The following Management's Discussion and Analysis should be read in conjunction with STRATTEC SECURITY CORPORATION's accompanying Condensed Consolidated Financial Statements and Notes thereto and its 2008 Annual Report which was filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 29, 2008. Unless otherwise indicated, all references to years refer to fiscal years.

Purchase of Delphi Power Products Business

Effective November 30, 2008, STRATTEC SECURITY CORPORATION in combination with WITTE Automotive of Velbert, Germany, and Vehicle Access Systems Technology LLC (VAST), a joint venture between STRATTEC, WITTE and ADAC Automotive of Grand Rapids, Michigan, completed the acquisition of certain assets, primarily equipment and inventory, and assumption of certain employee liabilities of Delphi Corporation's global Power Products business for approximately $7.3 million. For the purposes of owning and operating the North American portion of this acquired business, STRATTEC established a new subsidiary, STRATTEC POWER ACCESS LLC (SPA), which is 80 percent owned by STRATTEC and 20 percent owned by WITTE. The purchase price of the North American portion of the acquired business totaled approximately $4.4 million, of which STRATTEC paid approximately $3.5 million. WITTE acquired the European portion of the business for approximately $2.4 million. Effective February 12, 2009, SPA acquired the Asian portion of the business for approximately $500,000.

The acquisition of the North American and Asian portion of this business by SPA was not material to STRATTEC's consolidated financial statements. Amortizable intangible assets acquired totaled $890,000 and are subject to amortization over a period of nine years. In addition, goodwill of approximately $15,000 was preliminarily recorded as part of the transaction, and is included in other intangible assets, net in the Condensed Consolidated Balance Sheets. All goodwill resulting from the purchase is expected to be deductible for tax purposes. The purchase accounting will be completed by the end of fiscal 2009 when final costs are determined.

The operating results of SPA for the period December 1, 2008 through March 29, 2009 are consolidated with the financial results of STRATTEC and resulted in decreased net income to STRATTEC of approximately $1.5 million during the nine month period ended March 29, 2009.

SPA designs, develops, tests, manufactures, markets and sells power systems to operate vehicle sliding side doors and rear compartment access points such as liftgates and trunk lids. In addition, the product line includes power cinching latches and cinching strikers used in these systems. Current customers for these products supplied from North America are Chrysler LLC, Hyundai Motor Company, General Motors and Ford.

Analysis of Results of Operations

Our financial results for the three and nine months ended March 29, 2009 reflect the overall weakness in the U.S. economy, and in particular the sharp decline in vehicle sales and production during the period. We are reacting to the unprecedented decline in the North American auto industry in several ways. During our second and third fiscal quarters, we reduced our productive work force at both our Milwaukee, Wisconsin and Juarez, Mexico facilities through a combination of temporary and permanent layoffs. We will continue to adjust our productive workforce in this way until the business improves or stabilizes at a predictable level. Since the beginning of our current fiscal year, we have not been replacing salaried associates who retired or left through normal attrition, saving nearly $1 million on an annualized basis. On January 15, 2009, we reduced the U.S. salaried workforce by approximately 10 percent. Effective January 1, 2009, we also froze executive officer salaries at their calendar year 2008 levels, and reduced our 401K match for salaried associates. We expect these changes will save approximately $2 million on an annual basis, but will be offset during our third fiscal quarter with a charge to earnings of $350,000 for severance and outplacement costs. Other cost reduction activities aimed at reducing general overhead costs are in place.

In addition, with the November 2008 completion of our new manufacturing facility in Juarez, Mexico we vacated two leased facilities, one in Juarez and one in Matamoros, Mexico. During the current year, we incurred approximately $206,000 of relocation costs to vacate the leased facility in Juarez. The moves from the leased facilities to the new facility were completed during our third fiscal quarter. We anticipate annual savings of approximately $500,000 related to vacating the leased facility. We were not contractually obligated to pay to terminate the leases related to these two leased facilities in Mexico. The contractual lease term for the facility in Matamoros, Mexico expires in July, 2009. The building was occupied through February 2009. The lease related to this facility was assumed as part of the purchase of Delphi Power Products effective as of November 30, 2008. We will continue to make lease payments for Matamoros through the end of the lease term, which expires on July 31, 2009. The lease payments made during the period the building was occupied were recorded as rent expense. A purchase accounting reserve was established as of the purchase date in accordance with our plan to move the operations from the Matamoros facility to an owned facility in Juarez, Mexico. The lease payments made from March 2009 through July 2009 will be charged against this reserve. The contractual lease term for the facility in Juarez, Mexico expired on February 2, 2009. This building was occupied through the end of January 2009. Lease payments were made and recorded as rent expense through the end of the lease term.

On April 23, 2009, General Motors Corporation announced assembly plant downtime for the months of May through July in order to reduce excess inventories at their dealer locations. Most of the approximately 190,000 vehicles removed from General Motors' production schedules are those that we supply. On April 27, 2009, General Motors announced certain aspects of its Revised Viability Plan including reduced production volumes for calendar year 2009 and the subsequent five years. We will be evaluating the impact this Plan will have on our business as more details become available. On April 30, 2009, Chrysler LLC announced assembly plant downtime for the months of May and June 2009 as part of their reorganization under Chapter 11 bankruptcy.

As a result of these announced reductions in production by General Motors and Chrysler LLC, we are also reducing our production schedules and cost structure. These reductions will affect both our sales and profitability for the fourth fiscal quarter ending June 28, 2009.

A large volume ignition lock housing program originally planned for our VAST Fuzhou joint venture plant in China will soon be sourced from our North American operations, providing additional sales and increased production of this product line at both our Milwaukee and Juarez facilities. Production for this program should begin late in the current fiscal year, and if current forecasts are correct, it should enhance sales by more than $12 million in the aggregate over the next two years.

Three months ended March 29, 2009 compared to the three months ended March 30, 2008

Net sales for the three months ended March 29, 2009 were $29.3 million compared to net sales of $38.4 million for the three months ended March 30, 2008. Sales to our largest customers overall were significantly lower in the current quarter compared to the prior year quarter. Sales to General Motors Corporation in the current quarter were $6.6 million compared to $10.1 million in the prior year quarter due to lower vehicle production volumes, partially offset by the takeover of certain passenger car lockset production from another supplier. The prior year quarter sales to General Motors were impacted by production reductions as a direct result of a strike called by the UAW against a major General Motors supplier reducing our sales by approximately $1.2 million. Sales to Chrysler LLC were $11.1 million in the current quarter compared to $9.7 million in the prior year quarter. The increased Chrysler sales were due to $5.2 million of sales generated by SPA relating primarily to the products supplied on Dodge, Chrysler and Volkswagen minivans, offset by a combination of lower vehicle production volume and reduced component content in the lock products we supply. Sales to Ford Motor Company were $3.6 million in the current quarter compared to $5.0 million in the prior year quarter, and sales to Delphi Corporation were $1.2 million in the current quarter compared to $3.8 million in the prior year quarter. The lower sales to Ford and Delphi were due to lower vehicle production volumes. Sales during the current quarter were weaker than initially anticipated for the above four customers due to their additional production schedule cut backs during the months following the Christmas holiday shutdown.

Gross profit as a percentage of net sales was 7.0 percent in the current quarter compared to 16.3 percent in the prior year quarter. The decrease in the gross profit margin was primarily attributed to reduced customer production volumes, partially offset by lower purchased material costs for zinc and brass along with a favorable Mexico Peso to U.S. dollar exchange rate affecting our operations in Mexico. The current quarter also included approximately $73,000 of relocation costs related to the move from our leased facility in Juarez, Mexico to our new manufacturing facility in Juarez, a non-recurring inventory adjustment of $38,000 and severance costs of $154,000 relating to a work force reduction in Mexico in January 2009. Construction of our new facility in Mexico was completed in November 2008, and the move from our leased facility in Juarez to our new facility was completed in February 2009. The non-recurring inventory adjustment related to finished goods inventory acquired in the Delphi Power Products business acquisition. The value of the finished goods inventory acquired was adjusted to its selling price less costs to sell, and gross profit was impacted by the inventory that was sold during the quarter. The impact of the reduced customer production volumes was partially offset by lower purchased material costs for zinc and brass along with a favorable Mexico peso to U.S. dollar exchange rate affecting the U.S. dollar cost of our operations in Mexico.

The average zinc price paid per pound decreased to $1.20 in the current quarter from $1.49 in the prior year quarter. During the current quarter, we used approximately 1.0 million pounds of zinc. This resulted in decreased zinc costs of approximately $300,000 in the current quarter compared to the prior year quarter. The average brass price paid per pound decreased to $2.63 in the current quarter from $3.81 in the prior year quarter. During the current quarter, we used approximately 165,000 pounds of brass. This resulted in decreased brass costs of approximately $190,000 in the current quarter compared to the prior year quarter. Given the significant financial impact on us relating to changes in the cost of zinc and brass, our primary raw materials, commencing with fiscal 2008, we began quoting quarterly material price adjustments for changes in our raw material costs in our negotiations with our customers. Our success in obtaining these quarterly price adjustments in our customer contracts is dependant on separate negotiations with each of our customers. It is not a standard practice for our customers to include such price adjustments in their contracts. We have been successful in obtaining quarterly price adjustments in some of our customer contracts. However, we have not been successful in obtaining the adjustments with all of our customers.

The inflation rate in Mexico for the twelve months ended March 29, 2009 was approximately 6.0 percent and increased our operating costs by approximately $200,000 in the current quarter over the prior year quarter. The average U.S. dollar/Mexican peso exchange rate increased to approximately 14.45 pesos to the dollar in the current quarter from approximately 10.75 pesos to the dollar in the prior year quarter. This resulted in decreased costs related to our Mexican operations of approximately $1.2 million in the current quarter over the prior year quarter.

Engineering, selling and administrative expenses were $7.2 million in the current quarter, compared to $6.1 million in the prior year quarter. The increased spending was primarily attributed to hiring SPA engineering personnel and contracting with Delphi for temporary transition services related to the acquisition. The temporary transition services and related expenses totaled $309,000 in the current quarter. Also, included in the current quarter is a charge of $350,000 for severance and outplacement costs relating to a U.S. salaried work force reduction on January 15, 2009. We expect that the salaried work force reduction, along with reductions in our 401K match, will save us approximately $2.0 million annually.

The provision for bad debts of $500,000 in the current quarter was recorded in connection with Chrysler LLC's filing for Chapter 11 bankruptcy protection for certain of their U.S. legal entities on April 30, 2009. We have approximately $2.7 million of pre-petition bankruptcy accounts receivable from Chrysler LLC, a portion of which we believe could be uncollectible. Prior to the Chapter 11 bankruptcy filing, we had been accepted into the United States Department of Treasury "Auto Supplier Support Program" relating to our open accounts receivable with Chrysler LLC and we are in the process of determining what trade receivables are eligible for payment under this Program. Based on information currently available, we believe the increase in our reserve is adequate to cover the potential loss exposure related to our trade accounts receivable from Chrysler LLC as of March 29, 2009. As further information becomes available, we may be required to record an additional reserve in the fourth quarter of fiscal 2009 for any additional loss exposure.

The loss from operations in the current quarter was $5.6 million compared to income from operations of $158,000 in the prior year quarter. This reduction was the result of the decrease in sales and gross profit margin, the increase in operating expenses and the provision for bad debts as discussed above.

Net other income was $104,000 in the current quarter compared to net other expense of $58,000 in the prior year quarter. The increase was primarily due to favorable transaction gains resulting from foreign currency transactions entered into by our Mexican subsidiaries in the current quarter compared to transactions losses in the prior year quarter and reduced losses on the Rabbi trust in the current quarter compared to the prior year quarter. The Rabbi trust funds our supplemental executive retirement plan. Transaction gains were $86,000 in the current quarter compared to losses of $123,000 in the prior year quarter. Losses related to the Rabbi trust totaled $65,000 in the current quarter compared to $173,000 in the prior year quarter. The investments held in the trust are considered trading securities.

Our U.S. effective tax rate was approximately 37 percent. Our effective tax rate in Mexico was approximately 15 percent. The current quarter income tax benefit was the result of the higher U.S. effective tax rate applied to pre-tax U.S. losses and a lower Mexican tax rate being applied to pre-tax income in Mexico. The overall U.S. effective tax rate differed from the Federal statutory tax rate primarily due to the effects of state income taxes.

Nine months ended March 29, 2009 compared to the nine months ended March 30, 2008

Net sales for the nine months ended March 29, 2009 were $97.9 million compared to net sales of $121.1 million for the nine months ended March 30, 2008. Sales to our largest customers overall were significantly lower in the current period compared to the prior year period. Sales to General Motors Corporation in the current period were $30.8 million compared to $34.4 million in the prior year period due to lower vehicle production volumes, partially offset by the takeover of certain passenger car lockset production from another supplier. The prior year period sales to General Motors were impacted by production reductions during the prior year third quarter as a direct result of a strike called by the UAW against a major General Motors supplier reducing sales by approximately $1.2 million. Sales to Chrysler LLC were $26.1 million in the current period compared to $30.3 million in the prior year period. This sales reduction was due to a combination of lower vehicle production volume and reduced component content in the lock products we supply, offset by $6.5 million of sales generated by SPA relating primarily to the products supplied on the Dodge, Chrysler and Volkswagen minivans. Sales to Ford Motor Company were $8.8 million in the current period compared to $14.9 million in the prior year period and sales to Delphi Corporation were $5.2 million in the current period compared to $11.6 million in the prior year period. The lower sales to Ford and Delphi were primarily due to lower vehicle production volumes. Sales during the current period were weaker than initially anticipated for the above four customers due to their additional production cut backs announced after the Thanksgiving holiday and their additional production schedule cut backs during the months following the Christmas holiday shutdown.

Gross profit as a percentage of net sales was 10.6 percent in the current period compared to 17.8 percent in the prior year period. The decrease in the gross profit margin was primarily attributed to reduced customer production volumes, partially offset by lower purchased material costs for zinc and brass along with a favorable Mexico Peso to U.S. dollar exchange rate affecting our operations in Mexico. The current period also included approximately $205,000 of relocation costs related to the move from our leased facility in Juarez, Mexico to our new manufacturing facility in Juarez, a non-recurring inventory adjustment of $152,000 and severance costs of $154,000 relating to a work force reduction in Mexico in January 2009. Construction of the new facility was completed in November 2008, and the move from our leased facility in Juarez to our new facility was completed in February 2009. The non-recurring inventory adjustment related to finished goods inventory acquired in the Delphi Power Products business acquisition. The value of the finished goods inventory acquired was adjusted to its selling price less costs to sell, and gross profit was impacted by the inventory that was sold during the period. The impact of the reduced customer production volumes was partially offset by lower purchased material costs for zinc and brass. The impact of the reduced customer production volumes was partially offset by lower purchased material costs for zinc and brass along with a favorable Mexico peso to U.S. dollar exchange rate affecting the U.S. dollar cost of our operations in Mexico.

The average zinc price paid per pound decreased to $1.21 in the current period from $1.56 in the prior year period. During the current period, we used approximately 4.2 million pounds of zinc. This resulted in decreased zinc costs of approximately $1.4 million in the current period compared to the prior year period. The average brass price paid per pound decreased to $3.15 in the current period from $3.81 in the prior year period. During the current period, we used approximately 660,000 pounds of brass. This resulted in decreased brass costs of approximately $435,000 in the current period compared to the prior year period. As noted above, commencing with fiscal 2008, we began quoting quarterly material price adjustments for changes in our raw material costs in our negotiations with our customers. Our success in obtaining these quarterly price adjustments in our customer contracts is dependant on our separate negotiations with each of our customers. It is not a standard practice for our customers to include such price adjustments in their contracts. We have been successful in obtaining quarterly price adjustments in some of our customer contracts. However, we have not been successful in obtaining the adjustments with all of our customers.

The inflation rate in Mexico for the twelve months ended March 29, 2009 was approximately 6.0 percent and increased our operating costs by approximately $750,000 in the current period over the prior year period. The average U.S. dollar/Mexican peso exchange rate increased to approximately 12.50 pesos to the dollar in the current period from approximately 10.85 pesos to the dollar in the prior year period. This resulted in decreased costs related to our Mexican operations of approximately $2.4 million in the current period over the prior year period.

Engineering, selling and administrative expenses were $19.8 million in the current period, compared to $17.7 million in the prior year period. The increase was primarily attributed to hiring SPA engineering personnel, contracting with Delphi for temporary transition services related to the acquisition, outside legal costs incurred to defend a STRATTEC patent and a charge of $350,000 for severance and outplacement costs relating to a U.S. salaried work force reduction on January 15, 2009. We expect that the salaried work force reduction, along with reductions in our 401K match, will save us approximately $2.0 million annually.

The provision for bad debts of $500,000 in the current year period was recorded in connection with Chrysler LLC's filing for Chapter 11 bankruptcy protection for certain of their U.S. legal entities on April 30, 2009. We have approximately $2.7 million of pre-petition bankruptcy accounts receivable from Chrysler LLC, a portion of which we believe could be uncollectible. Prior to the Chapter 11 bankruptcy filing, we had been accepted into the United States Department of Treasury "Auto Supplier Support Program" relating to our open accounts receivable with Chrysler LLC and we are in the process of determining what trade receivables are eligible for payment under this Program. Based on information currently available, we believe the increase in our reserve is adequate to cover the potential loss exposure related to our trade accounts receivable from Chrysler LLC as of March 29, 2009. As further information becomes available, we may be required to record an additional reserve in the fourth quarter of fiscal 2009 for any additional loss exposure.

The loss from operations in the current period was $9.9 million compared to income from operations of $3.8 million in the prior year period. This reduction was the result of the decrease in sales and gross profit margin, the increase in operating expenses and the provision for bad debts as discussed above.

Net other income was $884,000 in the current period compared to $408,000 in the prior year period. The increase was primarily due to favorable transaction gains resulting from foreign currency transactions entered into by our Mexican subsidiaries in the current period compared to transactions losses in the prior year period offset by increased losses on the Rabbi trust, which funds our supplemental executive retirement plan. Transactions gains were $1.2 million in the current period compared to losses of $77,000 in the prior year period. Losses related to the Rabbi trust totaled $595,000 in the current period compared to $158,000 in the prior year period. The investments held in the trust are considered trading securities.

Our U.S. effective tax rate was approximately 37 percent. Our effective tax rate in Mexico was approximately 15 percent. The current period income tax benefit was the result of the higher U.S. effective tax rate applied to pre-tax U.S. losses and a lower Mexican tax rate being applied to pre-tax income in Mexico. The overall U.S. effective tax rate differed from the Federal statutory tax rate primarily due to the effects of state income taxes.

Liquidity and Capital Resources
Our primary source of cash flow is from our major customers, which include
General Motors Corporation, Ford Motor Company, Chrysler LLC and Delphi
Corporation. As of the date of filing this Form 10-Q with the Securities and
Exchange Commission, all of our customers are making payments on their
outstanding accounts receivable in accordance with the payment terms included on
their purchase orders. A summary of our outstanding receivable balances from our
major customers as of March 29, 2009 is as follows (in thousands of dollars):

                    U.S.       Canada       Mexico       Total
General Motors     $ 5,470     $     -     $    491     $ 5,961
Ford                 1,774           -            -       1,774
Chrysler             3,313       4,435          876       8,624
Delphi                 203           -            -         203

On April 30, 2009, Chrysler LLC filed for Chapter 11 bankruptcy protection for certain of their U.S. legal entities. Prior to the Chapter 11 bankruptcy filing, we had been accepted into the United States Department of Treasury "Auto Supplier Support Program" relating to our open accounts receivable with Chrysler
LLC. As of April 30, 2009, we have approximately $2.7 million of pre-petition bankruptcy accounts receivable from Chrysler LLC. Based on the information currently available, we believe the majority of this $2.7 million balance will be paid under the Auto Supplier Support Program. During the quarter ended March 29, 2009, we increased our provision for bad debts by $500,000 to cover the portion of this balance which we believe could be uncollectible. As further information becomes available, we may be required to record an additional reserve in the fourth quarter of fiscal 2009 for any additional loss exposure.

On April 27, 2009, General Motors announced certain aspects of its Revised Viability Plan describing certain structural changes which will occur over the next five years. If this Plan is not accepted by the U.S. Government by May 31, 2009, General Motors may also be required to reorganize under a Chapter 11 bankruptcy proceeding similar to the one initiated by Chrysler LLC. We are in the process of applying for acceptance into the United States Department of Treasury "Auto Supplier Support Program" relating to our open accounts receivable with General Motors. As of the date of this 10-Q filing, we have not been formally accepted into this program.

As discussed under Analysis of Results of Operations, in April 2009, both General Motors and Chrysler LLC announced assembly plant downtime for the months of May through July. These announced reductions in production will negatively impact our cash flow from operations during the first quarter of fiscal 2010. However, we believe that our existing cash balances along with our Line of Credit, which is discussed below, is adequate to meet our anticipated capital expenditure, working capital and operating expenditure requirements.

Cash flow used in operating activities was $8.9 million during the nine months ended March 29, 2009 compared to $7.9 million of cash generated from operations during the nine months ended March 30, 2008. Current period operating cash flow was negatively impacted by overall financial results and the initial funding of working capital related to the SPA operations. Pension contributions to our qualified plan totaled $3 million during both the current year and prior year periods.

Capital expenditures during the nine months ended March 29, 2009, were $10.9 million, which included approximately $5.7 million for the construction of a new facility in Juarez, Mexico to replace our existing leased facility. Capital expenditures during the nine months ended March 30, 2008, were $8.5 million. We . . .