The following Discussion and Analysis should be read in conjunction with the Company’s Financial Statements and Notes thereto. Unless otherwise indicated, all references to years refer to fiscal years. 

## RESULTS OF OPERATIONS 2001 COMPARED TO 2000 

Net sales were $203.0 million in 2001 compared to $224.8 million in 2000. The prior year included one additional shipping week, which contributed to the overall sales reduction. Sales to the Company’s largest customers overall decreased in the current year compared to the record prior year levels, with General Motors at $60.2 million compared to $69.0 million, Delphi Automotive Systems Corporation at $26.9 million compared to $31.5 million, DaimlerChrysler Corporation at $33.9 million compared to $35.1 million, and Ford Motor Company at $45.3 million compared to $54.5 million. Sales to Mitsubishi Motor Manufacturing of America actually increased from $9.4 million to $11.8 million. The overall sales decrease is the result of reduced vehicle production at our customer’s assembly plants. 

Gross profit as a percentage of net sales was 19.8 percent in 2001 compared to 22.0 percent in 2000. The lower gross margin is the result of several factors, including a 16-day strike in June 2001 at the Company’s Milwaukee facility which resulted in additional costs to support customer requirements; reduced efficiencies at the Company’s Mexican facility; and reduced sales due to delayed shipments. Also negatively impacting the current year margin was less favorable absorption of manufacturing costs due to reduced production volumes resulting from customer plant shutdowns, an overall decline in automotive production, and a reduction in the Company’s inventory levels in comparison to the prior year. Additional items impacting the gross margin include an increase in the cost of zinc, and increased U.S. dollar costs at the Company’s Mexico assembly facility. The average cost of zinc per pound, which the Company uses at a rate of approximately 1 million pounds per month, increased to approximately $.57 in 2001, from approximately $.55 in 2000. The increased U.S. dollar costs at the Company’s Mexico assembly facility are the result of the appreciation of the Mexican peso and overall inflation in Mexico in the current year. The inflation rate in Mexico for the 12 months ended June 2001 was approximately 7 

percent while the U.S. dollar/Mexican peso exchange rate fell to approximately 9.4 in 2001, from approximately 9.5 in 2000. 

Engineering, selling and administrative expenses were $19.7 million, or 9.7 percent of net sales in 2001, compared to $20.3 million, or 9.0 percent of net sales in 2000. The decreased operating expenses are attributed to one less week of operating expenses in the current year compared to the prior year and the impact of cost savings realized as a result of the human resources realignment, which took place in the third quarter of fiscal 2001. 

Income from operations was $20.6 million in 2001, compared to $29.1 million in 2000, reflecting the decreased sales volume and reduced gross margin as discussed above. 

The effective income tax rate in 2001 was 37.0 percent compared to 39.0 percent in 2000. The reduction is due to an increase in the foreign sales benefit. The overall effective rate differs from the federal statutory tax rate primarily due to the effects of state income taxes. 

## RESULTS OF OPERATIONS 2000 COMPARED TO 1999 

Net sales were $224.8 million in 2000, an increase of 11 percent compared to net sales of $202.6 million in 1999. Fiscal 2000 included one additional shipping week, which contributed to the overall sales growth. Sales to General Motors Corporation and Delphi Automotive Corporation increased 10 percent to $100.5 million as a result of increased unit production by these customers. In addition, labor disruptions at General Motors Corporation during July 1998 reduced sales to this customer by an estimated $3 million during the fiscal 1999 September quarter. Sales to DaimlerChrysler Corporation increased 14 percent to $35.1 million. The increase was due primarily to increased vehicle production schedules and higher value mechanical and electrical content in the locksets the Company supplies. Sales to Mitsubishi Motor Manufacturing of America increased to $9.4 million in 2000 compared to $2.2 million in 1999. This is due to an increase in the Company’s share of this customer’s production requirements with the launch of the 2000 Eclipse. Sales to the Ford Motor Company were comparable to 1999. 

Gross profit as a percentage of net sales was 22.0 percent in 2000 compared to 23.1 percent in 1999. The lower gross margin is the result of several factors including higher production start-up costs relating to the launch of the new model year 2000 vehicles, investment 

