STRT 10-Q Quarterly Report March 28, 2010

STRATTEC SECURITY CORP

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10-Q 1 strt3dtrform10q.htm STRATTEC 3RD QTR FORM 10-Q strt3dtrform10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2010

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 0-25150

STRATTEC SECURITY CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Wisconsin	39-1804239
(State of Incorporation)	(I.R.S. Employer Identification No.)

3333 West Good Hope Road, Milwaukee, WI 53209

(Address of Principal Executive Offices)

(414) 247-3333

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ___ NO ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated filer ___ Accelerated filer ___ Non-accelerated filer ___ (Do not check if a smaller reporting company) Smaller Reporting Company X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ___ NO X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common stock, par value $0.01 per share: 3,273,030 shares outstanding as of March 28, 2010

STRATTEC SECURITY CORPORATION

FORM 10-Q

March 28, 2010

INDEX

		Page
Part I - FINANCIAL INFORMATION
Item 1	Financial Statements
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6-12
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-25
Item 3	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4T	Controls and Procedures	25

Part II - OTHER INFORMATION
Item 1	Legal Proceedings	26
Item 1A	Risk Factors	26
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3	Defaults Upon Senior Securities	27
Item 4	[Removed and Reserved]	27
Item 5	Other Information	27-28
Item 6	Exhibits	29

PROSPECTIVE INFORMATION

A number of the matters and subject areas discussed in this Form 10-Q contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “would,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will,” and “could,” or the negative of these terms or words of similar meaning. These statements include expected future financial results, product offerings, global expansion, liquidity needs, financing ability, planned capital expenditures, management's or the Company's expectations and beliefs, and similar matters discussed in this Form 10-Q. The discussions of such matters and subject areas are qualified by the inherent risks and uncertainties surrounding future expectations generally, and also may materially differ from the Company's actual future experience.

The Company's business, operations and financial performance are subject to certain risks and uncertainties, which could result in material differences in actual results from the Company's current expectations. These risks and uncertainties include, but are not limited to, general economic conditions, in particular relating to the automotive industry, customer demand for the Company’s and its customers’ products, the impact on the Company from bankruptcy filings involving the Company’s customers, competitive and technological developments, customer purchasing actions, foreign currency fluctuations, costs of operations and other matters described under “Risk Factors” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-Q and in the section titled “Risk Factors” in the Company’s Form 10-K report filed with the Securities and Exchange Commission on August 28, 2009, for the year ended June 28, 2009.

Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this Form 10-Q.

Item 1 Financial Statements

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In Thousands, Except Per Share Amounts; Unaudited)

	Three Months Ended						Nine Months Ended
	March 28, 2010			March 29, 2009			March 28, 2010			March 29, 2009
Net sales	$	52,883		$	29,348		$	146,604		$	97,878
Cost of goods sold		44,022			27,285			123,292			87,480
Gross profit		8,861			2,063			23,312			10,398
Engineering, selling and administrative expenses		7,620			7,175			21,274			19,796
(Recovery of) Provision for bad debts		-			500			(421	)		500
Impairment charge		-			-			223			-
Environmental reserve adjustment		-			-			(1,125	)		-
Income (loss) from operations		1,241			(5,612	)		3,361			(9,898	)
Interest income		16			91			58			693
Other income, net		120			104			795			884
Income (loss) before provision for income		1,377			(5,417	)		4,214			(8,321	)
Provision (benefit) for income taxes		328			(2,095	)		1,390			(3,716	)
Net income (loss)		1,049			(3,322	)		2,824			(4,605	)
Net (income) loss attributed to non-controlling interest		(268	)		500			(256	)		601
Net income (loss) attributable to STRATTEC SECURITY CORPORATION	$	781		$	( 2,822	)	$	2,568		$	( 4,004	)
Comprehensive Income (Loss):
Net income (loss)	$	1,049		$	(3,322	)	$	2,824		$	(4,605	)
Change in cumulative translation adjustments, net		381			(623	)		670			(3,318	)
Pension Funded Status Adjustment, net of tax of $192		-			-			313			-
Total other comprehensive income (loss)		381			(623	)		983			(3,318	)
Comprehensive income (loss)		1,430			(3,945	)		3,807			(7,923	)
Comprehensive (income) loss attributed to non-controlling interest		(272	)		506			(262	)		624
Comprehensive income (loss) attributable to STRATTEC SECURITY CORPORATION	$	1,158		$	(3,439	)	$	3,545		$	(7,299	)

Earnings (Loss) Per Share:
Basic	$	0.24		$	( 0.87	)	$	0.79		$	( 1.22	)
Diluted	$	0.24		$	( 0.87	)	$	0.78		$	( 1.22	)
Average Shares Outstanding:
Basic		3,273			3,261			3,270			3,285
Diluted		3,284			3,262			3,275			3,290
Cash dividends declared per share	$	-		$	-		$	-		$	0.30

The condensed consolidated statement of operations and comprehensive income (loss) for the three and nine month periods ended March 29, 2009 have been retrospectively adjusted for our change in 2009 from the last-in, first-out method of inventory accounting to the first-in, first-out method. Additional details are available in the accompanying notes. The accompanying notes are an integral part of these condensed consolidated statements of operations and comprehensive income (loss).

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Amounts)

	March 28,			June 28,
	2010			2009
ASSETS		(Unaudited)
Current Assets:
Cash and cash equivalents	$	15,198		$	22,764
Receivables, net		33,122			17,235
Restricted cash		2,100			-
Inventories-
Finished products		3,998			3,812
Work in process		4,158			3,432
Purchased materials		8,680			9,345
Total inventories		16,836			16,589
Other current assets		18,960			15,970
Total current assets		86,216			72,558
Deferred income taxes		9,976			13,143
Investment in joint ventures		4,811			4,483
Loan to joint venture		1,500			-
Other long-term assets		762			1,069

Property, plant and equipment		135,217			131,502
Less: accumulated depreciation		(98,204	)		(94,566	)
Net property, plant and equipment		37,013			36,936
	$	140,278		$	128,189

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	20,972		$	11,369
Accrued Liabilities:
Payroll and benefits		11,313			8,232
Environmental reserve		1,497			2,636
Other		7,898			8,611
Total current liabilities		41,680			30,848
Accrued pension obligations		12,636			15,183
Accrued postretirement obligations		9,634			9,601

Shareholders' Equity:
Common stock, authorized 12,000,000 shares, $.01 par value, issued 6,906,957 shares at March 28, 2010 and 6,897,957 shares at June 28, 2009		69			69
Capital in excess of par value		79,177			79,247
Retained earnings		161,854			159,285
Accumulated other comprehensive loss		(30,118	)		(31,094	)
Less: treasury stock, at cost (3,633,927 shares at March 28, 2010 and 3,635,989 shares at June 28, 2009)		(136,055	)		(136,089	)
Total STRATTEC SECURITY CORPORATION shareholders' equity		74,927			71,418
Non-controlling interest		1,401			1,139
Total shareholders’ equity		76,328			72,557
	$	140,278		$	128,189

The accompanying notes are an integral part of these condensed consolidated balance sheets.

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In Thousands; Unaudited)

	Nine Months Ended
	March 28, 2010			March 29, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) attributable to STRATTEC SECURITY CORPORATION	$	2,568		$	(4,004	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Non-controlling interest		256			(601	)
Depreciation and amortization		5,335			4,528
Foreign currency transaction loss (gain)		325			(1,233	)
Stock based compensation expense		340			309
Deferred tax provision		3,258			-
(Recovery of) provision for bad debts		(421	)		500
Impairment charge		223			-
Environmental reserve adjustment		(1,125	)		-
Loss on curtailment of employee benefits		505			-
Change in operating assets and liabilities:
Receivables		(15,339	)		968
Inventories		(247	)		2,041
Other assets		(2,741	)		(4,122	)
Accounts payable and accrued liabilities		9,165			(7,106	)
Other, net		(604	)		(196	)
Net cash provided by (used in) operating activities		1,498			(8,916	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures		(100	)		(388	)
Restricted cash		(2,100	)		-
Loan to joint venture		(2,500	)		-
Proceeds from repayment of loan to joint venture		1,000			-
Acquisition of Delphi Power Products Business		-			(4,931	)
Purchase of property, plant and equipment		(4,945	)		(10,929	)
Proceeds from sale of property, plant and equipment		10			-
Net cash used in investing activities		(8,635	)		(16,248	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock		-			(6,214	)
Dividends paid		-			(1,511	)
Exercise of stock options and employee stock purchases		33			30
Loan from non-controlling interest		-			2,175
Repayment of loan from non-controlling interest		(225	)		-
Contribution from non-controlling interest		-			986
Net cash used in financing activities		(192	)		(4,534	)
Foreign currency impact on cash		(237	)		795
NET DECREASE IN CASH AND CASH EQUIVALENTS		(7,566	)		(28,903	)

CASH AND CASH EQUIVALENTS
Beginning of period		22,764			51,501
End of period	$	15,198		$	22,598

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid (recovered)	$	1,300		$	( 1,619	)
Interest paid		-			-

The condensed consolidated statement of cash flows for the nine month period ended March 29, 2009 has been retrospectively adjusted for our change in 2009 from the last-in, first-out method of inventory accounting to the first-in, first-out method. Additional details are available in the accompanying notes. The accompanying notes are an integral part of these condensed consolidated statements of cash flows.

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Basis of Financial Statements

STRATTEC SECURITY CORPORATION designs, develops, manufactures and markets automotive security products, including mechanical locks and keys, electronically enhanced locks and keys, and ignition lock housings; and access control products, including latches, power sliding door systems, power lift gate systems, power deck lid systems, door handles and related access control products for North American automotive customers. We also supply global automotive manufacturers through the VAST Alliance (VAST ALLIANCE) in which we participate with WITTE Automotive of Velbert, Germany and ADAC Automotive of Grand Rapids, Michigan. Our products are shipped to customer locations in the United States, Canada, Mexico, Europe, South America, Korea and China, and we provide full service and aftermarket support. We have only one reporting segment.

The accompanying condensed consolidated financial statements reflect the consolidated results of STRATTEC SECURITY CORPORATION, its wholly owned Mexican subsidiary, STRATTEC de Mexico, and its majority owned subsidiaries, ADAC-STRATTEC, LLC and STRATTEC POWER ACCESS LLC. STRATTEC SECURITY CORPORATION is located in Milwaukee, Wisconsin. STRATTEC de Mexico is located in Juarez, Mexico. ADAC-STRATTEC, LLC and STRATTEC POWER ACCESS LLC have operations in El Paso, Texas and Juarez, Mexico. Equity investments in Vehicle Access Systems Technology LLC (VAST LLC) for which we exercise significant influence but do not control and are not the primary beneficiary, are accounted for using the equity method. VAST LLC consists primarily of two wholly owned subsidiaries in China and one joint venture in Brazil.

In the opinion of management, the accompanying condensed consolidated balance sheet as of June 28, 2009, which has been derived from our audited financial statements, and the related unaudited interim condensed consolidated financial statements contain all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with Rule 10-01 of Regulation S-X. All significant intercompany transactions have been eliminated.

Interim financial results are not necessarily indicative of operating results for an entire year. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and the financial statements and notes thereto included in the STRATTEC SECURITY CORPORATION 2009 Annual Report, which was filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 28, 2009.

Certain reclassifications have been made to the fiscal 2009 interim financial statements to conform to the fiscal 2010 presentation. The fiscal 2010 presentation is based on the first quarter of fiscal 2010 adoption of a new accounting standard issued by the Financial Accounting Standards Board (FASB) related to non-controlling interests in consolidated financial statements. The adoption of the new standard resulted in the retrospective adjustment to the presentation of prior year financial information and additional disclosures. The adoption did not impact previously reported net income or retained earnings amounts but did require a reclassification of the non-controlling interest to a component of total shareholders’ equity. The FASB Accounting Standards Codification (ASC) were also adopted during the first quarter of fiscal 2010. The adoption of the ASC did not result in any restatements of previously reported financial statements.

On December 30, 2008, the FASB issued a new accounting standard which significantly expanded the disclosures required by employers for postretirement plan assets. The new standard requires plan sponsors to provide extensive new disclosures about assets in defined benefit postretirement benefit plans as well as any concentrations of associated risks. The new standard is effective for periods ending after December 15, 2009. The disclosure requirements are annual and do not apply to interim financial statements. We are required to provide the expanded pension plan asset disclosure in our annual financial statements for the year ending June 27, 2010.

Subsequent Events

As discussed in Pension and Other Postretirement Benefits below, voluntary contributions to the qualified pension plan made to date during the fourth quarter of fiscal 2010 totaled $1.0 million. Also, as discussed in Income Taxes below, during the quarter ended December 31, 2009, the available Federal operating loss carry-back period changed from 2 years to 5 years. As a result, approximately $2.8 million of long-term deferred tax assets related to Federal operating loss carry-forwards were reclassified as current tax recoverable. The total tax recoverable related to the loss carry-back of approximately $4.8 million was received in April 2010. No additional events impacting the financial statements or disclosure items were identified.

Purchase of Delphi Power Products Business

Effective November 30, 2008, STRATTEC, in combination with WITTE Automotive of Velbert, Germany, completed the acquisition of certain assets, primarily equipment and inventory, and assumption of certain employee liabilities of Delphi Corporation’s Power Products business for approximately $7.3 million. For 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 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 portions 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 $223,000 was recorded as part of the transaction. The amortizable intangibles are included in other long-term assets in the Condensed Consolidated Balance Sheets. Refer to Goodwill Impairment discussed on page 9 herein.

The financial results of SPA are consolidated with the financial results of STRATTEC and resulted in increased net income to STRATTEC of approximately $157,000 during the nine month period ended March 28, 2010 and decreased net income to STRATTEC of approximately $1.5 million during the nine month period ended March 29, 2009.

SPA designs, develops, tests, manufacturers, markets and sells power systems to operate vehicle sliding side doors and rear compartment access points such as liftgates and truck 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 Group LLC, Hyundai Kia Automotive Group, General Motors Company and Ford Motor Company.

VAST LLC Purchase of Non-Controlling Interest of VAST China

Effective November 20, 2009, VAST LLC purchased the non-controlling interest of its two Chinese joint ventures, VAST Fuzhou and VAST Great Shanghai, for $9.6 million. STRATTEC’s share of the purchase price totaled $3.2 million. Effective with the purchase, VAST LLC owns 100% of the Chinese entities. In connection with this transaction, $7.5 million of the purchase price was paid in November 2009. Initially, a loan of $2.5 million was made from STRATTEC to VAST LLC to cover STRATTEC’s share of this $7.5 million payment. The outstanding loan balance of $1.5 million as of March 2009 is reflected as Loan to Joint Venture in the Condensed Consolidated Balance Sheets. The remaining purchase price of $2.1 million will be paid in three equal installments. The three payments will be made in April 2010, October 2010 and April 2011. A $2.1 million stand-by letter of credit was issued by VAST LLC, and is guaranteed by STRATTEC, related to the future installment payments. Cash of $2.1 million has been transferred to a separate account in support of the stand-by letter of credit guarantee and is reflected as Restricted Cash in the Condensed Consolidated Balance Sheets. In connection with this purchase, VAST LLC recorded a loss equal to the difference between the purchase price and the carrying value of the non-controlling interest of approximately $1.2 million as a reduction of equity in its consolidated financial statements. STRATTEC’s share of this loss totaled $409,000 and is recorded as a reduction of Capital In Excess of Par Value in the Condensed Consolidated Balance Sheets.

Fair Value of Financial Instruments

The fair value of our cash and cash equivalents, accounts receivable and accounts payable approximate book value as of March 28, 2010. Fair value is defined as the exchange price that would be received for an asset or paid for a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of March 28, 2010 (in thousands of dollars):

	Fair Value Inputs
	Quoted Prices In Active Market		Observable Inputs Other Than Market Prices		Unobservable Inputs
Rabbi Trust assets	$	3,988	$	-	$	-

The Rabbi Trust assets fund our supplemental executive retirement plan and are included in Other Current Assets in the Condensed Consolidated Balance Sheets. Assets held in the Trust include U.S. Treasury Securities, corporate bonds and large, medium and small-cap index funds.

Inventories

Inventories are comprised of material, direct labor and manufacturing overhead, and are stated at the lower of cost or market using the first-in, first-out (FIFO) cost method of accounting. Prior to the fourth quarter of fiscal 2009, the majority of our inventories were accounted for using the last-in, first-out (LIFO) method of accounting. During the fourth quarter of 2009, we changed our method of accounting for this inventory from the LIFO method to the FIFO method. We believe the FIFO method is a preferable method which better reflects the current cost of inventory on our consolidated balance sheets. After this change, all inventories have a consistent costing method. For comparative purposes, all periods presented have been retrospectively adjusted on a FIFO basis. The following table summarizes the effect of the accounting change on our condensed consolidated financial statements for the three and nine months ended March 29, 2009 (in thousands, except per share amounts):

	Three Months Ended						Nine Months Ended
	Originally Reported			As Reported Under FIFO			Originally Reported			As Reported Under FIFO

Condensed Consolidated Statements of Operations:
Cost of goods sold	$	27,295		$	27,285		$	87,503		$	87,480
Net loss attributable to STRATTEC	$	(2,832	)	$	(2,822	)	$	(4,027	)	$	(4,004	)
Basic earnings per share	$	(0.87	)	$	(0.87	)	$	(1.23	)	$	(1.22	)
Diluted Earnings per share	$	(0.87	)	$	(0.87	)	$	(1.22	)	$	(1.22	)
Condensed Consolidated Statements of Cash Flows:
Change in inventories							$	2,064		$	2,041

Environmental Reserve

In 1995, we recorded a provision of $3 million for estimated costs to remediate a site at our Milwaukee facility. The site was contaminated by a solvent spill, which occurred in 1985, from a former above ground solvent storage tank located on the east side of the facility. The reserve was originally established based on third party estimates to adequately cover the cost for active remediation of the contamination. Due to changing technology and related costs associated with active remediation of the contamination, an updated third party analysis and estimate was obtained during the quarter ended December 27, 2009. The reserve was reduced by approximately $1.1 million, to $1.5 million at December 27, 2009, to reflect the revised third party monitoring and remediation cost estimate. As of March 28, 2010, costs of approximately $400,000 have been incurred related to the installation of monitoring wells on the property and ongoing monitoring costs. We continue to monitor and evaluate the site with the use of groundwater monitoring wells that are installed on the property. An environmental consultant samples these wells one or two times a year to determine the status of the contamination and the potential for remediation of the contamination by natural attenuation, the dissipation of the contamination over time to concentrations below applicable standards. If such sampling evidences a sufficient degree of and trend toward natural attenuation of the contamination, we may be able to obtain a closure letter from the regulatory authorities resolving the issue without the need for active remediation. If a sufficient degree and trend toward natural attenuation is not evidenced by sampling, a more active form of remediation beyond natural attenuation may be required. The sampling has not yet satisfied all of the requirements for closure by natural attenuation. As a result, sampling continues and the reserve remains at an amount to reflect the cost of active remediation. The reserve is not measured on a discounted basis. We believe, based on findings-to-date and known environmental regulations, that the environmental reserve at March 28, 2010 is adequate.

Warranty

We are exposed to warranty claims in the event that our products fail to perform as expected, and we may be required to participate in a recall of such products. Historically, we have experienced relatively low warranty charges from our customers due to our commercial arrangements and improvements in the quality, reliability and durability performance of our products. Recently, our largest customers have extended their warranty protection for their vehicles and are demanding higher warranty cost sharing arrangements from suppliers. As a result of these actions, during the current quarter we recorded a $1.2 million provision to establish a warranty reserve to cover these exposures. Our reserve is based on an analysis of historical warranty data as well as current trends and information, including our customers recent extension of their warranty programs and current warranty sharing arrangements.

Shareholder’s Equity

A summary of activity impacting shareholders’ equity for the nine month period ended March 28, 2010 is as follows (in thousands):

	Total Shareholders’ Equity			Equity Attributed to STRATTEC			Equity Attributed to Non-Controlling Interest
Balance, June 28, 2009	$	72,557		$	71,418		$	1,139
Net income (loss)		2,824			2,568			256
Translation adjustments		670			664			6
Pension funded status adjustment, net of tax of $192		313			313			-
VAST LLC loss on purchase of non-controlling interest		(409	)		(409	)		-
Stock Based Compensation		340			340			-
Employee Stock Purchases		33			33			-
Balance, March 28, 2010	$	76,328		$	74,927		$	1,401

Goodwill Impairment

During the quarter ended December 27, 2009, we performed our annual goodwill impairment test and determined that goodwill related to SPA, which resulted from the purchase of Delphi Power Products in fiscal 2009, was impaired. Accordingly, a non-cash impairment charge of $223,000 was recognized to write-off the related goodwill.

Other Income, net

Net other income included in the Condensed Consolidated Statements of Operations primarily includes foreign currency transaction gains and losses, Rabbi Trust gains and losses and equity earnings of joint ventures. Foreign currency transaction gains are the result of foreign currency transactions entered into by our Mexican subsidiaries and foreign currency cash balances. The Rabbi Trust funds our supplemental executive retirement plan. The investments held in the Trust are considered trading securities. The impact of these items for each of the periods presented is as follows (in thousands):

	Three Months Ended						Nine Months Ended
	March 28, 2010			March 29, 2009			March 28, 2010			March 29, 2009
Foreign Currency Transaction (Loss) Gain	$	(167	)	$	86		$	(324	)	$	1,233
Rabbi Trust Gain (Loss)	$	78		$	(65	)	$	454		$	(595	)
Equity Earnings of Joint Ventures	$	160		$	77		$	639		$	203

Income Taxes

The income tax provision (benefit) for the three and nine month periods ended March 28, 2010 and March 29, 2009 is impacted by a lower effective tax rate for income subject to tax in Mexico as compared to the effective tax rate for income subject to tax in the U.S. The effective tax rate for income subject to tax in Mexico is approximately 19 percent.

We did not have a significant change to the total amount of unrecognized tax benefits during the nine months ended March 28, 2010. STRATTEC is currently the subject of an income tax examination in our Wisconsin jurisdiction for fiscal years 2005, 2006, 2007 and 2008. The audit is currently in process and preliminary results are not yet available.

During the quarter ended December 31, 2009, the available Federal operating loss carry-back period changed from 2 years to 5 years. As a result, approximately $2.8 million of long-term deferred tax assets related to Federal operating loss carry-forwards were reclassified as current tax recoverable, which is reflected in Other Current Assets in the Condensed Consolidated Balance Sheets as of March 28, 2010.

Earnings (Loss) Per Share (EPS)

Basic earnings (loss) per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and unvested restricted stock awards.

A reconciliation of the components of the basic and diluted per-share computations follows (in thousands, except per share amounts):

	Three Months Ended
	March 28, 2010						March 29, 2009
	Net Income Attributable to STRATTEC		Weighted Average Shares		Per-Share Amount		Net Loss Attributable to STRATTEC			Weighted Average Shares		Per-Share Amount
Basic Earnings (Loss) Per Share	$	781		3,273	$	0.24	$	(2,822	)		3,261	$	(0.87	)
Stock-Based Compensation				11							1
Diluted Earnings (Loss) Per Share	$	781		3,284	$	0.24	$	(2,822	)		3,262	$	(0.87	)

	Nine Months Ended
	March 28, 2010						March 29, 2009
	Net Income Attributable to STRATTEC		Weighted Average Shares		Per-Share Amount		Net Loss Attributable to STRATTEC			Weighted Average Shares		Per-Share Amount
Basic Earnings (Loss) Per Share	$	2,568		3,270	$	0.79	$	(4,004	)		3,285	$	(1.22	)
Stock-Based Compensation				5							5
Diluted Earnings (Loss) Per Share	$	2,568		3,275	$	0.78	$	(4,004	)		3,290	$	(1.22	)

As of March 28, 2010, options to purchase 219,650 shares of common stock at a weighted-average exercise price of $40.85 were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. As of March 29, 2009, options to purchase 227,240 shares of common stock at a weighted-average exercise price of $38.07 were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive.

In June 2008, the FASB issued a new accounting standard that clarifies when instruments granted in share-based payment transactions should be included in computing EPS. Under the new standard, companies are required to include unvested share-based payment awards that contain non-forfeitable rights to receive dividends in their calculation of basic EPS and are required to calculate basic EPS using the "two-class method." The two-class method of computing EPS is an earnings allocation formula that determines EPS for each class of common stock and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. We adopted this new accounting standard on a retrospective basis in the first quarter of fiscal 2010, and the adoption did not have an impact on EPS.

Stock-based Compensation

We maintain an omnibus stock incentive plan. This plan provides for the granting of stock options, shares of restricted stock and stock appreciation rights. The Board of Directors has designated 1,700,000 shares of common stock available for the grant of awards under the plan. Remaining shares available to be granted under the plan as of March 28, 2010 were 250,493. Awards that expire or are canceled without delivery of shares become available for re-issuance under the plan. We issue new shares of common stock to satisfy stock option exercises.

Nonqualified and incentive stock options and shares of restricted stock have been granted to our officers and specified employees under our stock incentive plan. Stock options granted under the plan may not be issued with an exercise price less than the fair market value of the common stock on the date the option is granted. Stock options become exercisable as determined at the date of grant by the Compensation Committee of the Board of Directors. The options expire 5 to 10 years after the grant date unless an earlier expiration date is set at the time of grant. The options vest 1 to 4 years after the date of grant. Shares of restricted stock granted under the plan are subject to vesting criteria determined by the Compensation Committee of the Board of Directors at the time the shares are granted and have a minimum vesting period of three years from the date of grant. Restricted shares granted have voting and dividend rights. The restricted stock grants issued to date vest 3 years after the date of grant.

The fair value of each stock option grant was estimated as of the date of grant using the Black-Scholes pricing model. The resulting compensation cost for fixed awards with graded vesting schedules is amortized on a straight line basis over the vesting period for the entire award. The fair value of each restricted stock grant was based on the market price of the underlying common stock as of the date of grant. The resulting compensation cost is amortized on a straight line basis over the vesting period.

A summary of stock option activity under the plan for the nine months ended March 28, 2010 is as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Outstanding, June 28, 2009		227,240		$	38.07
Granted		80,000		$	17.73
Exercised		-			-
Expired		(2,790	)	$	61.22
Forfeited		(4,400	)	$	10.92
Outstanding, March 28, 2010		300,050		$	32.83		6.5	$	1,110
Exercisable, March 28, 2010		151,750		$	50.28		3.8	$	219

The intrinsic value of stock options exercised and the fair value of stock options vesting during the three and nine month periods presented is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	March 28, 2010		March 29, 2009		March 28, 2010		March 29, 2009
Intrinsic Value of Options Exercised	$	-	$	-	$	-	$	-
Fair Value of Stock Options Vesting	$	96	$	-	$	114	$	469

A summary of restricted stock activity under the stock incentive plan for the nine months ended March 28, 2010 is as follows:

	Shares			Weighted Average Grant Date Fair Value
Nonvested Balance, June 28, 2009		28,200		$	38.64
Granted		10,000		$	14.75
Vested		(9,000	)	$	40.00
Forfeited		(1,300	)	$	30.39
Nonvested Balance, March 28, 2010		27,900		$	30.02

As of March 28, 2010, there was $903,000 of total unrecognized compensation cost related to stock options granted under the stock incentive plan. This cost is expected to be recognized over a weighted average period of 1.7 years. As of March 28, 2010, there was $288,000 of total unrecognized compensation cost related to restricted stock grants under the plan. This cost is expected to be recognized over a weighted average period of 10 months. Total unrecognized compensation cost will be adjusted for any future changes in estimated and actual forfeitures of awards granted under the plan.

Pension and Other Postretirement Benefits

We have a noncontributory qualified defined benefit pension plan covering substantially all U.S. associates. Benefits are based on years of service and final average compensation. Our policy is to fund at least the minimum actuarially computed annual contribution required under the Employee Retirement Income Security Act of 1974 (ERISA). Plan assets consist primarily of listed equity and fixed income securities. We have a noncontributory supplemental executive retirement plan (SERP), which is a nonqualified defined benefit plan. The SERP will pay supplemental pension benefits to certain key employees upon retirement based upon the employees’ years of service and compensation. The SERP is being funded through a Rabbi trust with M&I Trust Company. We also sponsor a postretirement health care plan for all of our U.S. associates hired prior to June 2, 2001. The expected cost of retiree health care benefits is recognized during the years that the associates who are covered under the plan render service. The postretirement health care plan is unfunded.

An amendment to the qualified defined benefit pension plan, which was effective January 1, 2010, discontinued the benefit accruals for salary increases and credited service rendered after December 31, 2009. As a result of this action, a curtailment loss related to unrecognized prior service cost of $505,000 was recorded during the quarter ended December 27, 2009, of which approximately $375,000 increased cost of goods sold and approximately $130,000 increased engineering, selling and administrative expenses. Effective January 1, 2010, future eligible retirees benefits under the postretirement health care plan will be limited to $4,000 per plan year for a maximum period of five years.

The following tables summarize the net periodic benefit cost recognized for each of the periods indicated under these two plans (in thousands):

	Pension Benefits						Postretirement Benefits
	Three Months Ended						Three Months Ended
	March 28, 2010			March 29, 2009			March 28, 2010			March 29, 2009
Service cost	$	33		$	500		$	31		$	48
Interest cost		1,238			1,270			176			183
Expected return on plan assets		(1,588	)		(1,640	)		-			-
Amortization of prior service cost		3			19			(97	)		(97	)
Amortization of unrecognized net loss		162			64			172			174
Net periodic benefit cost	$	(152	)	$	213		$	282		$	308

	Pension Benefits						Postretirement Benefits
	Nine Months Ended						Nine Months Ended
	March 28, 2010			March 29, 2009			March 28, 2010			March 29, 2009
Service cost		974		$	1,436		$	93		$	143
Interest cost		3,808			3,812			526			552
Expected return on plan assets		(4,763	)		(4,921	)		-			-
Curtailment Loss		505			-			-			-
Amortization of prior service cost		42			59			(291	)		(291	)
Amortization of unrecognized net loss		564			191			513			522
Net periodic benefit cost	$	1,130		$	577		$	841		$	926

Voluntary contributions made to the qualified pension plan totaled $3.0 million during both nine month periods ending March 28, 2010 and March 29, 2009. Voluntary contributions made to date during the fourth quarter of fiscal 2010 totaled $1.0 million. No additional voluntary contributions are anticipated to be made during the remainder of the fourth quarter of fiscal 2010.

Item 2

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 2009 Annual Report which was filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 28, 2009. Unless otherwise indicated, all references to years refer to fiscal years.

Purchase of Delphi Power Products Business

Analysis of Results of Operations

Three months ended March 28, 2010 compared to the three months ended March 29, 2009

Net sales for the three months ended March 28, 2010 were $52.9 million compared to net sales of $29.3 million for the three months ended March 29, 2009. Sales to our largest customers overall increased in the current quarter compared to the prior year quarter levels primarily due to higher vehicle production volumes. Sales to Chrysler Group LLC were $17.0 million in the current quarter compared to $11.1 million in the prior year quarter. Sales to General Motors Company were $13.5 million in the current quarter compared to $6.6 million in the prior year quarter. Included in the current quarter sales to General Motors were $1.7 million of sales to Nexteer Automotive, formerly a unit of Delphi Corporation, which is now owned by General Motors. Sales to Ford Motor Company were $4.5 million in the current quarter compared to $3.6 million in the prior year quarter. In the current year quarter, sales generated by SPA to Hyundai Kia were $2.8 million. Also, in the current quarter historical customer pricing issues were resolved which increased sales approximately $1.2 million. The pricing issues related to a specific vehicle program and have been fully resolved as of the end of the current quarter.

Gross profit as a percentage of net sales was 16.8 percent in the current quarter compared to 7.0 percent in the prior year quarter. The improvement in the gross profit margin in the current year quarter was primarily the result of higher customer vehicle production volumes compared to the prior year quarter which resulted in more favorable absorption of fixed manufacturing costs. Also impacting the current quarter were the recording of a $1.2 million warranty reserve, lower purchased raw material costs for zinc offset by an unfavorable Mexico peso to U.S. dollar exchange rate affecting the U.S. dollar cost of our operations in Mexico. The decision to establish a warranty reserve is related to new expectations from our customers. Historically, the Company has experienced relatively low warranty related charge backs from our customers due to our contractual arrangements, improvements in quality, reliability and the performance of our products. Currently certain customers have extended their vehicle warranty programs and are demanding higher warranty cost sharing arrangements from suppliers. We therefore believe it prudent to provide this reserve against the warranty exposure. The average zinc price paid per pound decreased to $0.94 in the current quarter from $1.20 in the prior year quarter. During the current quarter, we used approximately 2.0 million pounds of zinc. This resulted in decreased zinc costs of approximately $520,000 in the current quarter compared to the prior year quarter. The inflation rate in Mexico for the twelve months ended March 28, 2010 was approximately 5.0 percent and increased our operating costs by approximately $400,000 in the current quarter over the prior year quarter. The average U.S. dollar/Mexican peso exchange rate decreased to approximately 12.28 pesos to the dollar in the current quarter from approximately 14.55 pesos to the dollar in the prior year quarter. This resulted in increased costs related to our Mexican operations of approximately $675,000 in the current quarter over the prior year quarter.

Engineering, selling and administrative expenses were $7.6 million in the current quarter, which is consistent with expenses of $7.2 million in the prior year quarter.

In the prior year quarter, we recorded a $500,000 provision for doubtful accounts in connection with Chrysler LLC’s filing for Chapter 11 bankruptcy protection for certain of their U.S. legal entities on April 30, 2009. All uncollectible receivables related to the bankruptcy were written off against the $500,000 reserve during the quarter ended September 27, 2009. However, as a result of payments received from Chrysler as of March 29, 2010, $421,000 of the $500,000 provision was recorded as a recovery of allowance for doubtful accounts during the current nine month period.

The income from operations in the current quarter was $1.2 million compared to a loss from operations of $5.6 million in the prior year quarter. This change was the result of the increase in sales and gross profit margin as well as the prior quarter provision for doubtful accounts as discussed above.

Net other income was $120,000 in the current quarter compared to $104,000 in the prior year quarter and consisted primarily of gains and losses on the Rabbi Trust, transaction gains and losses resulting from foreign currency transactions entered into by our Mexican subsidiaries and equity earnings of joint ventures. The Rabbi Trust funds our supplemental executive retirement plan. Gains related to the Rabbi Trust totaled $78,000 in the current quarter compared to losses of $65,000 in the prior year quarter. The investments held in the Trust are considered trading securities. Foreign currency transaction losses totaled $167,000 in the current quarter compared to gains of $86,000 in the prior year quarter. Equity earnings of joint ventures totaled $160,000 in the current quarter compared to $77,000 in the prior year quarter. The improvement in equity earnings of joint ventures is primarily due to the favorable economic conditions in China and an increase in our ownership percentage resulting from the November 20, 2009 purchase by VAST LLC of the non-controlling interest of its two Chinese joint ventures, VAST Fuzhou and VAST Great Shanghai.

The income tax provision (benefit) for the three month periods ended March 28, 2010 and March 29, 2009 was impacted by a lower effective tax rate for income subject to tax in Mexico as compared to the effective tax rate for income subject to tax in the U.S.

Nine months ended March 28, 2010 compared to the nine months ended March 29, 2009

Net sales for the nine months ended March 28, 2010 were $146.6 million compared to net sales of $97.9 million for the nine months ended March 29, 2009. Sales to our largest customers overall increased in the current period compared to the prior year period primarily due to higher vehicle production volumes. Sales to Chrysler Group LLC were $46.3 million in the current period compared to $26.1 million in the prior year period. Sales to General Motors Company were $35.6 million in the current period compared to $30.8 million in the prior year period. Included in the current period sales to General Motors were $3.1 million of sales to Nexteer Automotive, formerly a unit of Delphi Corporation, which is now owned by General Motors. Sales to Ford Motor Company increased to $13.4 million in the current period compared to $8.8 million in the prior year period. In the current period, sales generated by SPA to Hyundai Kia were $10.1 million. Also, in the current period historical customer pricing issues were resolved which increased sales approximately $1.2 million. The pricing issues related to a specific vehicle program and have been fully resolved as of March 28, 2010.

Gross profit as a percentage of net sales was 15.9 percent in the current period compared to 10.6 percent in the prior year period. The improvement in the gross profit margin in the current period was primarily the result of favorable customer vehicle production volumes compared to the prior year as well as lower purchased raw material costs for zinc, partially offset by the recording of a $1.2 million warranty reserve, premium freight costs and overtime incurred during the months of September, October and November 2009 to meet significantly increased production requirements from our largest customers as they continued to rebuild retail inventories following the U.S. Government’s “Cash for Clunkers” program that ended in August 2009. The decision to establish a warranty reserve is related to new expectations from our customers. Historically, the Company has experienced relatively low warranty related charge backs from our customers due to our contractual arrangements, improvements in quality, reliability and the performance of our products. Currently certain customers have extended their vehicle warranty programs and are demanding higher warranty cost sharing arrangements from suppliers. We therefore believe it prudent to provide this reserve against the warranty exposure. The premium freight and overtime costs reduced the current year period gross profit margin by approximately 2 percentage points. The average zinc price paid per pound decreased to $1.04 in the current period from $1.21 in the prior year period. During the current period, we used approximately 6.1 million pounds of zinc. This resulted in decreased zinc costs of approximately $1.0 million in the current period compared to the prior year period. Also impacting the current period gross margin was a curtailment loss related to the qualified defined benefit pension plan. An amendment to this plan, which was effective January 1, 2010, discontinued the benefit accruals for salary increases and credited service rendered after December 31, 2009. As a result of the amendment, a curtailment loss related to unrecognized prior service cost of $505,000 was recorded, of which approximately $375,000 increased cost of goods sold and approximately $130,000 increased engineering, selling and administrative expenses.

Engineering, selling and administrative expenses were $21.3 million in the current period compared to $19.8 million in the prior year period. The current period includes nine months of expenses for SPA engineering and administrative personnel compared to four months in the prior year period, due to the timing of the acquisition of this business. These additional costs were partially offset by reduced salary costs due to the majority of U.S. associates taking unpaid time off in July 2009 and a January 2009 reduction in our salaried workforce. The prior year period included outside legal costs incurred to defend a STRATTEC patent. These legal costs did not continue into the current period. Also, as discussed above, included in the current period costs was a curtailment loss of $130,000.

An annual goodwill impairment analysis was completed during the quarter ended December 27, 2009 related to the goodwill recorded as part of the acquisition of SPA in November 2008. A $223,000 impairment charge to write off the goodwill balance was recorded as a result of this analysis.

In our third quarter ended March 29, 2009, we recorded a $500,000 provision for doubtful accounts in connection with Chrysler LLC’s filing for Chapter 11 bankruptcy protection for certain of their U.S. legal entities on April 30, 2009. All receivables related to the bankruptcy were written off against the $500,000 reserve. However, as a result of payments received from Chrysler as of March 29, 2010, $421,000 of the $500,000 provision was recorded as a recovery of allowance for doubtful accounts during the current nine month period.

The income from operations in the current period was $3.4 million compared to a loss from operations of $9.9 million in the prior year period. This change was the result of the increase in sales and gross profit margin, and the favorable impact of the reduction in the environmental reserve and the allowance for doubtful account recoveries partially offset by the increase in engineering, selling and administrative expenses and the goodwill impairment charge, all as discussed above.

Net other income was $795,000 in the current period compared to $884,000 in the prior year period and consisted primarily of gains and losses on the Rabbi Trust, transaction gains and losses resulting from foreign currency transactions entered into by our Mexican subsidiaries and equity earnings of joint ventures. The Rabbi Trust funds our supplemental executive retirement plan. Gains related to the Rabbi Trust totaled $454,000 in the current period compared to losses of $595,000 in the prior year period. The investments held in the Trust are considered trading securities. Foreign currency transaction losses totaled $324,000 in the current period compared to gains of approximately $1.2 million in the prior year period. Equity earnings of joint ventures totaled $639,000 in the current period compared to $203,000 in the prior year period. The improvement in equity earnings of joint ventures is primarily due to the favorable economic conditions in China and an increase in our ownership percentage resulting from the November 20, 2009 purchase by VAST LLC of the non-controlling interest of its two Chinese joint ventures, VAST Fuzhou and VAST Great Shanghai.

The income tax provision (benefit) for the nine month periods ended March 28, 2010 and March 29, 2009 was impacted by a lower effective tax rate for income subject to tax in Mexico as compared to the effective tax rate for income subject to tax in the U.S.

Liquidity and Capital Resources

Our primary source of cash flow is from our major customers, which include General Motors Company, Ford Motor Company, and Chrysler Group LLC. 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 28, 2010 is as follows (in thousands of dollars):

	U.S.		Canada		Mexico		Total
General Motors	$	5,284	$	1,213	$	972	$	7,469
Ford		2,075		199		3		2,277
Chrysler		8,662		2,613		1,244		12,519

On April 30, 2009, Chrysler LLC filed for Chapter 11 bankruptcy protection for certain of their U.S. legal entities. During the quarter ended March 29, 2009, we increased our provision for bad debts by $500,000 to cover the portion of the pre-bankruptcy receivable balances which we believed could be uncollectible. As of March 28, 2010, all uncollectible amounts related to the bankruptcy filings were written off against the reserve and $421,000 of amounts previously written-off were paid by Chrysler LLC during the nine months ended March 28, 2010.

Cash flow provided by operating activities was $1.5 million during the nine months ended March 28, 2010 compared to cash used in operations of $8.9 million during the nine months ended March 29, 2009. Current period operating cash flow was negatively impacted by planned assembly plant downtime experienced by both General Motors and Chrysler during the months of May through July. The improvement in cash flow from operations is primarily the result of improved operating results in the current year period as compared to the prior year period. Also, pension contributions to our qualified plan totaled $3 million during both the current year period and prior year period.

Accounts receivable balances at March 28, 2010 increased $15.9 million from the June 28, 2009 balances. This increase was primarily the result of increased sales during the current quarter as compared to the quarter ended June 28, 2009. The restricted cash balance of $2.1 million and loan to joint ventures balance of $1.5 million at March 28, 2010 relate to the purchase by VAST LLC effective November 20, 2009 of the non-controlling interest of its two Chinese joint ventures, VAST Fuzhou and VAST Great Shanghai, for $9.6 million. Initially, a loan of $2.5 million was made from STRATTEC to VAST LLC to cover STRATTEC’s share of a November 2009 $7.5 million payment made in connection with the purchase. The outstanding loan balance at March 28, 2010 was $1.5 million. The remaining purchase price of $2.1 million will be paid by VAST LLC in three installments payable in April 2010, October 2010 and April 2011. A $2.1 million stand-by letter of credit was issued by VAST LLC, and is guaranteed by STRATTEC, related to the future installment payments. Cash of $2.1 million has been transferred to a separate account in support of the stand-by letter of credit guarantee.

The long-term deferred tax asset balance at March 28, 2010 decreased approximately $3.2 million from the balance at June 28, 2009. The decrease was primarily due to a change in the available Federal operating loss carry-back period from 2 years to 5 years. As a result of this change, approximately $2.8 million of long-term deferred tax assets related to Federal operating loss carry-forwards were reclassified as current tax recoverable, which is reflected in Other Current Assets in the Condensed Consolidated Balance Sheets. The other current asset balance at March 28, 2010 increased approximately $3.0 million from the balance at June 28, 2009. The increase in the balance is primarily due to a $3.2 million increase in income taxes recoverable resulting from the Federal operating loss carry-back period changing from 2 years to 5 years and a $1.9 million increase in the customer tooling balance to be billed to customers. These increases were partially offset by a reduction in prepaid zinc and brass balances. The total tax recoverable related to the loss carry-back of approximately $4.8 million was received in April 2010. Accounts payable balances at March 28, 2010 increased $9.6 million from the June 28, 2009 balances as a result of increased production activity during the current period.

Capital expenditures during the nine months ended March 28, 2010, were $4.9 million. Capital expenditures during the nine months ended March 29, 2009, were $10.9 million. Capital expenditures during the prior year period included approximately $5.7 million for the construction of a new facility in Mexico. The construction of the new facility was completed in fiscal 2009. We anticipate that capital expenditures will be approximately $6 million in fiscal 2010, primarily relating to expenditures in support of requirements for new product programs and the upgrade and replacement of existing equipment.

Our Board of Directors has authorized a stock repurchase program to buy back outstanding shares of our common stock. Shares authorized for buy back under the program totaled 3,839,395 at March 28, 2010. A total of 3,655,322 shares have been repurchased as of March 28, 2010, at a cost of approximately $136.4 million. No shares were repurchased during the nine months ended March 28, 2010. Additional repurchases may occur from time to time and are expected to continue to be funded by cash flow from operations and current cash balances. Based on the current economic environment and our preference to conserve cash, we anticipate minimal or no stock repurchase activity during the balance of fiscal year 2010.

We have a $20.0 million unsecured line of credit (the “Line of Credit”) with M&I Marshall & Ilsley Bank, which expires October 30, 2010. This unsecured line of credit replaced a $50.0 million unsecured line of credit with M&I Marshall & Ilsley Bank which terminated on October 31, 2009. There were no outstanding borrowings under the Line of Credit at March 28, 2010 or March 29, 2009. Interest on borrowings under our line of credit is at varying rates based on the London Interbank Offering Rate with a minimum annual rate of 4 percent. We believe that the Line of Credit is adequate, along with existing cash balances and cash flow from operations, to meet our anticipated capital expenditure, working capital and operating expenditure requirements. The Line of Credit is not subject to any covenants.

Over the past several years, we have been impacted by rising health care costs, which have increased our cost of employee medical coverage. A portion of these increases have been offset by plan design changes and employee wellness initiatives. We have also been impacted by increases in the market price of zinc and brass and inflation in Mexico, which impacts the U. S. dollar costs of our Mexican operations. We have negotiated raw material price adjustment clauses with certain customers to offset some of the market price fluctuations. We do not hedge against our Mexican peso exposure.

Joint Ventures

We participate in certain Alliance Agreements with WITTE Automotive (“WITTE”) and ADAC Automotive (“ADAC”). WITTE, of Velbert, Germany, is a privately held automotive supplier. WITTE designs, manufactures and markets components including locks and keys, hood latches, rear compartment latches, seat back latches, door handles and specialty fasteners. WITTE’s primary market for these products has been Europe. ADAC, of Grand Rapids, Michigan, is a privately held automotive supplier and manufactures engineered products, including door handles and other automotive trim parts, utilizing plastic injection molding, automated painting and various assembly processes.

The Alliance provides a set of cross-licensing agreements for the manufacture, distribution and sale of WITTE products by STRATTEC and ADAC in North America, and the manufacture, distribution and sale of STRATTEC and ADAC products by WITTE in Europe. Additionally, a joint venture company, Vehicle Access Systems Technology LLC (“VAST LLC”), in which WITTE, STRATTEC and ADAC each hold a one-third interest, exists to seek opportunities to manufacture and sell the companies’ products in areas of the world outside of North America and Europe.

VAST do Brasil, a joint venture between VAST LLC and Ifer do Brasil Ltda., was formed to service customers in South America. VAST Fuzhou and VAST Great Shanghai (collectively known as VAST China), began as joint ventures between VAST LLC and a Taiwanese partner to provide a base of operations to service our automotive customers in the Asian market. Effective November 20, 2009, VAST LLC purchased the non-controlling interest of these two Chinese joint ventures for $9.6 million. STRATTEC’s share of the purchase price totaled $3.2 million. VAST LLC now owns 100% of VAST Fuzhou and VAST Great Shanghai. VAST LLC also maintains branch offices in South Korea and Japan in support of customer sales and engineering requirements.

The VAST LLC investments are accounted for using the equity method of accounting. The activities related to the VAST LLC joint ventures resulted in equity earnings of joint ventures of approximately $639,000 during the nine months ended March 28, 2010 and $203,000 during the nine months ended March 29, 2009. During the nine months ended March 28, 2010, capital contributions totaling $300,000 were made to VAST LLC in support of general operating expenses. STRATTEC’s portion of the capital contributions totaled $100,000. During the nine months ended March 28, 2009, capital contributions totaling approximately $1.2 million were made to VAST LLC in support of general operating expenses. STRATTEC’s portion of the capital contributions totaled $388,000.

In fiscal year 2007, we entered into a joint venture with ADAC, in which STRATTEC holds a 50.1 percent interest and ADAC holds a 49.9 percent interest. The joint venture, ADAC-STRATTEC LLC, a Delaware limited liability company, was formed on October 27, 2006. In addition, a Mexican entity, ADAC-STRATTEC de Mexico, which is wholly owned by ADAC-STRATTEC LLC, was formed on February 21, 2007 to establish injection molding and assembly operations for door handle components. ADAC-STRATTEC de Mexico production activities began in Juarez, Mexico in July 2007. ADAC-STRATTEC LLC’s financial results are consolidated with the financial results of STRATTEC and resulted in an increase in net income to STRATTEC of $70,000 during the nine months ended March 28, 2010 and no change in net income to STRATTEC during the nine months ended March 29, 2009.

Effective November 30, 2008, STRATTEC established a new entity, STRATTEC POWER ACCESS LLC (SPA), which is 80 percent owned by STRATTEC and 20 percent owned by WITTE. SPA operates the North American portion of the Power Products business which was acquired from Delphi Corporation. The financial results of SPA are consolidated with the financial results of STRATTEC and resulted in increased net income to STRATTEC of approximately $157,000 during the nine month period ended March 28, 2010 and decreased net income to STRATTEC of approximately $1.5 million during the nine month period ended March 29, 2009.

Other Matters

Health care reform legislation was recently enacted by the Federal government. We are currently evaluating the legislation to determine its effects on our plan structure, future operating results and financial position.

Recently Issued Accounting Standards

On December 30, 2008, the FASB issued a new accounting standard which significantly expands the disclosures required by employers for postretirement plan assets. The new standard requires plan sponsors to provide extensive new disclosures about assets in defined benefit postretirement benefit plans as well as any concentrations of associated risks. The new standard is effective for periods ending after December 15, 2009. The disclosure requirements are annual and do not apply to interim financial statements. We are required to provide the expanded pension plan asset disclosure in our annual financial statements for the year ending June 27, 2010.

Critical Accounting Policies

The Company believes the following represents its critical accounting policies:

Pension and Postretirement Health Benefits – Pension and postretirement health obligations and costs are developed from actuarial valuations. The determination of the obligation and expense for pension and postretirement health benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in the Notes to Financial Statements in our 2009 Annual Report and include, among others, the discount rate, expected long-term rate of return on plan assets, retirement age and rates of increase in compensation and health care costs. We evaluate and update all of the assumptions annually on June 30, the measurement date. Actual results that differ from these assumptions are deferred and, under certain circumstances, amortized over future periods. While we believe that the assumptions used are appropriate, significant differences in the actual experience or significant changes in the assumptions may materially affect our pension and postretirement health obligations and future expense.

An amendment to the qualified defined benefit pension plan, which was effective January 1, 2010, discontinued the benefit accruals for salary increases and credited service rendered after December 31, 2009. A curtailment loss related to unrecognized prior service cost of $505,000 was recorded during the quarter ended December 27, 2009. Effective January 1, 2010, future eligible retirees’ benefits under the postretirement health care plan will be limited to $4,000 per plan year for a maximum period of five years.

Refer to the discussion of Critical Accounting Policies included in the Management’s Discussion and Analysis and Retirement Plans and Postretirement Costs included in the Notes to Financial Statements in our 2009 Annual Report filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 28, 2009.

Other Reserves – We have reserves such as an environmental reserve, a warranty reserve, an incurred but not reported claim reserve for self-insured health plans, a workers’ compensation reserve, an allowance for doubtful accounts related to trade accounts receivable and a repair and maintenance supply parts reserve. These reserves require the use of estimates and judgment with regard to risk exposure, ultimate liability and net realizable value.

Environmental Reserve – We have a liability recorded related to the estimated costs to remediate a site at our Milwaukee facility, which was contaminated by a solvent spill from a former above ground solvent storage tank occurring in 1985. The recorded environmental liability balance involves judgment and estimates. Our reserve estimate is based on a third party assessment of the costs to adequately cover the cost of active remediation of the contamination at this site. Actual costs might vary from this estimate for a variety of reasons including changes in laws and changes in the assessment of the level of remediation actually required at this site. Therefore, future changes in laws or the assessment of the level of remediation required could result in changes in our estimate of the required liability. Refer to the discussion of Environmental Reserve included in the Notes to Condensed Consolidated Financial Statements included in this Form 10-Q.

Warranty Reserve – We have a warranty liability recorded related to our exposure to warranty claims in the event that our products fail to perform as expected, and we may be required to participate in a recall of such products. The recorded warranty liability balance involves judgment and estimates. Our reserve estimate is based on an analysis of historical warranty data as well as current trends and information, including our customers recent extension of their warranty programs. Actual warranty costs might vary from estimates due to the level of actual claims varying from our claims experience and estimates. Therefore, future actual claims experience could result in changes in our estimate of the required liability. Refer to the discussion of Warranty Reserve included in the Notes to Condensed Consolidated Financial Statements this Form 10-Q.

Incurred But Not Reported Claim Reserve for Self-Insured Health Plans and Workers’ Compensation Reserve – We have self-insured medical and dental plans covering all eligible U.S. associates. We also maintain an insured workers’ compensation program covering all U.S. associates. The insurance is renewed annually and may be covered under a loss sensitive plan. Under a loss sensitive plan, the ultimate cost is dependent upon losses incurred during the policy period. The incurred loss amount for loss sensitive policies will continue to change as claims develop and are settled in future periods. The expected ultimate cost of claims incurred under these plans is subject to judgment and estimation. We estimate the ultimate expected cost of claims incurred under these plans based upon the aggregate liability for reported claims and an estimated additional liability for claims incurred but not reported. Our estimate of claims incurred but not reported is based on an analysis of historical data, current trends related to claims and health care costs and information available from the insurance carrier. Actual ultimate costs may vary from estimates due to variations in actual claims experience from past trends and large unexpected claims being filed. Therefore, changes in claims experience and large unexpected claims could result in changes to our estimate of the claims incurred but not reported liabilities. Refer to the discussion of Self Insurance and Loss Sensitive Plans under Organization and Summary of Significant Accounting Policies included in Notes to Financial Statements in our 2009 Annual Report filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 28, 2009.

Allowance for Doubtful Accounts Related to Trade Accounts Receivable – Our trade accounts receivable consist primarily of receivables due from Original Equipment Manufacturers in the automotive industry and locksmith distributors relating to our service and aftermarket business. Our evaluation of the collectibility of our trade accounts receivable involves judgment and estimates and includes a review of past due items, general economic conditions and the economic climate of the industry as a whole. The estimate of the required reserve involves uncertainty as to future collectibility of receivable balances. This uncertainty is magnified by the financial difficulty currently experienced by our customers as discussed under Risk Factors-Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share included herein and in the Management’s Discussion and Analysis in our 2009 Annual Report filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 28, 2009. Also, refer to the discussion of Receivables under Organization and Summary of Significant Accounting Policies included in Notes to Financial Statements in our 2009 Annual Report filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 28, 2009. We increased our allowance for uncollectible trade accounts receivable by $500,000 during 2009 in connection with Chrysler LLC’s filing for Chapter 11 bankruptcy protection for certain of their U.S. legal entities on April 30, 2009. General Motors filed for Chapter 11 bankruptcy protection for their U.S. legal entities on June 1, 2009. The bankruptcy filings did not significantly impact the collection of pre-bankruptcy receivable balances as both Companies were able to subsequently make payments to suppliers for parts they had purchased prior to their bankruptcy filings. All receivables related to the bankruptcy filings which were assumed to be uncollectible were written off against the $500,000 reserve. However, as a result of payments received from Chrysler as of December 27, 2009, $421,000 of the $500,000 provision was recorded as a recovery of allowance for doubtful accounts.

Repair and Maintenance Supply Parts Reserve – We maintain an inventory of repair and maintenance parts in support of operations. The inventory includes critical repair parts for all production equipment as well as general maintenance items. The inventory of critical repair parts is required to avoid disruptions in our customers’ just-in-time production schedules due to lack of spare parts when equipment break-downs occur. Depending on maintenance requirements during the life of the equipment, excess quantities of repair parts arise. A repair and maintenance supply parts reserve is maintained to recognize the normal adjustment of inventory for obsolete and slow-moving repair and maintenance supply parts. Our evaluation of the reserve level involves judgment and estimates, which are based on a review of historical obsolescence and current inventory levels. Actual obsolescence may differ from estimates due to actual maintenance requirements differing from historical levels. This could result in changes to our estimated required reserve. Refer to the discussion of Repair and Maintenance Supply Parts under Organization and Summary of Significant Accounting Policies included in the Notes to Financial Statements in our 2009 Annual Report filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 28, 2009.

We believe the reserves discussed above are estimated using consistent and appropriate methods. However, changes to the assumptions could materially affect the recorded reserves.

Stock-Based Compensation – Stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating future volatility of our stock, the amount of stock-based awards that are expected to be forfeited and the expected term of awards granted. We estimate the fair value of stock options granted using the Black-Scholes option valuation model. We amortize the fair value of all awards on a straight-line basis over the vesting periods. The expected term of awards granted represents the period of time they are expected to be outstanding. We determine the expected term based on historical experience with similar awards, giving consideration to the contractual terms and vesting schedules. We estimate the expected volatility of our common stock at the date of grant based on the historical volatility of our common stock. The volatility factor used in the Black-Scholes option valuation model is based on our historical stock prices over the most recent period commensurate with the estimated expected term of the award. We base the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term commensurate with the expected term of the award. We use historical data to estimate pre-vesting option forfeitures. We record stock-based compensation only for those awards that are expected to vest. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

Risk Factors

We recognize we are subject to the following risk factors based on our operations and the nature of the automotive industry in which we operate:

Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share – Sales to General Motors Company, Ford Motor Company, Chrysler Group LLC and Delphi Corporation represented approximately 71 percent of our annual net sales (based on fiscal 2009 results) and, accordingly, these customers account for a significant percentage of our outstanding accounts receivable. The contracts with these customers provide for supplying the customer’s requirements for a particular model. The contracts do not specify a specific quantity of parts. The contracts typically cover the life of a model, which averages approximately four to five years. Components for certain customer models may also be “market tested” annually. Therefore, the loss of any one of these customers, the loss of a contract for a specific vehicle model, reduction in vehicle content, early cancellation of a specific vehicle model, technological changes or a significant reduction in demand for certain key models could occur, and if so, could have a material adverse effect on our existing and future revenues and net income.

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. The announcement indicated that certain vehicle brands, including Pontiac, Saturn, Hummer and Saab, would be discontinued or sold. In addition, subsequent to Chrysler LLC’s filing for Chapter 11 bankruptcy protection on April 30, 2009, they announced certain vehicle models planned for discontinuation (Jeep Commander, Jeep Compass, Jeep Patriot, Dodge Nitro, Dodge Avenger, Dodge Caliber, Dodge Durango, Dodge Dakota, Dodge Viper, Chrysler Sebring, Chrysler Aspen etc.). Subsequently, certain of the models have been reaffirmed for continued production over the next two years. We continue to evaluate the impact these evolving plans have on our business as more details become available.

Our major customers also have significant under-funded legacy liabilities related to pension and postretirement health care obligations. The future impact of these items along with a continuing loss in their North American automotive market share to the “New Domestic” automotive manufacturers (primarily the Japanese automotive manufacturers) and/or a significant decline in the overall market demand for new vehicles may ultimately result in severe financial difficulty for these customers, including bankruptcy. If our major customers cannot fund their operations, we may incur significant write-offs of accounts receivable, incur impairment charges or require additional restructuring actions. For example, on October 8, 2005, Delphi Corporation filed for Chapter 11 bankruptcy protection. As a result, we wrote-off $1.6 million of uncollectible pre-petition Chapter 11 accounts receivable due from Delphi Corporation. This directly reduced our pre-tax net income during fiscal 2006. On April 30, 2009, Chrysler LLC filed for Chapter 11 bankruptcy protection for certain of their U.S. legal entities. As discussed under Critical Accounting Policies - Other Reserves - Allowance for Doubtful Accounts Related to Trade Accounts Receivable herein, during fiscal year 2009 we recorded a provision for bad debts of $500,000 related to this filing, of which we subsequently recovered $421,000 of the $500,000 provision. This directly reduced our pre-tax net income during 2009 by $500,000.

Production Slowdowns by Customers – Our major customers and many of their suppliers have been significantly impacted by the recession of 2008/2009. Many of our major customers have instituted production cuts during fiscal 2009 and fiscal 2010. Moreover, certain of our major customers have announced plans to continue these production cuts into future fiscal years. For example, during April 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. Consequently, this downtime reduced our production schedules and affected both our sales and profitability for our fiscal fourth quarter ending June 28, 2009 and our fiscal 2010 first quarter ending September 27, 2009. Additionally, on April 27, 2009, General Motors announced some aspects of its Revised Viability Plan including reduced production volumes for the remainder of calendar 2009 and the subsequent five calendar years. The continuation of these production cuts could have a material adverse effect on our existing and future revenues and net income.

Financial Distress of Automotive Supply Base – Automotive industry conditions have adversely affected STRATTEC and our supply base. Lower production levels at our major customers, increases in certain raw material and energy costs and the global credit market crisis have resulted in severe financial distress among many companies within the automotive supply base. During calendar year 2009, several automotive suppliers filed for bankruptcy protection or ceased operations. The continuation of financial distress within the supply base and suppliers’ inability to obtain credit from lending institutions may lead to commercial disputes and possible supply chain interruptions. In addition, the adverse industry environment may require us to take measures to ensure uninterrupted production. The continuation or worsening of these industry conditions could have a material adverse effect on our existing and future revenues and net income.

Shortage of Raw Materials or Components Supply – In the event of a rapid increase in production demands, either we or our customers or other suppliers may experience supply shortages of raw materials or components. This could be caused by a number of factors, including a lack of production line capacity or manpower or working capital constraints. In order to manage and reduce the cost of purchased goods and services, we and others within our industry have been rationalizing and consolidating our supply base. In addition, due to the recent turbulence in the automotive industry, several suppliers have initiated bankruptcy proceedings or ceased operations. As a result, there is greater dependence on fewer sources of supply for certain components and materials, which could increase the possibility of a supply shortage of any particular component. If any of our customers experience a material supply shortage, either directly or as a result of a supply shortage at another supplier, that customer may halt or limit the purchase of our products. Similarly, if we or one of our own suppliers experience a supply shortage we may become unable to produce the affected products if we cannot procure the components from another source. Such production interruptions could impede a ramp-up in vehicle production and could have a material adverse effect on our business, results of operations and financial condition.

We consider the production capacities and financial condition of suppliers in our selection process, and expect that they will meet our delivery requirements. However, there can be no assurance that strong demand, capacity limitations, shortages of raw materials or other problems will not result in any shortages or delays in the supply of components to us.

Cost Reduction – There is continuing pressure from our major customers to reduce the prices we charge for our products. This requires us to generate cost reductions, including reductions in the cost of components purchased from outside suppliers. If we are unable to generate sufficient production cost savings in the future to offset pre-programmed price reductions, our gross margin and profitability will be adversely affected.

Cyclicality and Seasonality in the Automotive Market – The automotive market is cyclical and is dependent on consumer spending, availability of consumer credit and to a certain extent on customer sales incentives. Economic factors adversely affecting consumer demand for automobiles and automotive production, such as rising fuel costs, could adversely impact our net sales and net income. We typically experience decreased sales and operating income during the first fiscal quarter of each year due to the impact of scheduled customer plant shut-downs in July and new model changeovers.

Foreign Operations – As discussed under “Joint Ventures”, we have joint venture investments in Mexico, Brazil and China. These operations are currently not material. However, as these operations expand, their success will depend, in part, on our and our partners’ ability to anticipate and effectively manage certain risks inherent in international operations including: enforcing agreements and collecting receivables through certain foreign legal systems, payment cycles of foreign customers, compliance with foreign tax laws, general economic and political conditions in these countries and compliance with foreign laws and regulations.

Currency Exchange Rate Fluctuations – We incur a portion of our expenses in Mexican pesos. Exchange rate fluctuations between the U.S. dollar and the Mexican peso could have an adverse effect on our financial results.

Sources of and Fluctuations in Market Prices of Raw Materials – Our primary raw materials are high-grade zinc, brass, magnesium, aluminum, steel and plastic resins. These materials are generally available from a number of suppliers, but we have chosen to concentrate our sourcing with one primary vendor for each commodity or purchased component. We believe our sources of raw materials are reliable and adequate for our needs. However, the development of future sourcing issues related to using existing or alternative raw materials and the global availability of these materials as well as significant fluctuations in the market prices of these materials may have an adverse affect on our financial results if the increased raw material costs cannot be recovered from our customers.

Given the significant financial impact on us relating to changes in the cost of 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 dependent on separate negotiations with each customer. 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.

Disruptions Due to Work Stoppages and Other Labor Matters – Our major customers and many of their suppliers have unionized work forces. Work stoppages or slow-downs experienced by our customers or their suppliers could result in slow-downs or closures of assembly plants where our products are included in assembled vehicles. For example, strikes at a critical supplier called by the United Auto Workers led to extended shut-downs of most of General Motors’ North American assembly plants in February 2008 and in 1998. A material work stoppage experienced by one or more of our customers could have an adverse effect on our business and our financial results. In addition, all production associates at our Milwaukee facility are unionized. A sixteen-day strike by these associates in June 2001 resulted in increased costs as all salaried associates worked with additional outside resources to produce the components necessary to meet customer requirements. The current contract with the unionized associates is effective through June 29, 2014. We may encounter further labor disruption after the expiration date of this contract and may also encounter unionization efforts in our other plants or other types of labor conflicts, any of which could have an adverse effect on our business and our financial results.

Environmental and Safety Regulations – We are subject to Federal, state, local and foreign laws and other legal requirements related to the generation, storage, transport, treatment and disposal of materials as a result of our manufacturing and assembly operations. These laws include the Resource Conservation and Recovery Act (as amended), the Clean Air Act (as amended) and the Comprehensive Environmental Response, Compensation and Liability Act (as amended). We have an environmental management system that is ISO-14001 certified. We believe that our existing environmental management system is adequate for current and anticipated operations and we have no current plans for substantial capital expenditures in the environmental area. An environmental reserve was established in 1995 for estimated costs to remediate a site at our Milwaukee facility. The site was contaminated by a former above-ground solvent storage tank, located on the east side of the facility. The contamination occurred in 1985. The site is being monitored in accordance with Federal, state and local requirements. Refer to discussion under Analysis of Results of Operations for additional information on this environmental reserve. We do not currently anticipate any material adverse impact on our results of operations, financial condition or competitive position as a result of compliance with Federal, state, local and foreign environmental laws or other legal requirements. However, risk of environmental liability and changes associated with maintaining compliance with environmental laws is inherent in the nature of our business and there is no assurance that material liabilities or changes could not arise.

Highly Competitive Automotive Supply Industry – The automotive component supply industry is highly competitive. Some of our competitors are companies, or divisions or subsidiaries of companies, that are larger than STRATTEC and have greater financial and technology capabilities. Our products may not be able to compete successfully with the products of these other companies, which could result in loss of customers and, as a result, decreased sales and profitability. Some of our major customers have also announced that they will be reducing their supply base. This could potentially result in the loss of these customers and consolidation within the supply base. The loss of any of our major customers could have a material adverse effect on our existing and future net sales and net income.

In addition, our competitive position in the North American automotive component supply industry could be adversely affected in the event that we are unsuccessful in making strategic acquisitions, alliances or establishing joint ventures that would enable us to expand globally. We principally compete for new business at the beginning of the development of new models and upon the redesign of existing models by our major customers. New model development generally begins two to five years prior to the marketing of such new models to the public. The failure to obtain new business on new models or to retain or increase business on redesigned existing models could adversely affect our business and financial results. In addition, as a result of relatively long lead times for many of our components, it may be difficult in the short-term for us to obtain new sales to replace any unexpected decline in the sale of existing products. Finally, we may incur significant product development expense in preparing to meet anticipated customer requirements which may not be recovered.

Program Volume and Pricing Fluctuations – We incur costs and make capital expenditures for new program awards based upon certain estimates of production volumes over the anticipated program life for certain vehicles. While we attempt to establish the price of our products for variances in production volumes, if the actual production of certain vehicle models is significantly less than planned, our net sales and net income may be adversely affected. We cannot predict our customers’ demands for the products we supply either in the aggregate or for particular reporting periods.

Investments in Customer Program Specific Assets – We make investments in machinery and equipment used exclusively to manufacture products for specific customer programs. This machinery and equipment is capitalized and depreciated over the expected useful life of each respective asset. Therefore, the loss of any one of our major customers, the loss of specific vehicle models or the early cancellation of a vehicle model could result in impairment in the value of these assets which may have a material adverse effect on our financial results.

Financial Industry / Credit Market Risk - The U.S. capital and credit markets have been experiencing volatility and disruption for over a year. In many cases this has resulted in pressures on borrowers and reduced credit availability from certain issuers without regard to the underlying financial strength of the borrower or issuer. If current levels of financial market disruption and volatility continue or worsen, there can be no assurance that such conditions will not have an effect on the Company’s ability to access debt and, in turn, result in a material adverse effect on the Company’s business, financial condition and results of operations.

Warranty Claims – We are exposed to warranty claims in the event that our products fail to perform as expected, and we may be required to participate in a recall of such products. Our largest customers have recently extended their warranty protection for their vehicles. Other OEMs have similarly extended their warranty programs. This trend will put additional pressure on the supply base to improve quality systems. This trend may also result in higher cost recovery claims by OEM’s from suppliers whose products incur a higher rate of warranty claims. Historically, we have experienced relatively low warranty charges from our customers due to our commercial arrangements and improvements in the quality, reliability and durability performance of our products. If our customers demand higher warranty-related cost recoveries, or if our products fail to perform as expected, it could have a material adverse impact on our results of operations and financial condition.

Item 3 Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is limited to fluctuations in raw material commodity prices and foreign currency exchange rate risk associated with STRATTEC’s foreign operations. We do not utilize financial instruments for trading purposes and hold no derivative financial instruments which would expose us to significant market risk. We have not had outstanding borrowings since December 1997. There is, therefore, currently no significant exposure to market risk for changes in interest rates. To the extent that we incur future borrowings under our line of credit, we would be subject to interest rate risk related to such borrowings. However, we are subject to foreign currency exchange rate exposure related to the U.S. dollar costs of our Mexican operations. A material increase in the value of the Mexican peso relative to the U.S. dollar would increase our expenses and, therefore, could adversely affect our profitability.

Item 4T Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in the Company's reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission's rules and forms, and that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures were effective at reaching a level of reasonable assurance. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. We have designed our disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II

Other Information

Item 1 Legal Proceedings

In the normal course of business, we may be involved in various legal proceedings from time to time. We do not believe we are currently involved in any claim or action the ultimate disposition of which would have a material adverse effect on our financial statements.

Item 1A. - Risk Factors

Please refer to the section titled “Risk Factors” herein for disclosures regarding the risks and uncertainties relating to our business. Except as provided below, there have been no material changes to the risk factors disclosed in Part 1, Item 1A, of our Form 10-K as filed with the Securities and Exchange Commission on August 28, 2009. The information presented below updates and should be read in conjunction with the risk factors and information disclosed in that Form 10-K report.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds –

Issuer Purchases of Equity Securities

Our Board of Directors authorized a stock repurchase program on October 16, 1996, and the program was publicly announced on October 17, 1996. The Board of Directors has periodically increased the number of shares authorized for repurchase under the program, most recently in August 2008. The program currently authorizes the repurchase of up to 3,839,395 shares of our common stock from time to time, directly or through brokers or agents, and has no expiration date. Over the life of the repurchase program through March 28, 2010, a total of 3,655,322 shares have been repurchased at a cost of approximately $136.4 million. No shares were repurchased during the current quarter or nine months ended March 28, 2010.

Item 3 Defaults Upon Senior Securities - None

Item 4 [Removed and Reserved]

Item 5 Other Information

Effective as of May 5, 2010, STRATTEC entered into new Employment Agreements and Change of Control Employment Agreements with each of its executive officers.

Employment Agreements . Each of our executive officers has signed an employment agreement with STRATTEC that continues until June 30, 2010. The term of each employment agreement automatically extends for one year each June 30 unless either party gives notice at least 30 days prior to June 30 that the agreement will not be further extended. Under the agreement, the officer agrees to perform the duties currently being performed in addition to other duties that may be assigned from time to time. We agree to pay the officer a salary of not less than that of the previous year and to provide fringe benefits that are provided to all of our other salaried employees who are in comparable positions.

The terms of these employment agreements generally include the following:

●		each of these executive officers is entitled to participate in our bonus plans and stock incentive plan;
●		each of these executive officers is eligible to participate in any medical, health, dental, disability and life insurance policy that we maintain for the benefit of our other senior management;
●		each of these executive officers will also receive at our expense group term life insurance coverage equal to two times their base salary subject to a maximum amount of coverage equal to $500,000;
●		each of these executive officers has agreed not to compete with us during employment and for a period equal to the shorter of one year following termination of employment or the duration of the employee’s employment with us and has agreed to maintain the confidentiality of our proprietary information and trade secrets during the term of employment and for two years thereafter; and
●		each employment agreement contains severance benefits that provide that if the executive officer’s employment is terminated as a result of the death or disability of such executive officer, then the executive officer (or his or her beneficiary) is entitled to continuation of the executive officer’s then effective base salary for a period of six months after termination and continuation of medical, dental and health coverage for such six month period after termination of employment. If the executive officer’s employment is terminated by us without cause (as defined the employment agreements), then the executive officer will be entitled to continuation (1) of the executive officer’s then effective base salary for a minimum of six months after termination or a maximum of twelve months depending upon such executive officer’s years of service as an officer and (2) of medical, dental and health coverage for such six to twelve month period, as applicable.

Change of Control Employment Agreements . Each of our executive officers has also signed a change of control employment agreement with STRATTEC. The change of control employment agreements assure the employee continued employment following a “change of control” on a basis equivalent to the employee’s employment immediately prior to such change in terms of position, duties, compensation and benefits, as well as specified payments upon termination following a change in control. These change of control agreements become effective only upon a defined change in control of STRATTEC, or if the employee’s employment is terminated upon, or in anticipation of such a change in control, and automatically supersede any existing employment agreement. Under the change of control agreements, if during the employment term (three years from the change in control) the employee is terminated other than for cause (as defined in the agreements) or if the employee voluntarily terminates his employment for good reason (as defined in the agreements) or during a 30-day window period one year after a change in control, the employee is entitled to specified severance benefits, including a lump sum payment of three or two (depending upon which executive officer) times the employee’s annual salary, a payment equal to the executive officer’s annual bonus (determined as provided in the agreement), and the continuation of certain benefits.

Copies of each new Employment Agreement and Change of Control Employment Agreement are attached hereto as exhibits and are incorporated by reference.

Item 6 Exhibits
(a)	Exhibits
	10.1	Amended STRATTEC SECURITY CORPORATION Supplemental Executive Retirement Plan.
	10.2	Employment Agreement between the Company and Harold M. Stratton II made as of May 5, 2010.
	10.3	Change of Control Employment Agreement between the Company and Harold M. Stratton II made as of May 5, 2010.
	10.4	Employment Agreement between the Company and Frank J. Krejci made as of May 5, 2010.
	10.5	Change of Control Employment Agreement between the Company and Frank J. Krejci made as of May 5, 2010.
	10.6	Employment Agreement between the Company and Patrick J. Hansen made as of May 5, 2010.
	10.7	Change of Control Employment Agreement between the Company and Patrick J. Hansen made as of May 5, 2010.
	10.8	Employment Agreement between the Company and Rolando J. Guillot made as of May 5, 2010.
	10.9	Change of Control Employment Agreement between the Company and Rolando J. Guillot made as of May 5, 2010.
	10.10	Employment Agreement between the Company and Kathryn E. Scherbarth made as of May 5, 2010.
	10.11	Change of Control Employment Agreement between the Company and Kathryn E. Scherbarth made as of May 5, 2010.
	10.12	Employment Agreement between the Company and Dennis A. Kazmierski made as of May 5, 2010.
	10.13	Change of Control Employment Agreement between the Company and Dennis A. Kazmierski made as of May 5, 2010.
	10.14	Employment Agreement between the Company and Brian J. Reetz made as of May 5, 2010.
	10.15	Change of Control Employment Agreement between the Company and Brian J. Reetz made as of May 5, 2010.
	10.16	Employment Agreement between the Company and Richard P. Messina made as of May 5, 2010.
	10.17	Change of Control Employment Agreement between the Company and Richard P. Messina made as of May 5, 2010.
	31.1	Rule 13a-14(a) Certification for Harold M. Stratton II, Chairman and Chief Executive Officer
	31.2	Rule 13a-14(a) Certification for Patrick J. Hansen, Chief Financial Officer
	32 (1)	18 U.S.C. Section 1350 Certifications

________________________________

(1)	This certification is not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

STRATTEC SECURITY CORPORATION (Registrant)

Date: May 6, 2010

By /s/ Patrick J. Hansen

Patrick J. Hansen

Senior Vice President,

Chief Financial Officer,

Treasurer and Secretary

(Principal Accounting and Financial Officer)

TABLE OF CONTENTS

Part I - Financial Information Item 1 Financial Statements Item 2 Management S Discussion and Analysis Of Financial Condition and Results Of Operations 13-25 Item 3 Quantitative and Qualitative Disclosures About Market Risk 25 Item 4T Controls and Procedures 25 Part II - Other Information Item 1 Legal Proceedings 26 Item 1A Risk Factors 26 Item 2 Unregistered Sales Of Equity Securities and Use Of Proceeds 27 Item 3 Defaults Upon Senior Securities 27 Item 4 [removed and Reserved] 27 Item 5 Other Information 27-28 Item 6 Exhibits 29 Item 1 Financial Statements Strattec Security Corporation and Subsidiaries Item 3 Quantitative and Qualitative Disclosures About Market Risk Item 4T Controls and Procedures Part II Item 1 Legal Proceedings Item 1A. - Risk Factors Item 2 Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3 Defaults Upon Senior Securities - None Item 4 [removed and Reserved]Item 5 Other Information Item 6 Exhibits

STRT 10-Q Quarter ended March 28, 2010