Jack Oehlke - President, Chief Executive Officer, and Director Ronald Klawitter - Chief Financial Officer, Executive Vice President - Administration, Treasurer

Bill Dezellem - Tieton Capital Management

Welcome to the Key Tronic fourth quarter fiscal year 2008 conference call. (Operator Instructions) At this time I would like to turn the conference over to Jack Oehlke.

I’d like to thank everyone for joining us today for our investor conference call. Ron Klawitter, our Chief Financial Officer is here with me in our headquarters in Spokane Valley. Today we released our results for the fourth quarter and fiscal year end 2008. We are pleased with our execution and performance for the quarter in the year. Our year-over-year revenue growth was driven by increased demand from new customers programs, which continue to ramp up. For the fourth quarter and for the year we achieved the highest revenue since we implemented our EMS strategy. In the fourth quarter we saw very strong year-over-year revenue growth in the strongest gross margins we’ve seen in many years. More over we continue to diversify our customer portfolio winning new business across the wide range of industry which represents really the cornerstone of our long-term strategic plan. While there is widespread uncertainty regarding the global economic environment, we continue to pursue and win new opportunities for profitable growth. Now I would like to turn the call over to Ron to review our financial performance and then when he’s completed I’ll come back and discuss our progress and our strategy going forward.

As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events or the company’s future financial performance. Please remember that such statements are only predictions, actual events or results may differ materially. For more information, you may review the risk factors outlined in the documents the company has filed with the SEC, specifically our latest 10-K, quarterly 10-Qs and 8-Ks. Please note that on this call we will discuss historical financial and other statistical information regarding our business and operations. Some of this information is included in today’s press release, and a recorded version of this call will be available on our website. As Jack mentioned today we released the results for the quarter and year end to June 28, 2008. For the fourth quarter of fiscal 2008, our revenue was $57.3 million. This is up 17% from the $49.2 million in the same quarter of fiscal 2007, for fiscal 2008 for the entire year our total revenue was $204.1 million, this is up from $201.7 million for fiscal 2007. We had eight new customers which were not contributing revenues in fiscal 2007 but contributed about 13% of our total revenue in fiscal 2008 and we expect these new customers will contribute the growing portion of our revenues in the coming quarters. For the fourth quarter of fiscal 2008 our gross margin was nearly 11%. This was up from 8% in the previous quarter and up from 9% in the same period of last year. We are pleased to see the strong improvement in the gross margins. This gives an indication of the kind of incremental profit we can achieve as we grow our business. In coming quarters we expect overall gross margins to be around 8% and I will go in a little more detail with that later. In preparation for future growth we continue making the necessary investments to grow our business while continuing to focus on controlling our operating overhead. RD&E cost for the fourth quarter were $679,000 this is down slightly from $695,000 in the fourth quarter of fiscal 2007. Our selling expenses for the quarter were $549,000 which is up from $437,000 a year ago and our general administrative expenses were $1.8 million again up slightly from the $1.6 million in the fourth quarter of fiscal 2007. In coming quarters we anticipate holding our total operating expenses to around $3 million per quarter. Our revenue growth had a positive impact on our bottom line. Net income for the fourth quarter of fiscal 2008 was $2.6 million or $0.25 per diluted share, compared to $2.7 million or $0.26 per diluted share for the same period of fiscal 2007. Keep in mind that our results for the fourth quarter of fiscal 2007 included the benefit of approximately $1.5 million or $0.14 per diluted share from the sale of the facility. So almost half or little bit over half of our income last year’s fourth quarter came from the sale of this building. For fiscal 2008 net income was $5.6 million or $0.54 per diluted share, this was up 7% from the $5.2 million or $0.51 per share for the same period of fiscal 2007. Turning to the balance sheet, our trade receivables were $36 million at the end of the fourth quarter of fiscal 2008. This was up from $30.4 million a year ago and reflects our revenue growth. Our day sales outstanding were approximately 52 days at the end of the quarter, which is comparable to the recent quarters that we have reported. Inventory came in at $37.9 million at the end of the fourth quarter this was down from the $38.7 million at the end of the previous quarter. We are pleased to see our inventory decline in the fourth quarter as we successfully fulfill the growing demand from our new customers. Our capital spending was $260,000 for the fourth quarter and approximately $1.2 million for the full year. It is significant to note that we continue to maintain one of the highest returns on invested capital in the industry, with our return on invested capital close to 13% for fiscal 2008. In summary, our year-over-year revenue growth reflects increased demand from our new customers. At the same time we have continued to make the necessary investments to support our long-term competitiveness, control our cost and maintain a strong balance sheet. Moving into fiscal 2009, the overall economic environment continues to create uncertainty. As we discussed in earlier calls we do expect the decline in business with several existing customers, however with many of the new customers ramping up. We expect the growing contribution of new customer programs to offset the impact of the slowdown among our older customers by the end of this fiscal year. Taking all these factors into consideration we expect our revenue to be in the range $45 million to $48 million in the first quarter of fiscal 2009 with earnings in the range of $0.02 to $0.05 per share. Over the longer-term we believe we are well positioned to properly expand our business. I did mentioned that we accept our gross margins to be around 8% in the first quarter and it is reflecting, of the fact that our revenues are going to be a little bit lower than what we had in the fourth quarter. That’s it from me Jack.

We are pleased with our performance in fiscal year 2008 and we have continued to make good progress and diversifying our business across the wide range of customers in different industries. After a number of challenging years we are really seen our EMS strategy to pay off. Over the last two years we have won 18 new customers. These programs include data storage devices, networking equipment, specialty printers, industrial equipment, personal exercise equipment, specialty display panels, scientific instruments, security surveillance equipment, consumer medical devices, energy technology, specialized touch-screen panels, telecommunications and consumer products. Eight of these new customers generated revenue in fiscal year 2008 accounting for 13% of our total revenue for the year, after the first eight programs are still on the ramp up stage going into fiscal year 2009. During fiscal year 2009, we expect 10 additional new customers to come online. By the end of fiscal 2009 we expect all 18 new customers to be generated a revenue and accounted for approximately 40% of our total revenue for the year, and keeping with our long term strategic objective we are successfully building a significantly more diversified customer portfolio and a less concentrated revenue base expanding a wider range of industries that I just covered. : : : Most of our EMS competitors comparable in our size what the industry refers to as two or three providers do not have offshore capability. Thus they are focused on building a world-class Mexico and China facilities has contribute to our winning new business more efficiently handling our customer demand and providing flexibility and scalability for the future. We recently restructure our management team to better address the needs of the growing business. During the fourth quarter we announced the promotion of Doug Burkhardt to Vice President of Worldwide Operations and Larry Bostwick to Vice President of Engineering and Quality. In their new important role, we believe Doug and Larry’s extent experience, energy and talents will help Key Tronic to continue to grow as a leading EMS manufacture. In summary, we continue to execute our long-term strategic plan. During fiscal 2008 we achieved our best year since the adoption of our EMS strategy. We are beginning to bring in more new customers than ever before and seeing those new customers contribute to growing portion of revenue. We also believe Key Tronic is successfully expanding its market presence and becoming more competitive in the pursuit of new business. At the same time we continue to focus on maintaining and controlling our costs in our outstanding customer service and operational efficiency. Going forward, we expect to continue to broaden and diversify our customer base. We need to keep a careful eye in global economic conditions in coming periods assessed in the impact it may have on our existing customer base and our new customers coming online. Yet we continue to be pleased with our progress and believe Key Tronic is increasingly well positioned to win new opportunities for profitable growth in fiscal 2009 and beyond. This now concludes the formal part of our presentation and Ron and I will be more than happy to answer any questions you may have.

(Operator Instructions) Your first question comes from Bill Dezellem - Tieton Capital Management. Bill Dezellem - Tieton Capital Management: Would you please repeat the comments that you made relative to the development of the year? I think I sensed that maybe something that was important that you’re saying there, but I didn’t fully grasp it.

I think we talked about the fact that the new customers are going to represent this year approximately 40% of our revenue; they only represented 13% of our revenue last year. So, that growing by the end of the year, not obviously in these first quarters but by the end of the year we expect these new customers as they ramp up to be able to offset some of the decline that we are seeing from some of our older existing customers, which we talked about in previous quarters. So, even though our first quarter is going to be down sequentially. It is going to be up year-over-year, but that big decline sequentially from the fourth quarter to the first quarter is essentially being driven by a couple of major customers who have as we talked about in previous calls are moving away to another manufacturer. Bill Dezellem - Tieton Capital Management: And relative to the first quarter, it seems and correct me if I’m off base here that there is a pattern that has developed for your business where as the first quarter ends up being the low point essentially and then building off of that. Is that essentially what you are also saying that you anticipate to happen this year Q1...

I don’t think so Bill, certainly on paper there appears to be a pattern, but I think what we are seeing and I’ll giving you an example, in the fourth quarter we have customers our existing customer base actually pulling orders in and expediting to get those products out before the end of the quarter. Those same customers that we are expediting last quarter are now pushing their orders out almost to the same amount that they pulled them in, so I think it’s more reflective of actually what’s happening in the economy than any kind of pattern established for Key Tronic.

Right and then in our Q1, as we talked about previous quarters about one customer alone represents over $7 million decline sequentially from Q4 to Q1, which is unusual. That’s not expected, that’s not normal. Bill Dezellem - Tieton Capital Management: In addition to the move that you are making with 18 new customers essentially you referenced the decrease in customer concentration that leads to new theory that also will be leading to less volatility in the revenue and earnings stream. Are we interpreting that correctly?

We are hoping as we continue to bringing a more diversified end, the long list of products that I commented on certainly our diversified than to, where we had been in the past. Bill Dezellem - Tieton Capital Management: You discussed the new customer wins that you have had and given the significant number of wins. To what degree do you feel like you have I guess depleted your pipeline of new customers and you need to rebuild that pipeline?

I guess at this point, we have depleted it somewhat, but if we look at, Bill the number of quotes and request we have for quotes in the pipeline is equal to what we had at the beginning of last year that borrows customers on board, so our quote pipeline continues to be strong and hopefully we will follow the same kind of new customer opportunities in the future that we are seeing right now. Bill Dezellem - Tieton Capital Management: And how many new customers did you win in the fourth quarter?

Eight in the fourth quarter.

In the fourth quarter, we had four customers that we won in the fourth quarter; those 18 were over the last two years.

And eight were actually in the process of going to the ramp up stage. Bill Dezellem - Tieton Capital Management: And so, if one were just simply draw a line which is not always appropriate, but it would appears though as your new customer wins are accelerating. Is that how you view what’s developing with your business?

Well, I will tell you what, when we start off two years ago, we basically had nine base customers that generated most of our revenue and now with 18 new customers we’ve got, basically tripled our customer base in the last two years. So it’s pretty hard to keep that same rate going forward, but as far as percentage gains, but nonetheless we’ve have been pretty success over the last two years of picking up these new customers and I think it’s just our reputation is growing and I think our low cost operations in China and Mexico are really making us competitor particular for customers that seems to be our wheel-house, which is in the $5 million to $15 million range. Bill Dezellem - Tieton Capital Management: And that was something that you highlighted in your opening remarks, one of you did that as it just seems as though that core sized customer just does not have an opportunity with many other EMS manufactures to get the offshore strategy and that’s really providing you an advantage?

Yes, that’s correct Bill. Bill Dezellem - Tieton Capital Management: What is the common threat that explains why you are wining so many new customers and like I said you may have just answered it?

I think in the past we had focused on quoting larger opportunity and right now a lot of the quotes are in that range with growth potential beyond that. So our focus has been to, I think as we said diversify the customer base not only from the quantity of customers, but also industries that we are in and then quote on business where we can be competitive like Ron was saying with our offshore facilities that really the large EMS competitors are not going after.

Mr. Oehlke, there are no further questions at this time.

Yes, again Ron and I would like to thank you for participating in today’s conference call and we look forward to talking to you again in another quarter and giving you an update of where we are standing on growing our business. Thank you.