taxes result from temporary differences in the timing of recognition of revenue and expenses. Deferred income tax assets and liabilities consist of the following at:



|June 30, 2001 |                                                                  | July 1, 2000 |        
|------------- | ---------------------------------------------------------------- | ------------ | -------
|              |                                                                 
|              |                                                                 
|              | Allowance for doubtful accounts                                  | $            | 184    
|              | Inventory                                                        |              | 1,053  
|              | Vacation accrual                                                 |              | 330    
|              | Self insurance accrual                                           |              | 60     
|              | Warranty accrual                                                 |              | 111    
|              | State deferred asset                                             |              | 220    
|              | Other                                                            |              | 120    
|              |                                                                  |              |        
|              | Current deferred income tax assets                               |              | 2,078  
|              | Current portion of valuation allowance                           |              | (1,308 
|              |                                                                  |              |        
|              | Current deferred income tax assets net of valuation allowance    | $            | 770    
|              |                                                                  |              |        
|              |                                                                  |              |        
|              | Deferred compensation                                            | $            | 248    
|              | Depreciation and amortization                                    |              | 712    
|              | Net operating loss carryforwards                                 |              | 16,588 
|              | Tax credit carryforwards                                         |              | 680    
|              | Other                                                            |              |       
|              |                                                                  |              |        
|              | Noncurrent deferred income tax assets                            |              | 18,228 
|              | Valuation allowance net of current portion                       |              | (14,482
|              |                                                                  |              |        
|              | Noncurrent deferred income tax assets net of valuation allowance | $            | 3,746  
|              |                                                                  |              |        
|              |                                                                  |              |        
|              | Total deferred income tax assets                                 | $            | 4,516  
|              |                                                                 

At June 30, 2001, the Company had tax loss carryforwards of approximately $48.8 million, which expire in varying amounts in the years 2006 through 2021. Additionally, for federal income tax
purposes, the Company has approximately $705,000 of general business credit carryforwards which expire in varying amounts in the years 2004 through 2010. Approximately $257,000 of the general business credit carryforwards have an indefinite
carryforward period. Foreign income tax expense is calculated at the statutory rate of the foreign taxing jurisdiction.

Management has considered the relative impact of positive and negative evidence, including previous and forecasted revenues and profits/losses, existing contracts and sales backlogs, and other
evidence, and believes that it is more likely than not that the Company will generate sufficient taxable income to allow the realization of the net deferred tax assets within the near future.

8. EARNINGS PER SHARE

Basic EPS is computed by dividing income available to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Diluted
EPS is computed by dividing income available to common shareholders by the weighted-average number of common shares and common share equivalents outstanding during the period. Key Tronic uses the treasury stock method in calculating the dilutive
effect of common stock equivalents.

There are no adjustments to the income available to common shareholders for the years ended June 30, 2001, July 1, 2000, July 3, 1999. The following table presents the Company's calculations of
weighted average shares (number of shares):

For The Years Ended:
Weighted Avg. Shares

Adjustments For

Potential Common Shares

TotalJune 30, 2001
9,667,785

Antidilutive

9,667,785July 1, 2000
9,636,506

Antidilutive

9,636,506July 3, 1999
9,630,830

155,086

9,785,916 The adjustment for potential common shares of 103,688 and 276,280 as of June 30, 2001 and July 1, 2000 was not included in the calculation of weighted average shares outstanding for such date as
the effect was considered to be antidilutive. The number of outstanding options with an exercise price greater than average market price for fiscal years ended June 30, 2001, July 1, 2000, and July 3, 1999 were 1,966,200, 1,425,760, and 1,054,376,
respectively. 9.    SHAREHOLDERS' EQUITY


The Company has executive stock option plans for certain key employees. Options under these plans vest over one to five years and become exercisable as they vest. Options under the plans become
exercisable in full immediately prior to the occurrence of a "Change in Control" as defined in the plan documents. As of June 30, 2001, 2,795,000 shares have been reserved for issuance and 1,806,200 options were outstanding of which
1,498,033 shares were exercisable. These options expire in ten years from the date of grant. Compensation expense for options will be recorded if the exercise price of the option is less than the closing market price of the stock on the date of
grant. There was no compensation expense incurred in conjunction with options in 2001, 2000, or 1999 as all options were granted at fair market value.

| ̄ | 22
|- | --

---

The Company also has a stock option plan for "Nonemployee Directors." Options under this plan vest over a three year period and are exercisable as they vest. As of June 30, 2001,
300,000 shares have been reserved for issuance and 160,000 options were outstanding of which 93,750 shares were exercisable. These options expire ten years from the date of grant.

| | Following is a summary of employee plan activity:
| | -------------------------------------------------
| |                                                  
| |                                                  
| |                                                  
| | Outstanding June 27, 1998                        
| | Granted during 1999                              
| | Expired or canceled                              
| |                                                  
| | Outstanding, July 3, 1999                        
| |                                                  
| | Granted during 2000                              
| | Expired or canceled                              
| | Options exercised                                
| |                                                  
| | Outstanding, July 1, 2000                        
| |                                                  
| | Granted during 2001                              
| | Expired or canceled                              
| | Options exercised                                
| |                                                  
| | Outstanding, June 30, 2001                       
| |                                                  

Additional information regarding options outstanding as of June 30, 2001, is as follows:

|Options

Outstanding |           | Options

Exercisable |        
|-------------------- | --------- | -------------------- | -------
|                    
|
|
|
|
|$  1.54              | 5,000     | 9.8                  | $  1.54
|$2.32 - $  3.48      | 838,500   | 7.7                  | $  2.79
|$3.49 - $  5.24      | 463,500   | 5.4                  | $  4.74
|$5.25 - $  7.87      | 396,029   | 6.0                  | $  5.99
|$7.88 - $16.25       | 263,171   | 3.7                  | $10.99 
|                    
|$1.54 - $16.25       | 1,966,200 | 6.3                  | $  4.99

Of the 1,966,200 options outstanding as of June 30, 2001, 1,591,783 were exercisable, 2,046,140 options outstanding as of July 1, 2000, 1,375,890 were exercisable, and of the 1,691,016 options
outstanding as of July 3, 1999 1,090,766 were exercisable.

The Company's Variable Investment Plan is available to employees who have attained age 21. The plan has an Employer's Discretionary Contribution Trust, invested in the Company's stock, and an
Employee Contribution Trust consisting of several investment alternatives. The Company contributes an amount equal to 100% of the employee's contribution on the first 2% of the employee's compensation and an additional 50% of the employee's
contribution on the following 2% of the employee's compensation. On April 1, 2001, the Company began matching 25% on the next 2% of contributions. Company contributions to the Trust were $334,863, $321,724 and $397,538 in 2001, 2000 and 1999,
respectively. The Company has an Employee Stock Ownership Plan. No contributions were made to the plan in 2001, 2000 or 1999.

In fiscal year 2000, the Company's Board of Directors approved an additional employee stock option plan which increased the number of shares of common stock available for issuance to employees
by 425,000 shares.

10. COMMITMENTS AND CONTINGENCIES

Litigation

The Company currently has fifteen lawsuits by computer keyboard users, which are in state or federal courts in New York. These suits allege that specific keyboard products manufactured by the
Company were sold with manufacturing, design and warning defects, which caused or contributed to their injury. The alleged injuries are not specifically identified but are referred to as
repetitive stress injuries (RSI) or cumulative trauma disorders (CTD). These suits seek compensatory damages and some seek punitive damages. It is more likely than not that compensatory damages, if awarded, will be covered by insurance; however, the
likelihood that punitive damages, if awarded, will be covered by insurance is remote. A total of 123 suits have been dismissed in California, Connecticut, Florida, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New York,
Pennsylvania and Texas. One of the 123 dismissed suits is on appeal in New York. No provision has been made to cover any future costs. Management's position will change if warranted by facts and circumstances.

| ̄ | 23
|- | --

---

Given the inherent uncertainty in litigation, the inherently limited information available with respect to unasserted claims, and the
complexity of the circumstances surrounding these matters, management estimates are subject to and will change or be established as facts and circumstances warrant. The Company is also subject to various legal proceedings that arise in the ordinary
course of business. In the opinion of management, the outcome of these matters is not expected to have any material effect on the consolidated financial position or results of operations of the Company.

Capital Expenditures

The amount of firm commitments to contractors and suppliers for capital expenditures was approximately $456,000 at June 30, 2001.

11.  OTHER INCOME, NET

Other income, net consists of:

|June 30, 2001                         |   | Year Ended

July 1, 2000 |  | July 3, 1999
|------------------------------------- | - | ------------------------ |  | ------------
|                                      |  
|                                      |   |                          |  |             
|Gain on sale of real estate - Ireland | $ |                         |  | $           
|Other                                 |   | 879                      |  |             
|                                      |  
|Total                                 | $ | 879                      |  | $           

The Company's subsidiary in Dundalk, Ireland sold its building in Dundalk at the end of fiscal year 1999 for approximately $2.3 million and received approximately $1 million at closing. In May
of 2000, the Company received $1.0 million payment on this sale. Approximately $300,000 remained in an escrow account in Ireland pending final closing adjustments. Substantially all the money in the escrow account was paid subsequent to year end
June 30, 2001.

12. ENTERPRISE-WIDE DISCLOSURES

Management organizes its business around EMS and keyboards based on geographic area. These businesses have been aggregated as each segment has similar economic characteristics, and the nature of
the segments, its production processes, customers and distribution methods are similar.

Of the revenues for the years ended June 30, 2001, July 1, 2000 and July 3, 1999, EMS sales were $126.3 million, $91.2 million, and $37.1 million, respectively. Keyboard sales for the years
ended June 30, 2001, July 1, 2000 and July 3, 1999 were $39.2 million, $70.5 million, and $134.7 million, respectively. The remainder of revenues for all years presented were from sales of miscellaneous other products and services.

Information concerning geographic areas for the years ended June 30, 2001, July 1, 2000 and July 3, 1999 is summarized in the following table. Revenues provided below are based on the shipping
destination.

| | (in thousands)    | Domestic | International | Total
| | ----------------- | -------- | ------------- | -----
| |                   |         
| | 2001              |          |               |      
| | Net sales         | $        | 76,950        | $    
| | Long-lived assets | $        | 15,629        | $    
| |                  
| | 2000              |          |               |      
| | Net sales         | $        | 99,077        | $    
| | Long-lived assets | $        | 20,066        | $    
| |                  
| | 1999              |          |               |      
| | Net sales         | $        | 102,872       | $    
| | Long-lived assets | $        | 23,433        | $    
| |                  



| ̄ | 24
|- | --

---





For the year ended June 30, 2001, 25.7% of the Company's domestic exports were sold to customers in Europe, 42.8% were sold to customers in the Far East, 29.7% were sold to customers in Mexico,
and the remaining 2% were spread among customers in South America and Canada.

For the year ended July 1, 2000, 43% of the Company's domestic exports were sold to customers in Europe, 36% were sold to customers in the Far East, and the remaining 21% were spread among
customers in Mexico, South America, and Canada. For the year ended July 3, 1999, 58% of the Company's domestic exports were sold to customers in Europe, 30% were sold to customers in the Far East, and the remaining 12% were spread among customers in
Mexico, South America and Canada.

Significant Customers

One customer accounted for approximately 39%, 38% and 24% of net sales for the years ended June 30, 2001, July 1, 2000 and July 3, 1999, respectively. This customer accounted for approximately
5% and 45% of trade receivables at June 30, 2001, and July 1, 2000, respectively. Another customer accounted for approximately 27% of net sales in fiscal year 2001 and 13% in fiscal year 2000. This customer accounted for 15% and 9% of trade
receivables at June 30, 2001 and July 1, 2000. Another customer accounted for 5%, 9% and 11% of net sales in 2001, 2000, and 1999, respectively. A fourth customer accounted for 1%, 8% and 11% of sales for fiscal years 2001, 2000, and 1999,
respectively. No other customers accounted for more than 10% of net sales for years ended June 30, 2001, July 1, 2000 and July 3, 1999.

13.SUPPLEMENTAL CASH FLOW AND NON-CASH INFORMATION

|                                                         |  |   |       | Year Ended |   |       | 
|-------------------------------------------------------- |  | - | ----- | ---------- | - | ----- | 
|                                                        
|                                                        
|                                                        
|Interest payments                                        |  | $ | 2,110 |            | $ | 1,960 | 
|Income tax payments                                      |  | $ | 640   |            | $ | 395   | 
|Note received for sale of Ireland property (see Note 11) |  | $ | 0     |            | $ |      | 

14.    RESTRUCTURING CHARGES

As of July 1, 2000, the Company had no remaining reserve for restructuring charges in Ireland. In fiscal year 2000, the Company repaid $177,000 to the Irish Development Authority (IDA) for the
repayment of grants, and the remaining amount of $45,000 was paid for severance. The Company currently plans to maintain the Irish plant as its sales, marketing, and distribution facility to service the European community.

| | Reserve for Restructuring Obligations
| | -------------------------------------
| |                                      
| |                                      
| | Balance at beginning of year         
| | Amounts paid                         
| |                                      
| | Balance at end of year               
| |                                      

15.    QUARTERLY FINANCIAL DATA

|                                                   | (Unaudited)
|-------------------------------------------------- | -----------
|                                                   |            
|                                                   |            
|                                                   |            
|                                                   |            
|                                                   |            
|                                                   |            
|Net sales                                          |            
|Gross profit                                       |            
|Income (loss) before income taxes                  |            
|Net income (loss)                                  |            
|Earnings (loss) per common share basic and diluted |            
|Weighted average shares outstanding                |            
|Diluted shares outstanding                         |            



| ̄ | 25
|- | --

---



|                                                   |  |   | Year Ended July 1, 2000 |  |   |       
|-------------------------------------------------- |  | - | ----------------------- |  | - | ------
|                                                   |  |   |                        
|                                                   |  |   |                        
|                                                   |  |   |                        
|                                                   |  |   |                         |  |   |       
|Net sales                                          |  | $ | 41,775                  |  | $ | 41,285
|Gross profit                                       |  | $ | 5,968                   |  | $ | 3,339 
|Income (loss) before income taxes                  |  | $ | 285                     |  | $ | (1,819
|Net income (loss)                                  |  | $ | 210                     |  | $ | (1,833
|Earnings (loss) per common share basic and diluted |  | $ | .02                     |  | $ | (.19  
|Weighted average shares outstanding                |  |   | 9,633                   |  |   | 9,635 
|Diluted shares outstanding                         |  |   | 9,935                   |  |   | N/A   

Item 9:    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURESNone

PART III

Item 10:    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DALE F. PILZ Director

Mr. Pilz, age 75, has been a director of the Company since April 1992. On March 1, 2000, Mr. Pilz was elected Chairman of the Board. Mr. Pilz was Chief Executive Officer of Flowind Corporation
from 1986 to 1990. He served as President of Omninet Corporation from 1985 to 1986. Prior to that, Mr. Pilz was Chief Executive Officer and President of GTE Sprint Communications from 1983 to 1985 and also served as Chief Executive Officer and
President of GTE Spacenet Corporation from 1983 to 1985.

WENDELL J. SATRE Director

Mr. Satre, age 83, has been a director of the Company since 1988 and served as Chairman of the Board of Directors from July 1991 through August 1995. Mr. Satre also served as a director from
1983 through 1986 and served as Acting President of the Company from August 1991 through February 1992. Mr. Satre is the retired Chairman of the Board and Chief Executive Officer of the Washington Water Power Company, a public utility headquartered
in Spokane, Washington. Mr. Satre also serves on the Board of Directors of Output Technology Corporation and The Coeur d'Alenes Company.

YACOV A. SHAMASH Director

Dr. Shamash, age 51, has been a director of the Company since 1989. He has been the Dean of Engineering and Applied Sciences at the State University of New York campus at Stony Brook since 1992.
Professor Shamash developed and directed the NSF Industry/University Cooperative Research Center for the Design of Analog/Digital Integrated Circuits from 1989 to 1992 and also served as Chairman of the Electrical and Computer Engineering Department
at Washington State University from 1985 until 1992.

CLARENCE W. SPANGLE Director

Mr. Spangle, age 76, has been a director of the Company since July 1992. A former Chairman of Memorex and President of Honeywell Information Systems, Mr. Spangle has been an independent
management consultant since 1985. Mr. Spangle also serves on the Board of Directors of Apertus Technologies, Inc.

WILLIAM E. TERRY Director

Mr. Terry, age 68, has been a director of the Company since August 1992. Mr. Terry retired from Hewlett-Packard in December 1993 where he served in a number of executive positions during the
past 36 years. He is a member of the Advisory Committee of the Santa Clara University Engineering School and, in 1983, was elected to the university's Board of Regents. Mr. Terry also serves on the Board of Directors of Altera Corporation.

| ̄ | 26
|- | --

---



PATRICK SWEENEY Director

Mr. Sweeney, age 66, has been a director of the Company since July 2000. Mr. Sweeney was President and CEO of Hadco Corporation from 1991 through 1995 and formerly served as Hadco's Vice
President/Chief Financial Officer and Vice President of Operations. Prior to that, Mr. Sweeney was the Vice President of International Manufacturing at Wang - USA from 1981 through 1986 and also served as Managing Director of Ireland for Wang and as
Plant Manager of its Galway and Clonmel divisions. Mr. Sweeney also serves on the Board of Directors of Aimware, Asic Alliance, Info.Mosaic, Manufacturers' Services Ltd. Advisory Board, Pentus, Photo Machining Inc., Piercom, and Raidtec.

JACK W. OEHLKE Director, President and Chief Executive Officer

Mr. Oehlke, age 55, has been President and Chief Executive officer of the Company since June 1997. From October 1995, he served as Chief Operating Officer. Previously, he served as Senior Vice
President of Operations from January 1995 to October 1995 and Vice President of Manufacturing Operations of the Company from December 1993 to January 1995. Mr. Oehlke served as Director of Operations, Director of Quality and in various management
positions within manufacturing, engineering and quality functions of the Microswitch Division of Honeywell, Inc. from 1968 to 1993.

RONALD F. KLAWITTER Executive Vice President of Administration and Chief Financial Officer

Mr. Klawitter, age 49, has been Executive Vice President of Administration, CFO, and Treasurer since July 1997. Previously was Vice President of Finance, Secretary and Treasurer of the Company
since October 1995. 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, Finance at Baker Hughes Tubular Service, a
subsidiary of Baker Hughes, Inc.

CRAIG D. GATES Executive Vice President of Marketing, Engineering, and Sales

Mr. Gates, age 42, has been Executive Vice President of Marketing, Engineering and Sales since July 1997. Previously he was 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. Mr. Gates has a Bachelor of Science Degree in Mechanical Engineering and a Masters in Business Administration from the University of Illinois,
Urbana. 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.

EFREN R. PEREZ Vice President of S.W. Operations

Mr. Perez, age 61, has served as Vice President of S.W. Operations since July 1997. Previously he was the Managing Director of S.W. Operations from July 1996 to July 1997 and Director of S.W.
Operations from July 1995 to June 1996. Following the Company's acquisition of the Honeywell, Inc. Keyboard Division, Mr. Perez served as Plant Manager in Juarez from July 1993 to July 1995. He served as Plant Manager in Juarez for the Keyboard
Division of Honeywell, Inc. from February 1989 to July 1993. Mr. Perez is a graduate of the University of Mexico with a B.S. in Physics.

MICHAEL D. CHARD Vice President of Materials

Mr. Chard, age 43, has been Vice President of Materials of the Company since July 28, 2000. From February 1999 to July 28, 2000, he held various management positions with the Company in
planning, quality assurance, and materials. From January 1997 to January 1999, he was Vice President of Product Delivery at Wang Global and its predecessor Olivetti North America. From 1983 to 1996, he held various management positions in finance,
marketing, and operations at ISC Systems, the predecessor to Olivetti North America. He holds a BA Degree in Business and Accounting from Washington State University and is a Certified Public Accountant.

Compliance with Section 16(a) of the Exchange Act:Incorporated by reference to Key Tronic Corporation's 2001 Proxy Statement to Shareholders.

Items 11, 12 and 13:    EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information appearing under the captions "Executive Compensation", "Beneficial Ownership of Securities", "Certain Relationships and Transactions" and
"Compensation Committee Interlocks and Insider Participation" in the Company's 2001 Proxy Statement is incorporated herein by this reference.

| ̄ | 27
|- | --

---



PART IV

Item 14:    EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

(A)    FINANCIAL STATEMENTS AND SCHEDULE

|Page in

Form 10-K                                                                                                  
|--------------------------------------------------------------------------------------------------------------------
|FINANCIAL STATEMENTS                                                                                                
|Independent Auditors' Report                                                                                        
|Consolidated Balance Sheets, as of June 30, 2001 and July 1, 2000                                                   
|Consolidated Statements of Operations for the years ended June 30, 2001, July 1, 2000 and July 3, 1999              
|                                                                                                                    
|Consolidated Statements of Shareholders' Equity

   for the years ended June 30, 2001, July 1, 2000 and July 3, 1999
|                                                                                                                    
|Consolidated Statements of Cash Flows for the

   years ended June 30, 2001, July 1, 2000 and July 3, 1999          
|                                                                                                                    
|Notes to Consolidated Financial Statements                                                                          
|                                                                                                                    
|SCHEDULE                                                                                                            
|II. Consolidated Valuation and Qualifying Accounts                                                                  
|                                                                                                                    
|                                                                                                                    

Other schedules are omitted because of the absence of conditions under which they are required, or because required information is given in the financial statements or notes thereto.

REPORTS ON FORM 8-K

None

(C)    EXHIBITS

The Company will, upon request and upon payment of a reasonable fee not to exceed the rate at which such copies are available from the Securities and Exchange Commission, furnish copies of any
of the following exhibits to its security holders.

|Exhibit No.
|-----------
|(3)        
|           
|           
|(4)        
|           
|(10)       
|           
|           
|           
|           
|           
|           
|           
|           
|           
|           
|           
|           



| ̄ | 28
|- | --

---



|       |  | (g)                                                                                                     |  | Amended and Restated Employment Agreement with Lewis G. Zirkle.          |  | (iii) 
|------ |  | ------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ |  | ------
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (h)                                                                                                     |  | Agreement Regarding Split Dollar Life Insurance Policies, as amended.    |  | (iv)  
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (i)                                                                                                     |  | Executive SAR Stock Option Plan of Key Tronic Corporation                |  | (v)   
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (j)                                                                                                     |  | Key Tronic Corporation 1990 Stock Option Plan for Non-Employee Directors |  | (v)   
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (k)                                                                                                     |  | Employee Stock Ownership Plan                                            |  | (vi)  
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (l)                                                                                                     |  | Registration Rights Agreement with Hiller Key Tronic Partners            |  | (vii) 
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (m)                                                                                                     |  | Officer Severance Agreements                                             |  | (vii) 
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (n)                                                                                                     |  | Purchase agreement with Honeywell, Inc.                                  |  | (viii)
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (o)                                                                                                     |  | Officer Employment Agreement                                             |  | (ix)  
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (p)                                                                                                     |  | Executive Stock Option Plan                                              |  | (x)   
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (q)                                                                                                     |  | Secured Financing Agreement With The CIT Business Group, Inc.            |  | (xi)  
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (r)                                                                                                     |  | Secured Financing Agreement With General Electric Capital Corporation    |  | (xii) 
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (s)                                                                                                     |  | Executive Stock Option Plan 2000                                         |  | (xiii)
|       |  |                                                                                                         |  |                                                                          |  |       
|       |  | (t)                                                                                                     |  | Employment Contract                                                      |  | (xiv) 
|       |  |                                                                                                         |  |                                                                          |  |       
|(13)   |  | 2001 Annual Report to Shareholders (to the extent set forth in Parts I, II, and IV (a) of this report). |  |                                                                         
|       |  |                                                                                                         |  |                                                                          |  |       
|(i)    |  | Previous filing on Form S-1 is incorporated by reference, exhibit number indicated                      |  |                                                                         
|(ii)   |  | Incorporated by reference to report on Form 10-K for the year ended 06/30/87                            |  |                                                                         
|(iii)  |  | Incorporated by reference to report on Form 10-K for the year ended 06/30/86                            |  |                                                                         
|(iv)   |  | Incorporated by reference to report on Form 10-K for the year ended 06/30/85                            |  |                                                                         
|(v)    |  | Incorporated by reference, Key Tronic Corporation 1990 Proxy Statement, pages C-1 - D3                  |  |                                                                         
|(vi)   |  | Incorporated by reference to report on Form 10-K for the year ended 06/30/91                            |  |                                                                         
|(vii)  |  | Incorporated by reference to report on Form 10-K for the year ended 07/04/92                            |  |                                                                         
|(viii) |  | Incorporated by reference to report on Form 8-K filed August 12, 1993.                                  |  |                                                                         
|(ix)   |  | Incorporated by reference, Key Tronic Corporation 1996 Proxy Statement, pages 10-11                     |  |                                                                         
|(x)    |  | Incorporated by reference, Key Tronic Corporation 1995 Proxy Statement, pages 19-22                     |  |                                                                         
|(xi)   |  | Incorporated by reference to report on Form 8-K filed October 24, 1994.                                 |  |                                                                         
|(xii)  |  | Incorporated by reference to report on Form 8-K filed January 14, 1997.                                 |  |                                                                         
|(xiii) |  | Incorporated by reference to report on Form 10-Q for the quarter ended 12/30/00.                        |  |                                                                         
|(xiv)  |  | Incorporated by reference, Key Tronic Corporation 2000 proxy statement, pages 11-12                     |  |                                                                         



|(21) | Subsidiaries of Registrant
|---- | --------------------------
|     |                           
|(23) |                           



| ̄ | 29
|- | --

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|PART IV                                                                                                                                                 
|--------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                        
|SCHEDULE II                                                                                                                                             
|                                                                                                                                                        
|KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JUNE 30, 2001, JULY 1, 2000 AND

JULY 3, 1999
|                                                                                                                                                        
|                                                                                                                                                        
|Allowance for Obsolete Inventory                                                                                                                        
|Balance at beginning of year                                                                                                                            
|Provision charged to income                                                                                                                             
|Dispositions                                                                                                                                            
|                                                                                                                                                        
|Balance at end of year                                                                                                                                  
|                                                                                                                                                        
|Allowance for Doubtful Accounts                                                                                                                         
|Balance at beginning of year                                                                                                                            
|Provision charged to income                                                                                                                             
|Write-offs and reinstatements                                                                                                                           
|                                                                                                                                                        
|Balance at end of year                                                                                                                                  
|                                                                                                                                                        
|Reserve for Litigation                                                                                                                                  
|Balance at beginning of year                                                                                                                            
|Cost incurred-net of recoveries                                                                                                                         
|                                                                                                                                                        
|Balance at end of year                                                                                                                                  
|                                                                                                                                                        
|Accrued Warranty Costs                                                                                                                                  
|Balance at beginning of year                                                                                                                            
|Provision charged to income                                                                                                                             
|Costs incurred                                                                                                                                          
|                                                                                                                                                        
|Balance at end of year                                                                                                                                  



| ̄ | 30
|- | --



---









SIGNATURES







|Dated: |  | September 7, 2001 |  |                        |                                                                   |  |  | 
|------ |  | ----------------- |  | ---------------------- | ----------------------------------------------------------------- |  |  | 
|       |  |                   |  |                        |                                                                   |  |  | 
|       |  |                   |  | KEY TRONIC CORPORATION
|       |  |                   |  |                        |                                                                   |  |  | 
|       |  |                   |  |                        |                                                                   |  |  | 
|       |  |                   |  | By:                    | /s/ Jack W. Oehlke                                                | 
|       |  |                   |  |                        | Jack W. Oehlke, Director, President,

and Chief Executive Officer

Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



|/s/Jack W. OehlkeJack W. Oehlke

(Director, President and

Chief Executive Officer) |  | September 7, 2001 Date
|----------------------------------------------------------------------------------- |  | ----------------------
|                                                                                    |  |                       
|/s/Ronald F. KlawitterRonald F. Klawitter

(Principal Financial Officer)            |  | September 7, 2001 Date
|                                                                                    |  |                       
|/s/Dale F. PilzDale F. Pilz

(Director)                                             |  | September 7, 2001 Date
|                                                                                    |  |                       
|/s/Wendell J. SatreWendell J. Satre

(Director)                                     |  | September 7, 2001 Date
|                                                                                    |  |                       
|/s/Yacov A. ShamashYacov A. Shamash

(Director)                                     |  | September 7, 2001 Date
|                                                                                    |  |                       
|/s/Clarence W. SpangleClarence W. Spangle

(Director)                               |  | September 7, 2001 Date
|                                                                                    |  |                       
|/s/Patrick SweeneyPatrick Sweeney

(Director)                                       |  | September 7, 2001 Date
|                                                                                    |  |                       
|/s/William E. TerryWilliam E. Terry (Director)                                      |  | September 7, 2001 Date
|                                                                                   



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