Strattec Security Corp. Business Report FY2006

Business Highlights

Financial overview
in million dollars FY2006 FY2005 Rate of change (%) Factors
Sales 181.2 190.3 (4.8) See Factor 1 below
Net income 12.5 15.0 (16.7) See Factor 2  below

Factor 1:
-Sales to the largest customers overall declined in the current year as compared to
the prior year.
-Sales to DaimlerChrysler Corporation increased significantly to $58.6 million in 2006 compared to $51.5 million in 2005 due to additional product content and higher
production volumes.
-Sales to Mitsubishi Motor Manufacturing of America, Inc. were $5.4 million in 2006 compared to $4.5 million in 2005 due to higher vehicle production volumes and increased product content.
-Sales to Ford Motor Company were $27.3 million in 2006 compared to $32.0 million in 2005 due to pre-programmed price reductions, discontinued models and lower Ford vehicle production volumes on certain vehicles.
- Sales to General Motors Corporation were $32.9 million in 2006 compared to $43.2 million in 2005 due to a combination of price reductions, discontinued models and lower production volumes on certain General Motors vehicles.
- Sales to Delphi Corporation were $26.7 million in 2006 compared to $29.6 million in 2005 due primarily to pre-programmed price reductions, lower levels of production and lower component content.

Factor 2:
-The lower net income are primarily attributed to lower production volumes, higher purchased material costs for brass and zinc and a less favorable Mexican peso to U.S. dollar exchange rate affecting its Mexican operations.
The average zinc price per pound increased to $1.01 in 2006 compared to $0.54 in 2005. During 2006 approximately 9.1 million pounds of zinc were used. This resulted in increased zinc costs of approximately $4.3 million in the current year over the prior year. The average brass price per pound increased to $2.81 in 2006 from $1.94 in 2005. During 2006 approximately 1.5 million pounds of brass were used. This resulted in increased brass costs of approximately $1.3 million in the current year over the prior year.
-The inflation rate in Mexico for the 12 months ended June 2006 was approximately 3 percent and increased operating costs by approximately $530,000 in the current year over the prior year. The U.S. dollar/Mexican peso exchange rate decreased to approximately 10.80 pesos to the dollar in 2006 from approximately 11.20 pesos to the dollar in 2005. This resulted in increased costs related to its Mexican operations of approximately $770,000 in the current year over the prior year.

-In July 2005, the Company signed a successor Agreement for the Alliance with WITTE-Velbert of Germany. This successor to the original five-year Agreement signed in 2000 provides a more efficient framework for mutual efforts, and adds flexibility for future initiatives that may be considered by the partners.
-In February of 2006, the Company announced the expansion of the Alliance and related joint venture with the addition of ADAC Plastics, Inc. ADAC, of Grand Rapids, Michigan adds North American expertise in door handles, a part of WITTE窶冱 core product line that the Company could not support, and an expertise in color-matched painting of these components which the Company believes is unique in the world.
-With the expansion of the Alliance, the Company now has a full range of access control related products available on a global basis to support customer programs. To identify this powerful combination of independent companies focused on working together, the joint venture was renamed as Vehicle Access Systems Technology LLC (VAST LLC, Witte and the Company each hold a 40%% interest and ADAC holds a 20% interest), and the Alliance is now called the VAST Alliance. (WITTE is now called WITTE Automotive, and ADAC is now doing business as ADAC Automotive.) The Alliance has adopted a common graphic image in which each member company shares a logo mark and colors, and a specific logo for the Alliance itself to be used on the partners窶 printed and electronic presentation materials. VAST LLC partners in China and Brazil are also adopting the name and image so that VAST now truly has global brand awareness.


<R&D Expenditure>
$ in million FY2006 FY2005 FY2004 FY2003 FY2002
 R&D expenditures 2.2 2.0 1.6 2.4 2.2

-The Company's engineering resources are organized by product type.
-The Company has four product groups: Locks and Keys, Latches, Driver Control/Ignition Lock Housings and Electrical.
-Each group has an Engineering Manager and a complement of skilled engineers who design and develop products for specific applications.
-Research and development activities are centered around dedicated research engineering staff in its Advanced Development Group.
-Projects the Company is pursuing focus on electronic and mechanical access control products, modularization of related access/security control components and new manufacturing processes to reduce costs for itself and its customers.

Products Features
Vehicle Access Module (VAM)

-The Company's Vehicle Access Module (VAM) is a unique assembly that incorporates all vehicle access functions including opening, closing, locking and unlocking vehicle doors.
- Reduces number of parts and assembly processes
- Reduces vehicle assembly time
- Provides snap-in connections for ease of assembly
- Reduces potential for injuries when assembling
- Allows for offline testing and adjustment
- Reduces potential warranty claims
- Greatly enhances security of the entire access system
- Allows for greater tolerance variation within the door structure
- Offers adaptability to modular and traditional door constructions
Passive Entry Door Latch

-Featuring Pivot Shift Latch Technology, the Company's door latch is a new design that offers safety, simplicity and design flexibility. 
- Patent-Pending Locking Mechanism provides integral
Passive Entry Capability without added parts or complexity
- Utilizes a single power actuator for Central Lock and
Passive Entry functions
- Mechanically changes lock state even when door handle
is actuated
- Provides all standard mechanical and electrical functions
of conventional latches IMPROVED SAFETY:
- Requires both mechanical AND electrical input to obtain
power unlatch
- Ensures that an electrical malfunction alone will not
cause the door to accidentally release OPTIONAL FEATURES:
- Power Child-Locking (with mechanical override)
- Double-Locking
- Conventional mechanical Inside Handle Override Unlocking
- Speed-sensitive "Intelligent" Inside Handle Override Unlocking
- Set and Slam Locking
- Non-Slam Locking- Central Lock/Alarm system arm/disarm
- Integral Door Ajar sensing
- Onboard latch control electronics featuring LIN-bus communication
Powered Steering Column Lock

-The Company's Powered Steering Column Lock is an electrically controlled and driven lock mechanism that secures and releases the steering column without the need for mechanical linkages. 
- Offers simple, lightweight construction with minimal moving parts (Patent Pending)
- Utilizes robust worm drive with unidirectional rotation to maintain durability
- Provides quick unlock response time
- Includes low voltage onboard electronic controls with integral LIN Bus interface for reduced wire harness complexity, secure communications and integrated diagnostics capability
- Utilizes Hall Effect sensors to provide reliable system status
- Can be easily reconfigured for a variety of mounting applications
- Includes an anti-theft security mounting pin
Integrated Key

-A one-piece assembly combining the Remote Keyless Entry Fob and the Key Blade in a convenient, easy-to-use package.
- Keyblade and Keyfob in the same package
- Customer convenience
- Durable construction
- Multiple button configurations
- Vehicle brand imaging
- Cost advantage OPTIONAL FEATURES:
- RFID Immobilize
- Fixed or Retractable Key Blade
High Security Freewheeling lock

-The Company's Freewheeling Lock is a self-contained assembly that can be used in remote-actuation applications.

-Its integrated protective enclosure and freewheeling mechanism prevent lock manipulation even in unprotected vehicle applications.
- Patent-Pending freewheeling mechanism to prevent forced
rotation break-ins
- Cable drive mechanism for remote latch operation
- Completely enclosed mechanism to meet current Thatcham requirements
- Integrated shutter mechanism for all-weather purposes
- Flexible universal mounting OPTIONAL FEATURES:
- Integrated switch assembly activated in non-freewheeling mode
- Array of cable end fittings available to match any latch
actuation mechanism
- Grommets available for sheet metal pass-thru of actuation cable