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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

For the Fiscal Year Ended June 28, 2003

Commission File Number 0-11559

KEY TRONIC CORPORATION

N. 4424 Sullivan Road

Spokane, Washington 99216

(509) 928-8000

Securities registered pursuant to Section 12(b) of the Act:

None

Securities 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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x.

The aggregate market value of the voting stock held by non-affiliates of the Registrant was $10,470,911 as of December 28, 2002.

The number of shares of Common Stock of the Registrant outstanding as of August 29, 2003 was 9,672,580 shares.

The Exhibit Index is located at pages 38 - 39.

DOCUMENTS INCORPORATED BY REFERENCE

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

Document Description

Table of Contents

KEY TRONIC CORPORATION

2003 FORM 10-K

TABLE OF CONTENTS

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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

Key Tronic Corporation (dba KeyTronicEMS), a Washington corporation organized in 1969, and its subsidiaries (hereinafter collectively called the “Company” or “Key Tronic” unless the context otherwise requires) are principally engaged in electronic manufacturing services (EMS) for original equipment manufacturers (OEMs). The Company also manufactures keyboards for personal computers, terminals, and workstations primarily in standard layouts that can be sold directly from inventory on hand.

BACKGROUND

Historically, Key Tronic was a manufacturer of only electronic keyboards, but about five years ago, after assessing its strengths and capabilities, the Company’s focus was shifted 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 tool making, precision molding, prototype design, liquid plastic injection molding, printed circuit board assembly (both through-hole and surface-mount), and full box build.

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 OEMs shift to external manufacturing, and it is expected to continue in this growth pattern for several years.

CUSTOMERS AND MARKETING

OEM MARKETS

The Company provides manufacturing services for outsourced OEM products. Key Tronic is capable of providing a mix of EMS services including product design, tool making, precision molding, prototype design, liquid plastic injection molding, printed circuit board assembly, full box builds, and printing screened silver flexible circuit membranes. The percentage of revenues from EMS services for the fiscal years ended June 28, 2003, June 29, 2002, and June 30, 2001 were 88.6%, 89.4%, and 76.2%, respectively. Sales of such products are generally not seasonal in nature.

Clorox accounted for 31% of consolidated revenue in fiscal year 2003 compared to 39% in fiscal year 2002. Hewlett Packard accounted for approximately 8%, 10%, and 39% of the Company’s consolidated revenues in fiscal years 2003, 2002, and 2001, respectively. Lexmark accounted for 8%, 13%, and 27% of consolidated revenues in fiscal years 2003, 2002, and 2001, respectively. No other customers accounted for 10% or more of consolidated revenues in the three fiscal years presented. In the fiscal years ended June 28, 2003, June 29, 2002, and June 30, 2001, the five largest customers, including Clorox, Hewlett Packard, and Lexmark, accounted for 63%, 76%, and 81% of total sales, respectively.

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Although keyboard manufacturing is still included in the Company’s product offerings, annual sales continue to decline. During the fiscal years ended June 28, 2003, June 29, 2002, and June 30, 2001, the Company realized revenues of approximately $14.6 million, $18.3 million, and $38.6 million, respectively, from the sale of keyboards representing approximately 11.1%, 10.4%, and 23.3% of consolidated revenues. 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 keyboards. Keyboard sales can increase somewhat during the last half of each calendar year in conjunction with the holiday season, but generally sales of these products are not seasonal in nature.

The Company markets its products and services primarily through its direct sales organization aided by strategically located field sales people and distributors. Although the Company established relationships with several independent sales organizations to assist in marketing the Company’s EMS product lines in the U.S., commissions earned and paid during fiscal year 2003 were insignificant.

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 printed screened silver flexible circuit membranes.

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 marketplace. Key Tronic uses computer-aided design techniques and unique software to assist in preparation of the tool design layout and tool fabrications, to reduce tooling costs, improve component and product quality and enhance turnaround time during product development.

Key Tronic uses a variety of manual and 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 and components for its products from many different suppliers both domestic and international. Key Tronic develops close working relationships with its suppliers, many of whom have been supplying products to the Company for several years.

FOREIGN MARKETS

Information concerning geographic areas for the years ended June 28, 2003, June 29, 2002, and June 30, 2001 is summarized in the following table.

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Foreign sales from worldwide operations, including domestic exports, were $16.2 million in fiscal year 2003 compared to $32.3 million and $88.9 million in fiscal years 2002 and 2001, respectively. Foreign sales were 12.4% of net sales in fiscal 2003 compared to 18.4% and 53.6% in fiscal years 2002 and 2001, respectively. The decrease in foreign sales for fiscal year 2003 is primarily the result of declining sales to the foreign subsidiaries of one EMS customer. Sales from Key Tronic Europe, Ltd. represented approximately 3.3% of consolidated sales to external customers in fiscal year 2003 compared to 3.0% and 5.8% in fiscal years 2002 and 2001, respectively. Although the Company hopes to expand its EMS business to include the European market, sales within Europe at the present time are primarily for electronic keyboards. Key Tronic Computer Peripheral Co., Ltd., the Company’s subsidiary in Shanghai, China, did not have any local sales in fiscal year 2003. In fiscal years 2002 and 2001, local sales from this subsidiary were $88,000 and $1.5 million, respectively. The decrease in sales to local Chinese customers is also the result of lower purchases from the same EMS customer as previously discussed.

For additional financial information about foreign operations, see Note 9 to the Consolidated Financial Statements.

BACKLOG

At August 2, 2003, the Company had an order backlog of approximately $34.9 million. This compares with a backlog of approximately $24.6 million at August 3, 2002. 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.

RESEARCH, DEVELOPMENT, AND ENGINEERING

The Company’s research, development, and engineering expenses (RD&E) were $2.9 million, $2.6 million, and $2.7 million in fiscal years 2003, 2002, and 2001, respectively. Research, development and engineering expenses as a percentage of sales were 2.2%, 1.5%, and 1.6% in fiscal years 2003, 2002, and 2001, respectively. The slight increase in RD&E expenses in fiscal year 2003 was due primarily to reinstated employee wages and merit increases that were under a 10% pay reduction in fiscal year 2002, and a reduction in rebillable engineering services.

COMPETITION

The Company believes that its principal competitors in the EMS market are divided into three tiers, the first tier includes such companies as Solectron, Celestica and Flextronics. The second tier has several companies with smaller market capitalization such as Plexus, Pemstar and Suntron. The Company believes they are positioned in the third tier, which includes SMTC, Nortech, and IEC Electronics. The principal methods of competition are price, quality, and the range of services offered.

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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 year 2001, Key Tronic began operating under the trade name “KeyTronicEMS” to better represent its primary business concentration.

EMPLOYEES

As of June 28, 2003, the Company had approximately 2,687 employees compared to 1,995 on June 29, 2002. The increase in employees is due primarily to additional production workers hired in the Company’s Juarez facility to ramp-up for more labor intensive customer programs. 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 bonus programs involving periodic payments to all employees based on quarterly or fiscal year before-tax income. The Company maintains a 401(k) plan for U.S. employees, 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 maintains stock option plans for certain employees and outside directors.

The Company has manufacturing and sales operations located in the United States, Mexico, China, and Ireland. The table below lists the locations and square feet for the Company’s operations as of June 28, 2003:

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On February 21, 2002, the Company sold real estate, which it owned in Cheney, Washington for $1,705,628 and recorded a gain of $84,000.

The Company considers the productive capacity of its current facilities sufficient to carry on the Company’s business.

On December 20, 2001, a jury in Seattle federal court rendered a verdict in the case of F&G Scrolling Mouse, LLC, Fernando Falcon and Federico Gilligan v. Microsoft Corporation, Honeywell, Inc., and Key Tronic Corporation, United States District Court for the Western District of Washington, Case No. C99-995C (the “litigation”) finding that Key Tronic misappropriated trade secrets and breached a confidentiality agreement with Plaintiffs. The jury awarded damages to the Plaintiffs in the amount of $16.5 million. The judgment against the Company was subsequently increased to approximately $19.2 million through an award of pre-judgment interest. On October 24, 2002, the Company reached a settlemen