Strattec Security Corp 10-K for FY2024
Strattec Security Corp (STRT)
About this 10-K
Strattec Security Corp filed this 10-K on September 5, 2024, covering the fiscal year ended June 30, 2024 (FY2024).
Headline figures
Fiscal year ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $537.77M
- up 9.1% from $492.95M a year earlier
- Net income
- $16.31M
- compared with a net loss of $6.67M a year earlier
- Diluted EPS
- $4.07
- compared with -$1.70 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the fiscal year ended
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐Yes ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐Yes ☒
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. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the Registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the Registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes
The aggregate market value of the voting Common Stock held by non-affiliates of the registrant as of December 29, 2023 (the last business day of the Registrant’s most recently completed second quarter), was approximately $
On August 2, 2024, there were outstanding
Documents Incorporated by Reference
Part III of this report incorporates information by reference from registrant's Proxy Statement for the annual meeting of its shareholders to be held on October 23, 2024.
STRATTEC SECURITY CORPORATION
ANNUAL REPORT IN FORM 10-K
June 30, 2024
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
A number of the matters and subject areas discussed in this Form 10-K as well as in portions of the Company’s Proxy Statement, dated September 20, 2024, which is incorporated herein by reference, 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, or otherwise incorporated herein by reference, in this Form 10-K. 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, consumer demand for the Company’s and its customers’ products, competitive and technological developments, customer purchasing actions, changes in warranty provisions and customers' product recall policies, work stoppages at the Company or at the location of its key customers as a result of labor disputes, foreign currency fluctuations, uncertainties stemming from U.S. trade policies, tariffs and reactions to same from foreign countries, delays and restrictions impacting the import of goods and components stemming from heightened security procedures implemented by the U.S. government related to U.S.-Mexico border crossings, the volume and scope of product returns or customer cost reimbursement actions, changes in the costs of operations, warranty claims, adverse business and operational issues resulting from any material global supply chain and logistics disruption, the ongoing and lingering effects of the semiconductor chip supply shortages, matters adversely impacting the timing, availability and cost of material component parts and raw materials for the production of our products and the products of our customers, or the continuation or worsening thereof, matters related to the pricing actions implemented by the Company and customer responses and concessions related to the same, and other matters described under “Risk Factors” in Part I, Item 1A of this report.
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-K 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-K.
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PART I
ITEM 1. BUSINESS
Basic Business
STRATTEC SECURITY CORPORATION designs, develops, manufactures and markets automotive security, access control, and user interface controls products and solutions. This includes mechanical locks and keys, electronically enhanced locks and keys, passive entry passive start systems (PEPS), phone as a key systems (Paak), steering column and instrument panel ignition lock housings, latches, power sliding side door systems, power tailgate systems, power lift gate systems, power deck lid systems, door handles, steering wheel switches and controller, E-shifters, paddle switches and related products for primarily North American automotive customers. We also previously supplied global automotive manufacturers through a strategic relationship with WITTE Automotive (“WITTE”) of Velbert, Germany and ADAC Plastics Inc. (doing business as ADAC Automotive (“ADAC”), of Grand Rapids, Michigan) called Vehicle Access Systems Technology LLC ("VAST LLC"), doing business as the VAST Automotive Group (“VAST”). Under this unique strategic relationship, STRATTEC, WITTE and ADAC marketed the products of each company to global customers under the “VAST Automotive Group” brand name. Effective as of June 30, 2023, STRATTEC sold its one-third interest in VAST LLC to WITTE. As of the closing of the sale of its VAST LLC interest, STRATTEC entered into a strategic preferred partner relationship with WITTE covering VAST LLC pursuant to the terms of a cooperation framework agreement that enables STRATTEC to continue to market and rely on the global capabilities of VAST LLC. See "VAST, LLC, SPA, LLC and SPA de Mexico Equity Restructuring Agreement" below for additional information regarding the sale of STRATTEC's VAST LLC interest to WITTE. STRATTEC products are shipped to customer locations in the United States, Canada, Mexico, Europe, South America, Korea, and China, and we, along with our partners, provide full service and aftermarket support for each VAST Automotive Group partners’ products.
History
The product line that became STRATTEC was part of Briggs & Stratton Corporation’s founding business in 1908. In 1995, STRATTEC was spun off from Briggs & Stratton through a tax-free distribution to the then-existing Briggs & Stratton shareholders and has been an independent public company for over twenty-nine years.
Our history in the automotive security business spans 116 years. STRATTEC has been the world’s largest producer of automotive locks and keys since the late 1920s, and we currently maintain a significant share of the North American markets for these products.
Products
Our traditional security products are lock sets (locks and keys) for cars and light trucks. Typically, two keys are provided with each vehicle lockset. Most of the vehicles we currently supply are using keys with sophisticated radio frequency identification technology for additional theft prevention. Keys with remote entry devices integrated into a single unit and bladeless electronic keys as well as turn-key PEPS systems have been added to our product line and are gaining in popularity. Paak systems are also gaining in popularity and we will be supplying products for these systems.
Ignition lock housings represent another security product for us. These housings are the mating part for our ignition locks and typically are part of the steering column structure, although there are instrument panel-mounted versions for certain vehicle applications. These housings are either die cast from zinc or injection molded plastic and may include electronic components for theft deterrent systems.
We have developed and are continuing to develop access control products, including trunk latches, lift gate latches, tailgate latches, hood latches, side door latches and related hardware. With our acquisition of Delphi Corporation’s Power Products Group in fiscal 2009, we have been supplying and continue to supply various power access systems for sliding side doors, tailgates, lift gates and trunk lids to our automotive industry customers. Through a joint venture formed with ADAC Automotive during fiscal 2007, we also supply painted and non-painted door handles and components and related vehicle access hardware.
Recently, we also added a new product category in User Interface Controls by developing and putting in production products such as steering switches and its controller, E-shifters and paddle switches.
In recent years, more and more vehicle access systems have moved from purely mechanical components to integrated electro-mechanical systems. STRATTEC has been at the forefront of this new technology, working with Original Equipment Manufacturers’ (OEMs) product development and purchasing groups to provide cost-effective, innovative solutions to the challenges facing our customers.
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STRATTEC’s customer-focused structure and formalized product development process helps us identify and meet customer needs in order to support the customer's program milestones. From concept and design, through implementation and into the aftermarket, STRATTEC delivers products that provide the optimum value solution to security, access control and user interface controls requirements. We have a comprehensive Products & Solutions portfolio that can be viewed on our website at www.strattec.com (see “Available Information” below for additional information).
To maintain a strong focus on each of these security, access control and user interface controls products, we have Product Business Managers who oversee the product’s entire life cycle, including product concept, application, manufacturing, warranty analysis, service/aftermarket, and financial/commercial issues. The Product Business Managers work closely with our sales organization, our engineering group, and our manufacturing operations to ensure their products are receiving the right amount of quality attention so that their value to STRATTEC and the marketplace is enhanced.
Markets
We are a direct supplier to OEM automotive and light truck manufacturers as well as other transportation-related manufacturers. Our largest customers are General Motors Company, Ford Motor Company and Stellantis. Our product mix varies by customer, but generally our overall sales tend to be highest in door handles and trim components produced by ADAC-STRATTEC de Mexico, followed by lock and key, including aftermarket produced by STRATTEC de Mexico, power access products produced by STRATTEC Power Access de Mexico, and latch mechanisms and ignition lock housing components produced by STRATTEC de Mexico. See Operations discussion included herein for further description.
Direct sales to various OEMs represented approximately 81 percent and 80 percent of our total sales for fiscal 2024 and 2023, respectively. The remainder of our revenue is primarily through sales to the OEM service channels, the aftermarket and Tier 1 automotive supplier customers, and sales of certain products to non-automotive commercial customers.
Sales to our major automotive customers, both OEM and Tier 1, are coordinated through direct sales personnel located in our Detroit-area office. Sales are also facilitated through daily interaction between our Program Managers, Application Engineers and other product engineering personnel. Sales to other OEM customers are accomplished through a combination of our sales personnel located in Detroit and personnel in our Milwaukee headquarters office.
The majority of our OEM products are sold in North America. While some exporting is done to Tier 1 and directly to automotive assembly plants in Europe, Asia and South America, we have restructured our presence in these markets and elsewhere through our entry into a cooperation framework agreement with WITTE related to the business of VAST LLC as part of our sale of our VAST LLC interest to WITTE under the terms of the Equity Restructuring Agreement. We are also independently evaluating our presence in markets outside of North America through other channels.
OEM service and replacement parts are sold to the OEM’s service operations. In addition, we distribute our components and security products to the automotive aftermarket through authorized wholesale distributors, as well as other marketers and users of component parts, including export customers.
Customer Sales Focus
To bring the proper focus to the relationships with our major customers, we have six customer-focused teams, each with a Director of Sales, Product Business Manager and one or two Engineering Program Managers and various Customer Application Engineers. In addition to customer teams for General Motors, Ford and Stellantis, we currently have teams for New Domestic Vehicle Manufacturers (primarily new EVs, the European, Japanese and Korean automotive manufactures), User Interface Controls customers, Tier 1 customers, and Service and Aftermarket customers. Sales and engineering for ADAC-STRATTEC LLC (described in greater detail below) are supported by our partner in this joint venture, ADAC Automotive.
Each Sales Director is responsible for the overall relationship between STRATTEC and a specific customer group. Product Business Managers and Program Managers are responsible for coordinating cross functional activities while managing new product programs for their customers.
Product Engineering Focus
To best serve our customers’ product needs, STRATTEC’s engineering resources are organized into groups which focus on specific access control applications. We currently have six engineering groups: Locks and Keys, Aftermarket, Latches, Power Access Systems, User Interface Controls and Wireless Systems. Each group has a Product Business Manager, an Engineering Manager and a complement of skilled engineers who design and develop products for specific applications. In doing this, each engineering group works closely with both the customer and product teams, Engineering Program Managers, and Application Engineers.
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Underlying this organization is a formalized product development process to identify and meet customer needs in the shortest possible time. By following this streamlined development system, we shorten product lead times, tighten our response to market changes and provide our customers with the optimum value solution to their security, access control and user interface controls requirements. STRATTEC is also IATF 16949:2016 and ISO 14001 certified. This means we embrace the philosophy that quality should exist not only in the finished product, but in every step of our processes as well.
Operations
A significant number of the components that go into our products are manufactured at our headquarters in Milwaukee, Wisconsin. This facility produces zinc die cast components, stampings and milled key blades. We have three owned production facilities currently in operation in Juarez, Mexico operating as STRATTEC de Mexico. Plant No. 1 houses key finishing and assembly operations for locksets, PEPS and Paak components, ignition lock housings, steering wheel switches and its controllers, E-shifters and paddle switches. Plant No. 2 houses our key molding and plastic injection molding operations for door handles and components, as well as containing dedicated space for the assembly operations of ADAC-STRATTEC de Mexico. Plant No. 3 houses both latch and power access assembly operations for STRATTEC Power Access de Mexico. Plant No. 4 is in Leon, Mexico and houses our custom paint system for door handles and assembly for ADAC-STRATTEC de Mexico and is owned by the ADAC-STRATTEC de Mexico joint venture.
STRATTEC de MEXICO
STRATTEC de Mexico is a wholly owned subsidiary of STRATTEC which owns and operates the three production facilities in Juarez, Mexico described above under "Operations". These facilities house our assembly operations for locksets and ignition lock housings, our key finishing and plastic injection molding operations, our assembly operations for ADAC-STRATTEC de Mexico described below and our latch and power access assembly operations for STRATTEC POWER ACCESS de Mexico described below.
Vehicle Access Systems Technology LLC
In fiscal 2001, we entered into an alliance with WITTE-Velbert GmbH, an automotive supplier based in Germany which designs, develops, manufactures and markets automotive access control products for European-based customers. This alliance consisted of two initiatives: a legal arrangement which allowed STRATTEC to manufacture and market WITTE’s core products in North America and WITTE to manufacture and market STRATTEC’s core products in Europe; and a 50:50 joint venture, WITTE-STRATTEC LLC, to invest in operations with local partners in strategic markets outside of Europe and North America.
In February of 2006, we expanded this alliance and related joint venture with the addition of a third partner, ADAC Plastics, Inc., and renamed the resulting joint venture VAST. ADAC, of Grand Rapids, Michigan, added North American expertise in door handles, a part of WITTE’s core product line that STRATTEC did not have, and an expertise in color-matched painting of these components.
ADAC-STRATTEC LLC and ADAC-STRATTEC de MEXICO
During fiscal 2007, we formed a new entity with ADAC Automotive called ADAC-STRATTEC LLC including a wholly owned Mexican subsidiary ADAC-STRATTEC de Mexico (collectively, ASdM). The purpose of this joint venture is to produce certain ADAC and STRATTEC products utilizing ADAC’s plastic molding injection expertise and STRATTEC’s assembly capability. ASdM currently operates out of defined space in STRATTEC de Mexico Plant No. 2 located in Juarez, Mexico. Products from this joint venture include non-painted door handle components and exterior trim components for OEM customers producing in North America. STRATTEC owns 51% of this joint venture and its financial results are consolidated into STRATTEC’s financial statements. ASdM represented $135.9 million and $121.9 million of our consolidated net sales in our fiscal 2024 and 2023, respectively. STRATTEC de Mexico Plant No. 4 is in Leon, Mexico and houses our custom paint system for door handles and assembly for ADAC-STRATTEC de Mexico.
STRATTEC POWER ACCESS LLC and STRATTEC POWER ACCESS de MEXICO
During fiscal year 2009, we formed a new subsidiary with WITTE Automotive called STRATTEC POWER ACCESS LLC (“SPA”) to acquire the North American business of the Delphi Power Products Group. WITTE was a 20 percent minority owner in SPA until June 30, 2023, at which time WITTE sold its minority interest to STRATTEC. See "VAST, LLC, SPA, LLC and SPA de Mexico Equity Restructuring Agreement" below for additional information regarding STRATTEC's purchase of WITTE's interest in SPA. SPA owns 100 percent of a Mexican subsidiary, STRATTEC POWER ACCESS de Mexico. The purpose of this subsidiary is to produce power access devices for sliding side doors, tailgates, lift gates, trunk lids and other related products. STRATTEC POWER ACCESS de Mexico currently operates out of defined space in STRATTEC de Mexico Plant No. 3 located in Juarez, Mexico.
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Financial results for SPA are consolidated in STRATTEC’s financial statements. In our fiscal years ending 2024 and 2023, SPA represented $130.3 million and $114.1 million, respectively, of our consolidated net sales.
VAST LLC, SPA LLC and SPA de MEXICO Equity Restructuring Agreement
On June 30, 2023, STRATTEC completed an Equity Restructuring Agreement with WITTE (“Restructuring Agreement”) related to both the VAST LLC and the SPA joint ventures. Prior to the Restructuring Agreement, STRATTEC was a one-third owner of VAST LLC with WITTE and ADAC Plastics, Inc. Under the terms of the Restructuring Agreement, STRATTEC sold its one-third interest in VAST LLC to WITTE for a net purchase price of $18,500,000 which also included STRATTEC acquiring : (1) WITTE's 20% minority interest in SPA; and (2) the net assets of VAST LLC's Korea branch office, which business is operated by a newly registered Korea branch of the Company. As part of the Restructuring Agreement, ADAC Plastics, Inc. took over 100% of VAST Brazil. As of the closing of the Restructuring Agreement, STRATTEC ceased to be an owner of VAST LLC but obtained 100% ownership of SPA.
While the equity ownership in VAST has changed, we expect to continue to leverage the VAST brand and to collaborate on product development and manufacturing capabilities with WITTE and VAST in winning new business and serving global customers. Accordingly, at closing of the Restructuring Agreement, we entered into a cooperation framework agreement with WITTE covering the business of VAST LLC which provides a framework for the parties to collaborate on global programs related to product development and manufacturing. This will enable STRATTEC to supply and deliver global programs by leveraging the VAST global footprint with the added advantage of providing regional support from WITTE’s operating entities in Europe, China and India. We will also jointly, along with ADAC Plastics and WITTE, continue to leverage the sales/engineering offices in Japan, Korea and Brazil. The Restructuring Agreement and cooperation framework agreement position STRATTEC to redeploy assets, both financial and technical, to create greater focus on STRATTEC-specific strategic growth opportunities in North America and around the world. We believe this allows us to be more focused and competitive in this exciting and once-in-a-lifetime restructuring of a major industry where we are well-positioned to take advantage of new opportunities. This includes more of our product applications on Electric Vehicles, growing consumer demand for Power Access products, expansion of electronics capabilities and other new automotive products. It will also give us greater resources to further explore diversification of markets, complimentary technology and regions outside of North America.
ADAC-STRATTEC LLC and ADAC-STRATTEC de MEXICO were unaffected by the Restructuring Agreement. For further information on VAST LLC and the equity restructuring, see "Investment in Joint Ventures and Majority Owned Subsidiaries" and "Equity (Loss) Earnings of Joint Ventures" included in Notes to Financial Statements under Item 8 in this Form 10-K.
Seasonal Nature of the Business
The manufacturing of components used in automobiles is driven by the normal peaks and valleys associated with the automotive industry. Typically, the months of July and August are relatively slow as summer vacation shutdowns and model year changeovers occur at the automotive assembly plants. September volumes increase rapidly as each new model year begins. This volume strength typically continues through October and into early November. As the holiday and winter seasons approach, the demand for automobiles slows, as does production. March usually brings a major sales and production increase, which then continues through most of June. This results in our first fiscal quarter sales and operating results typically being our weakest, with the remaining quarters being more consistent.
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Vehicle List
2025 Vehicles
We are proud to be associated with many of the quality vehicles produced in North America and elsewhere.
The following cars and light trucks are equipped with STRATTEC components during our 2025 fiscal year:
PASSENGER CARS |
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Acura ZDX (EV) |
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Aston Martin Vantage * |
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Chevrolet Malibu |
Aston Martin AMR24 * |
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Cadillac ATS * |
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Dodge Charger (EV) |
Aston Martin DB 12 * |
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Cadillac CT4 |
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Ford Focus |
Aston Martin DBS * |
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Cadillac CT5 * |
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Ford Focus (Mild Hybrid EV) |
Aston Martin DBX * |
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Cadillac Celestiq (EV) |
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Ford Mustang |
Aston Martin Valhalla * |
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Chevrolet Corvette |
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Volkswagen Jetta |
Aston Martin Valkyrie * |
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Chevrolet Corvette E-Ray (Hybrid EV) |
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Aston Martin Valour * |
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Chevrolet Joy * |
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LIGHT TRUCKS, VANS AND SPORT UTILITY VEHICLES |
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Acura MDX |
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Chevrolet Spin * |
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GMC Yukon and Yukon XL |
Acura RDX |
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Chevrolet Suburban |
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Honda Odyssey |
Audi Q5 |
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Chevrolet Tahoe |
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Honda Passport |
Brightdrop EV400 (EV) |
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Chevrolet Trail Blazer * |
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Honda Prologue (EV) |
Brightdrop EV600 (EV) |
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Chevrolet Traverse |
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Hyundai Staria * |
Buick Enclave |
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Chevrolet Trax * |
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Jeep Commander * |
Buick Envista * |
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Chrysler Pacifica (PH option) |
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Jeep Compass |
BMW X7 |
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Dodge Durango |
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Jeep Gladiator |
Cadillac Escalade |
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Dodge Hornet (PH option) |
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Jeep Grand Cherokee |
Cadillac Escalade IQ (EV) |
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Ford Bronco Sport |
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Jeep Meridian |
Cadillac Lyriq (EV) |
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Ford Escape (PH option) |
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Jeep Recon (EV) |
Cadillac Optiq (EV) |
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Ford Expedition (PH option) |
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Jeep Wagoneer |
Cadillac Vistiq (EV) |
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Ford Explorer (PH option) |
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Jeep Wrangler/Wrangler |
Cadillac XT4 |
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Ford F-150 Lightning (EV) |
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Unlimited (PH option) |
Cadillac XT5 |
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Ford F-Series Pickup (PH option) |
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Kia Carnival * |
Cadillac XT6 |
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Ford F-Series Super Duty Pickup |
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Lincoln Aviator (PH option) |
Chevrolet Blazer |
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Ford Maverick Pickup (PH option) |
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Lincoln Corsair (PH option) |
Chevrolet Blazer (EV) |
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Ford Mustang Mach-E (EV) |
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Lincoln Navigator (PH option) |
Chevrolet Cobalt * |
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Ford Ranger Pickup * (PH option) |
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Ram 1500 Classic Pickup |
Chevrolet Colorado * |
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Ford Transit Connect * (PH option) |
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Ram 1500 Pickup |
Chevrolet Equinox |
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GMC Acadia |
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Ram HD Pickup |
Chevrolet Equinox (EV) |
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GMC Canyon * |
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Ram REV Pickup (EV) |
Chevrolet Express Van |
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GMC Hummer (EV) |
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Tesla Everest (EV) |
Chevrolet S-10 * |
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GMC Savana |
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Volkswagen Tiguan (PH option) |
Chevrolet Seeker * |
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GMC Sierra & Sierra HD |
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Volvo Polestar 3 (EV) |
Chevrolet Silverado & |
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GMC Sierra Pickup (EV) |
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Volvo EX90 (EV) |
Silverado HD Pickup |
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GMC Terrain |
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Volvo Heavy Truck |
Chevrolet Silverado (EV) |
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* Vehicles produced outside of North America, or both in and outside North America.
EV – Electric Vehicle
PH – Plug-In Hybrid
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Emerging Technologies
Automotive vehicle security and access systems, which are both theft deterrent and consumer friendly, are trending toward electro-mechanical, software and connected devices. Electronic companies are developing user identification systems such as bio-systems, card holder (transmitter) systems, etc., while mechanical locks, keys, housings, and latches are evolving to accommodate electronics. We believe we are positioning ourselves as a vehicle security, access control and user interface controls supplier by building our product, engineering and manufacturing expertise in the required electro-mechanical products, which include access systems, latches, keys with remote entry electronic systems, ignition interface systems with passive start and Paak capabilities and various user interface controls technologies. In both 2018 and 2019, we were awarded the Automotive News Pace Award for Excellence and Innovation for our Invis-A-RiseTM Power Liftgate and Invis-A-RiseTM Power Tailgate products. Those technologies continue to enable STRATTEC to provide differentiation in the marketplace. As the automotive industry continues developing various levels of autonomous vehicles, we believe that we are well positioned to continue the development and incorporation of power sliding doors, power tailgates and other consumer convenience features into these types of vehicles.
These technologies benefit us by increasing our potential customer base as a Tier 2 supplier while maintaining our Tier 1 status on some product lines and by adding additional product line availability.
Sources and Availability of Raw Materials
Our primary raw materials are high-grade zinc, brass, nickel silver, steel, aluminum, plastic resins and semiconductor chips and other electronics. 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. We believe our sources for raw materials are very reliable and adequate for our needs. We have not experienced any significant long term supply problems in our operations and do not anticipate any significant supply problems into the foreseeable future. See further discussion under “Risk Factors-Sources of and Fluctuations in Market Prices of Raw Materials” included under Item 1A of this Form 10-K.
Patents, Trademarks and Other Intellectual Property
We believe that the success of our business results not only from the technical competence, creativity and marketing abilities of our employees but also from the protection of our intellectual property through patents, trademarks and copyrights. As part of our ongoing research, development and manufacturing activities, we have a policy of seeking patents on new products, processes and improvements when appropriate.
Although, in the aggregate, the intellectual property discussed herein is of considerable importance to the manufacturing and marketing of many of our security, access control and user interface controls products, we do not consider any single patent or trademark or group of related patents or trademarks to be material to our business as a whole, except for the STRATTEC and STRATTEC with logo trademarks.
We also rely upon trade secret protection for our confidential and proprietary information. We maintain confidentiality agreements with our customers and key executives. In addition, we enter into confidentiality agreements with selected suppliers, consultants and employees as appropriate to evaluate new products or business relationships pertinent to our success. However, there can be no assurance that others will not independently obtain similar information and techniques or otherwise gain access to our trade secrets or that we can effectively protect our trade secrets.
Dependence Upon Significant Customers
A significant portion of our annual sales are to General Motors Company, Ford Motor Company, and Stellantis. These three customers accounted for approximately 66 percent of our net sales in both 2024 and in 2023. Further information regarding sales to our largest customers is set forth under the caption “Risk Factors – Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share” and “Risk Factors – Production Slowdowns by Customers” included under Item 1A of this Form 10-K and “Notes to Financial Statements-Sales and Receivable Concentration” included in Notes to Financial Statements under Item 8 in this Form 10-K.
The products sold to these customers are model specific, fitting only certain defined applications. Consequently, we are highly dependent on our major customers for their business, and on these customers' ability to produce and sell vehicles which utilize our products. We have enjoyed good relationships with General Motors Company, Ford Motor Company, Stellantis and other customers in the past, and expect to continue to do so in the future. However, a significant change in the purchasing practices of, or a significant loss of volume from, one or more of these customers could have a detrimental effect on our financial performance. We cannot provide any assurance that any lost sales volume could be replaced despite our historical relationships with our customers.
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Sales and Marketing; Backlog
We provide our customers with engineered security, access control and user interface controls products including locksets, fobs, push button passive entry passive start and phone as a key ignition systems, steering column lock housings, electromechanical latches, power sliding door systems, power tailgate systems, power liftgate systems, power decklids, painted and non-painted door handles, door handle components and trim, steering wheel switches and controllers, E-shifters, paddle switches and other products which are unique to specific vehicles. Any given vehicle typically takes 1 to 3 years of development and engineering design time prior to being offered to the public. Our products are designed concurrently with the vehicle. Therefore, commitment to STRATTEC as the production source for such products and components occurs 1 to 3 years prior to the start of production for such components. We employ a commercial and engineering staff that assists in providing design and technical solutions to our customers. We believe that our customer focus and engineering expertise are competitive advantages that contribute to our strong market position in our industry. For example, we regularly provide innovative design proposals for our product offerings to our customers that we believe will improve customer access, vehicle security system quality, theft deterrence and system cost.
The typical process used by automotive manufacturers in selecting a supplier for our products is to offer the business opportunity to us and several of our competitors. Each competitor will pursue the opportunity, doing its best to provide the customer with the most attractive proposal. Price pressure is strong during this process but once an agreement is reached, a commitment is made for each year of the product program. Typically, price reductions resulting from productivity improvement by STRATTEC over the life of the product program are included in the contract and are estimated in evaluating each of these opportunities. A blanket purchase order, a contract indicating a specified part will be supplied at a specified price during a defined time period, is issued by customers for each model year. Production quantity releases or quantity commitments are made to that purchase order for weekly deliveries to the customer. As a consequence and because we are a "Just-in-Time" supplier to the automotive industry, we do not maintain a backlog of orders in the classic sense for future production and shipment and, accordingly, we are unable to provide a meaningful backlog comparison from year to year.
Competition
We compete with domestic and foreign-based competitors on the basis of custom product design, engineering support, quality, delivery and price. While the number of direct competitors in our product markets is currently relatively small, the automotive manufacturers actively encourage competition between potential suppliers. We have a large share of the North American market for our security, access control and user interface controls products because of our ability to provide optimal value, which is a beneficial combination of price, quality, technical support, program management, innovation and aftermarket support. In order to optimize our production costs while still offering a wide range of technical support, we utilize assembly operations and certain light manufacturing operations in Mexico, which results in lower labor costs as compared to the United States.
As locks and keys become more sophisticated and involve additional electronics, competitors with specific electronic expertise may emerge to challenge us. To address this, we have in recent years strengthened our electrical engineering knowledge and service. We are also working with several electronics suppliers to jointly develop and supply these advanced products.
Our lockset, user interface controls, wireless, latches and power access competitors include Huf North America, Ushin, Valeo, Tokai-Rika, Marquardt, Alpha-Tech, Honda Lock, Shin Chang, Magna, Edscha, Stabilus, Aisin, Brose, Mitsuba, Ohi, Kiekert, Inteva, Novares and Gecom. For additional information related to competition, see the information set forth under “Risk Factors-Highly Competitive Automotive Supply Industry” included under Item 1A of this Form 10-K.
Research and Development
We engage in research and development activities pertinent to automotive security, access control and user interface controls. A major area of focus for research is the expanding role of vehicle security, access and user interface via electronic interlocks and modes of communicating authorization data between consumers and vehicles. Development activities include new products, applications and product performance improvements. In addition, specialized data collection equipment is developed to facilitate increased product development efficiency and continuous quality improvements. For fiscal years 2024 and 2023, we incurred approximately $14.8 million and $15.9 million, respectively, on research and development expenses. We believe that, historically, we have committed sufficient resources to research and development and we intend to continue to invest in the future as required to support additional product programs associated with both existing and new customers. Patents are pursued and will continue to be pursued as appropriate to protect our interests resulting from these activities.
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Customer Tooling
We incur costs related to tooling used in component production and assembly. Some of these costs are reimbursed by customers who then own the tools involved. See the information set forth under “Organization and Summary of Significant Accounting Policies-Customer Tooling in Progress” included in Notes to Financial Statements under Item 8 in this Form 10-K.
Environmental Compliance
As is the case with other manufacturers, we are subject to federal, state, local and foreign laws and other legal requirements relating 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), the Clean Water Act of 1990 (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 and we have no current plans for substantial capital expenditures in the environmental area.
As discussed in “Commitments and Contingencies” under Notes to Financial Statement under Item 8 in this Form 10-K, a site at our Milwaukee facility is contaminated by a solvent spill from a former above-ground solvent storage tank located on the east side of the facility, which spill occurred in 1985. We continue to monitor this situation.
We do not currently anticipate any materially adverse impact on our financial statements 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 charges associated with maintaining compliance with environmental laws is inherent in the nature of our business and there is no assurance that material liabilities or charges could not arise.
Human Capital
At June 30, 2024, we had 3,365 associates worldwide, of which 457 were employed in the United States and 2,905 were employed outside of the United States. 170 or 5.1 percent were represented by a collective bargaining agreement at our Milwaukee, Wisconsin facility, all of whom are our production associates. Approximately 152 or 4.5 percent were represented by a collective bargaining agreement at our Leon, Mexico facility. In recent years, we have not experienced any significant work slowdowns, stoppages or other labor disruptions. The current contract with our Milwaukee unionized associates is effective through November 1, 2025. The current contract with our Leon unionized associates is effective through April 8, 2025.
We are guided by our “Values and Beliefs” mission statement that focuses on Empowerment, Communication, Citizenship, Enterprise, Change and Consensus. We remain committed to areas of work place safety, product quality and customer satisfaction. Successful execution of our mission is dependent on attracting, developing and retaining key associates and members of our management team, as well as providing competitive pay and benefits.
Social Responsibility
We are committed to conducting business and making decisions honestly, fairly and within the law, and are guided by our “Values and Beliefs” mission statement. We are dedicated to earning and keeping the trust and confidence of our shareholders, customers and associates as well as the communities where we do business.
Our “Code of Business Ethics” provides guidelines and a framework for conducting business in an ethical manner. These beliefs go beyond STRATTEC and are expected of our suppliers as detailed in our “Supplier Code of Conduct.” We have adopted policies that seek to eliminate human trafficking, slavery, child labor and similar unethical and illegal practices from our global supply chain. In addition, we annually compile and file a Form SD with the Securities and Exchange Commission regarding “Conflict Minerals Disclosure and Report” as directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The purpose of this report is to help prevent products used to finance or benefit armed groups in the covered countries of this filing.
Our commitment to our environment is documented in our “Environmental Management System,” which provides for continuous improvement of our efforts toward preventing pollution, complying with relevant environmental legislation and regulations and complying with customer-based environmental regulations. In addition, we maintain our own IATF 16949:2016 and ISO 14001 annual certifications, which are globally recognized quality standards for the automotive industry. STRATTEC’s major initiatives in this area consist of energy improvement initiatives, primarily related to solar in Milwaukee, WI, Auburn Hills, MI, and Juarez, Mexico, and moves to more energy efficient production capital equipment in Milwaukee, WI to reduce carbon emissions.
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Available Information
We maintain our corporate website at www.strattec.com and make available, free of charge, through this website our Code of Business Ethics, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements for annual shareholder meetings and amendments to those reports that we file with, or furnish to, the Securities and Exchange Commission (the "Commission") as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Commission. We are not including all the information contained on or made available through our website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K. However, this report includes (or incorporates by reference) all material information about STRATTEC that is included on our website which is otherwise required to be included in this report.
ITEM 1A. 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:
BUSINESS RISKS
Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share – Sales to General Motors Company, Ford Motor Company and Stellantis represented approximately 66 percent of our annual net sales (based on fiscal 2024 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, a reduction in vehicle content, the 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, operating results, financial condition and cash flows.
Our major customers also have significant under-funded legacy liabilities related to pension and postretirement health care obligations. The loss in our major customers’ North American automotive market share to the New Domestic automotive manufacturers (primarily the Japanese and Korean 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 and inventory, incur impairment charges or require restructuring actions.
Production Slowdowns by Customers – Our major customers and many of their suppliers were significantly impacted by the Great Recession of 2008/2009, by the COVID-19 pandemic in 2020, by supply chain issues resulting from the conflict in the Ukraine, and by a semiconductor chip shortage in 2021 and 2022. Many of our major customers instituted production cuts during our fiscal 2009 and 2010 due to the Great Recession and shuttered plants. Similarly, during 2020, 2021 and 2022 in response to the effects of the COVID-19 pandemic, the Ukraine conflict and the semiconductor chip shortage, many of our major customers again instituted production cuts and shuttered plants. While production subsequently increased after the cuts made in 2009 and again in 2021 when plants reopened following the COVID-19 closures, the current Ukraine conflict and semiconductor chip shortage, any additional economic slowdowns, pandemics or part supply shortages could bring about new production cuts which could have a material adverse effect on our existing and future revenues, operating results, financial condition and cash flows.
Cross-border Trade Issues or Tariffs – Our business is impacted by international or cross-border trade, including the import and export of products and goods into and out of the United States and trade tensions among nations. The shipping of goods across national borders is often more expensive and complicated than domestic shipping. Customs and duty procedures and reviews, including duty-free thresholds in various key markets, the application of tariffs, and security related governmental processes at international borders, may increase costs, discourage cross-border purchases, delay transit and create shipping uncertainties. Further, uncertainties stemming from changes in U.S. trade policies in particular with European countries and China, tariffs and the reaction of other countries thereto, could have an adverse effect on our business and may adversely impact our results of operations, financial condition and cash flows or reduce profitability on certain of our products.
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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, global 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 previously 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 revenues, results of operations, financial condition and cash flows.
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 investments, acquisitions or alliances or in 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.
Cyclicality and Seasonality in the Automotive Market – The automotive market is cyclical and is dependent on consumer spending, on the 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 during that period.
OPERATIONAL RISKS
Shortage of Raw Materials or Components Supply – In the event of catastrophic acts of nature such as fires, tsunamis, hurricanes, earthquakes and global pandemics and wars, a rapid increase in production demands or other unforeseen economic events such has prolonged periods of inflation, 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, working capital constraints or adverse conditions in banking and capital markets. In order to manage and reduce the costs of purchased goods and services, we and others within our industry have been rationalizing and consolidating our supply base. As a result, there is greater dependence on fewer sources of supply for certain components and materials used in our products, 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 supply shortages 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, financial condition and cash flows.
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, labor disputes or other problems will not result in any shortages or delays in the supply of components to us.
Because of the COVID-19 pandemic and the Ukraine conflict, we have experienced supply chain disruptions in particular with semiconductor chip shortages that impact our OEM customers’ ability to finish assembly of new vehicles and which have adversely impacted orders for our products and, accordingly, our results of operations and cash flows. The continuation or renewal of these impacts could have a material adverse effect on our future revenues, financial results, financial condition and cash flows.
Sources of and Fluctuations in Market Prices of Raw Materials – Our primary raw materials are high-grade zinc, brass, nickel silver, aluminum, steel and plastic resins, which are typically sourced from a limited number of suppliers. 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 effect on our results of operations, financial condition and cash flows if the increased raw material costs cannot be recovered from our customers. During recent fiscal years, we experienced higher raw material costs on the items listed above including freight costs on both raw material and purchased components.
Given the significant financial impact on us relating to changes in the cost of our primary raw materials, commencing with fiscal 2008 and thereafter, we began quoting quarterly material price adjustments for changes in our zinc costs in our negotiations with our customers. Our success in obtaining these quarterly price adjustments in our customer contracts is dependent on separate negotiations
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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.
Foreign Operations – We operate wholly owned and majority owned manufacturing operations in Mexico. As these operations continue to expand, their success will depend, in part, on our 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.
Cyber Vulnerability – In the ordinary course of business, we collect and store sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information of our customers and employees, in our internal data centers, cloud services and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Cybersecurity attacks are becoming more sophisticated and include, but are not limited to, malicious software attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, corruption or destruction of data and other manipulation or improper use of systems or networks. Despite our security measures, our information technology and infrastructure, as well as that of our partners, customers and suppliers, may be vulnerable to malicious attacks, breaches or system failures due to employee error, malfeasance or other disruptions, including as a result of rollouts of new systems. Any such breach or operation failure would compromise our networks or that of our business partners, customers or suppliers, and the information stored could be accessed, publicly disclosed, lost or stolen, cause transaction processing errors, processing inefficiencies, delays or cancellation of customer orders, the loss of customers, impediments to the manufacturing or shipment of products, or other business disruptions. Although we have cybersecurity insurance in place, such access or other loss of information could result in legal claims or proceedings, regulatory fines or penalties, disruption in our operations, damage to our reputation, loss of confidence in our products and services, increased costs, or the loss of assets, any of which could have a negative impact on our business, results of operations, financial condition and cash flows. In addition, as security threats and cybersecurity and data privacy and protection laws and regulations continue to evolve and increase in terms of sophistication, we may be required to or choose to invest additional resources in the security of our systems. Any such increased level of investment could adversely affect our financial condition or results of operations. We have programs in place to address and mitigate cybersecurity risks. These programs include regular monitoring of outside threats, continuous update of software to mitigate risk, education of employees to the risks of external threats, and simplification of infrastructure to minimize servers. Although we believe the foregoing programs are reasonable actions to mitigate cybersecurity risks, the failure of these programs to adequately protect against these risks could have a negative impact on our business, results of operations, financial condition and cash flows.
Qualified Personnel – Our business success depends, to a significant degree, on attracting and retaining qualified personnel. Our ability to sustain and grow our business requires us to hire, retain, develop and motivate a highly skilled and diverse management team and workforce. These types of employees are in high demand and often have competing employment opportunities. The labor market for skilled employees is highly competitive and we may lose key employees or be forced to increase their compensation to retain these types of employees. Failure to ensure that we have the leadership capacity with the necessary skill set and experience could impede our ability to deliver our growth objectives and execute our strategic plan. Organizational and reporting changes resulting from any future leadership transition or corporate initiatives could result in increased turnover. Additionally, any unplanned turnover or inability to attract and retain key employees could have a negative effect on our results of operations, including by significantly increasing our recruitment, training and other related employee costs. Moreover, the loss of key personnel, or the failure to attract qualified personnel, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
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 by 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 September 2019. 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 our Milwaukee unionized associates is effective through November 1, 2025. We also have unionized associates at our Leon, Mexico facility. The current contract with our Leon unionized associates is effective through April 8, 2025. We may encounter further labor disruption and we 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, financial results, financial condition and cash flows. Labor contracts between General Motors Company, Ford Motor Company and Stellantis and their unionized associates under the United Auto Workers union expire in April 2028. In addition, their respective labor
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agreements with the Canadian auto workers union expire in September 2026. Labor disruptions encountered by our customers during the contract period could have an adverse effect on our business and our financial results.
Climate Change and Environmental, Social, and Governance (ESG) Matters - Natural disasters or extreme weather conditions resulting from global climate change could lead us, our customers or our suppliers to experience disruptions in operations or disruptions in the availability of key components, which could lead to a material adverse impact on our results of operations, financial condition and cash flows. Further, various stakeholders, including customers, suppliers, lenders, regulators and those in the workforce, are increasing their expectations of companies to do their part to combat global climate change and its impact, and to conduct their operations in an environmentally sustainable manner with appropriate oversight by senior leadership. A failure to respond to the expectations and initiatives of our stakeholders could result in damage to our reputation and relationships with various stakeholders. We could also experience adverse impacts to our financial condition due to volatility in the cost or availability of capital, difficultly obtaining new business or entering into new supplier relationships, a possible loss of market share on our current product portfolio, fines and penalties or difficulty attracting and retaining a skilled workforce.
In addition to the increased stakeholder focus on climate change, customer, investor, and employee expectations in ESG have been rapidly evolving and increasing. The enhanced stakeholder focus on ESG requires the continuous monitoring of various and evolving regulations and standards and their associated requirements. Our failure, or that of our supply base, to adequately meet stakeholder expectations may result in, among other things, the loss of business, diluted market valuation, an inability to attract customers or an inability to attract and retain top talent that could adversely affect our business, financial condition or results of operations.
FINANCIAL RISKS
Financial Distress of Automotive Supply Base – During the Great Recession, which impacted calendar years 2009 and 2010, deteriorating automotive industry conditions adversely affected STRATTEC and our supply base. Lower production levels at our major customers, volatility in certain raw material and energy costs and the global credit market crisis resulted in severe financial distress among many companies within the automotive supply base. During the above time frame, several automotive suppliers filed for bankruptcy protection or ceased operations. The potential continuation or renewal of financial distress within the supply base (whether from infectious disease, the Ukraine conflict, the ongoing supply chain and logistics disruptions or otherwise) and our suppliers’ inability to obtain credit from lending institutions could lead to commercial disputes and possible supply chain interruptions. In addition, the potential for future adverse industry conditions (including from infectious disease, the Ukraine conflict or otherwise) may require us to provide financial assistance or other measures to ensure uninterrupted production. The continuation or renewal of these industry conditions could have a material adverse effect on our existing and future revenues, financial results, financial condition and cash flows.
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 or additional price reduction demands, our gross margin and profitability will be adversely affected.
Currency Exchange Rate Fluctuations – Our sales are denominated in U.S. dollars. We have manufacturing operations in Mexico, and as a result, a portion of our manufacturing costs are incurred in Mexican pesos. Therefore, fluctuations in the U.S. dollar/Mexican peso exchange rate may have a material effect on our profitability, cash flows, financial position, and may significantly affect the comparability of our results between financial periods. Any depreciation in the value of the U.S. dollar in relation to the value of the Mexican peso will adversely affect the cost of our Mexican operations when translated into U.S. dollars. Similarly, any appreciation in the value of the U.S. dollar in relation to the value of the Mexican peso will decrease the cost of our Mexican operations when translated into U.S. dollars.
Inflationary Pressures – We continue to experience elevated inflation in the markets in which we operate, with higher commodity, labor, freight and other cost pressure. While many costs will moderate over time, the increases in wage levels are likely to have longer-term effects on our cost structure. Additionally, we may continue to experience price increases from our suppliers in connection with the inflationary pressures they face. The inability to offset inflationary price increases through price increases from our customers, modifications to our products, continuous improvement actions or otherwise may have a material adverse effect on our financial results and financial condition.
Interest Rates – Higher interest rates could have a dampening effect on overall economic activity, the financial condition of our customers and suppliers and the financial condition of end consumers who ultimately create demand for the products we supply, all of which could negatively affect demand for our products.
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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 and financial condition.
Credit Facilities – Historically, from time to time we have relied on our existing credit facilities to provide us with adequate working capital to operate our business and fund our capital expenditures, including our expansion initiatives. Escalation of any global inflationary pressures on our operating results may impact our ability to satisfy our lending covenants in the short term. Additionally, we cannot provide assurance that we will be able to refinance, extend the maturity of, or otherwise amend the terms of our existing credit facilities, or that any refinancing, extension, or amendment will be on terms favorable to us or even on commercially reasonable terms. If our lenders reduce or terminate our access to amounts under our credit facilities, we may not have sufficient capital to fund our working capital needs and/or we may need to secure additional capital or financing to fund our working capital requirements or to repay outstanding debt under our credit facilities. Moreover, new credit facilities resulting from any refinancing of our existing facilities could have a significantly higher rate of interest and greater borrowing costs than our existing facilities. We can make no assurance that we will be successful in ensuring our availability of amounts under our credit facilities or in connection with raising additional capital and that any amount, if raised, will be sufficient to meet our cash flow requirements. If we are not able to maintain our borrowing availability under our credit facilities and/or raise additional capital when needed, we may be forced to sharply curtail our efforts to manufacture and promote the sale of our products or to curtail our operations.
There can be no assurance that the financial terms or covenants of any new credit facility will be the same or as favorable as those under our existing facilities. Additionally, our ability to complete a refinancing of our existing credit facilities prior to their respective maturities is subject to a number of conditions beyond our control. For example, if a disruption in the financial markets were to occur at the time that we intended to refinance our credit facilities, we might be restricted in our ability to access the credit lines. The restrictive covenants in any such new credit facility may limit our ability to engage in acts that may be in our best long term interests. A breach of any of these types of restrictive covenants in our credit facilities could result in a default under these facilities. If a default occurs, the lenders under our credit facilities may elect to declare all outstanding borrowings, together with accrued interest, to be immediately due and payable, to terminate any commitments they have to provide further borrowings and to exercise any other rights they have under the facilities or applicable law.
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 the repair costs incurred by our customers for such products. We are engaged in ongoing discussions with our customers regarding warranty information and potential claims. The results of these discussions could result in additional warranty charges/claims in future periods. Depending on the nature of and the volume of vehicles involved in the potential warranty claims, these charges could be material to our financial statements. Prior to fiscal 2010, we had experienced relatively low warranty charges from our customers due to our commercial arrangements and improvements in the quality, reliability and durability of our products. Due to our largest customers’ extension and/or expansion of their warranty protection programs and demands for higher warranty cost sharing arrangements from their suppliers in their terms and conditions of purchase, including from STRATTEC, we increased our provision to cover warranty exposures since fiscal year 2010. In 2015, 2018, and 2023, our increased warranty provision was the result of various known or expected customer warranty issues outstanding and estimated future warranty costs to be incurred as of June 2015, June 2018, and June 2023, respectively, for which amounts were reasonably estimable. As additional information becomes available, actual results may differ from recorded estimates or we may need to record additional warranty provisions. Although we have product recall insurance in place, 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, financial condition and cash flows.
LEGAL AND REGULATORY RISKS
Environmental, Safety and Other 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, among others, 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
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area. An environmental reserve was established in 1995 for estimated costs to remediate a site at our Milwaukee facility. The site was contaminated from a former above-ground solvent storage tank, located on the east side of the facility. The contamination occurred in 1985 and is being monitored in accordance with federal, state and local requirements. 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 related 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.
Compliance Related to Conflict Minerals Regulations – We are required to disclose the use of tin, tantalum, tungsten and gold (collectively, “conflict minerals”) mined from the Democratic Republic of the Congo and adjoining countries (the “covered countries”) if a conflict mineral(s) is necessary to the functionality of a product manufactured, or contracted to be manufactured, by us. We may determine, as part of our compliance efforts, that certain products or components we obtain from our suppliers could contain conflict minerals. If we are unable to conclude that all our products are free from conflict minerals originating from covered countries, this could have a negative impact on both our existing and future business, reputation and/or results of operations. We may also encounter challenges to satisfy customers who require that our products be certified as conflict free, which could place us at a competitive disadvantage if we are unable to substantiate such a claim. Compliance with these rules could also affect the sourcing and availability of some of the minerals used in the manufacture of products or components we obtain from our suppliers, including our ability to obtain products or components in sufficient quantities and/or at competitive prices to sell to our customers.
Income Taxes – We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Significant judgment is required in determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that these positions may be overturned by jurisdictional tax authorities, which may have a significant impact on our global provision for income taxes. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of these laws are issued or applied. We are also subject to ongoing tax audits. These audits can involve complex issues, which may require an extended period of time to resolve and can be highly subjective. Tax authorities may disagree with certain tax reporting positions taken by us and, as a result, assess additional taxes against us. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision.
RISK RELATED TO INFECTIOUS DISEASE OUTBREAKS, SUCH AS COVID-19
Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, the global economy. For example, the Coronavirus (COVID-19) pandemic adversely affected our operations and supply chains, in particular related to the sourcing of semiconductor chips, which caused us to experience reductions in demand for certain of our products and services as a result of the pandemic and this supply chain disruption. Because we and our suppliers manufacture products in facilities around the world, we have been and may continue to be vulnerable to an outbreak of COVID-19 (or the resurgence of such an outbreak) or other contagious diseases in those regions as well as in the United States. The effects of COVID-19 and other contagious diseases have included and may continue to include disruptions or restrictions on our ability to travel, our ability to manufacture our affected products and our ability to ship these affected products to customers as well as disruptions that have and may continue to affect our key customers and suppliers, including those in these regions or other affected regions of the world, including in the United States, Mexico, China and neighboring countries. Current and future disruption of our ability to manufacture or distribute our products or of the ability of our customers to take orders of our products or our suppliers to deliver key raw materials on a timely basis could have a material adverse effect on our sales levels, pricing for raw materials and components and our operating results. In addition, the worsening of COVID-19 and future outbreaks of contagious diseases in the human population could result in a widespread health crisis that adversely affects the economies and financial markets of many countries (including those where we operate or where our products are ultimately used), resulting in an economic downturn that could affect demand for our products and impact our operating results.
RISK RELATED TO GEOPOLITICAL INSTABILITY
We are currently operating in a period of geopolitical instability resulting from the ongoing military conflict between Russia and the Ukraine, which has significantly contributed to economic uncertainty, capital market disruption and supply chain interruptions in the U.S. and global markets. On February 24, 2022, a full-scale military invasion of the Ukraine by Russian troops began. While the length and impact of the ongoing conflict is unpredictable, the Ukraine conflict could lead to market disruptions, including supply chain interruptions and significant volatility in commodity prices, and in credit and capital markets. The conflict in the Ukraine has led to sanctions and other penalties being levied against Russia by the U.S., the EU, and other countries. Additional potential sanctions and penalties have also been proposed. Russian military actions and the resulting sanctions, as well as future geopolitical conflicts, could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially further disrupting the supply chain for necessary components and raw materials used by us or our customers in producing
15
product. Any of the foregoing factors could have a material adverse effect on our business, operating results, financial condition and cash flows.
GENERAL RISK FACTOR
In addition to the specific risks above, we, our customers, and our suppliers may be adversely affected by changing economic conditions throughout the world. These conditions may result in reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending. We, our customers, and our suppliers and the economy as a whole also may be affected by future world or local events outside of our control, such as tariffs and other trade protection measures put in place by the United States or other countries, acts of terrorism, developments in the war on terrorism, civil unrest, conflicts in international situations, weather events, natural disasters, outbreaks of infectious diseases, such as the COVID-19 pandemic, and government or political related developments or issues, including changes in tax laws and regulations. These factors could have a material adverse impact on our results of operations, financial condition, and cash flows. Additionally, political and social turmoil, international conflicts (such as the Ukraine conflict) and terrorist acts may put pressure on global economic conditions that may adversely impact our operating results. Unstable political, social or economic conditions may make it difficult for us, our customers and our suppliers to accurately forecast and plan future business activities. If such conditions arise or persist, they could have a material adverse impact on our results of operations, financial condition and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
We take cybersecurity threats seriously, including regular assessment of cybersecurity risks both internally and with third party assistance and updates to the Board of Directors at least annually. We use the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF) as the basis for the information security management system. As we implement new technologies, the NIST CSF is used as the guiding framework. Among other best practices, we use multi-factor authentication wherever possible for external access to systems, assess and update current versions of security solutions, perform regular cybersecurity training and email phishing campaigns for employees, use third parties to perform external penetration testing, and maintain disaster recovery and incident response plans, which include retainer contracts for third party cybersecurity response specialists. We employ a combination of methods to monitor for new or developing cybersecurity risks.
The Board regularly receives reports and training from management and third parties on cybersecurity matters. Management is responsible for developing cybersecurity programs, as may be required by applicable law or regulation. Our cybersecurity personnel have the appropriate expertise in IT and cybersecurity, which generally has been gained from a combination of education, including relevant degrees and/or certifications, and prior work experience. Our cybersecurity personnel, along with third parties, monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents as part of the cybersecurity programs described above. Incidents, if any, are escalated to management and the Board according to our incident response policy. There have been no material cybersecurity incidents in the periods presented.
ITEM 2. PROPERTIES
We have five manufacturing plants, one warehouse, and one sales office. These facilities are described as follows:
Location |
|
Type |
|
Sq. Ft. |
|
|
Owned or |
|
|
Milwaukee, Wisconsin |
|
Headquarters and General Offices; Component Parts |
|
|
345,123 |
|
|
Owned |
|
Juarez, Chihuahua Mexico |
|
Subsidiary Offices and Assembly |
|
|
169,926 |
|
|
Owned |
|
Juarez, Chihuahua Mexico |
|
Subsidiary Offices and Assembly |
|
|
77,527 |
|
|
Owned |
|
Juarez, Chihuahua Mexico |
|
Subsidiary Offices, Key Finishing, Injection Molding |
|
|
114,841 |
|
|
Owned |
|
Leon, Mexico |
|
Subsidiary Offices, Door Handle Injecting Molding, |
|
|
130,532 |
|
|
Owned |
|
El Paso, Texas |
|
Finished Goods and Service Parts Distribution Warehouse |
|
|
114,715 |
|
|
Leased |
** |
Auburn Hills, Michigan |
|
Sales and Engineering Office for Detroit Customer Area |
|
|
62,736 |
|
|
Owned |
|
** Leased unit within a complex.
16
ITEM 3. 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, action or proceeding the ultimate disposition of which would have a material adverse effect on our financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
None.
17
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Market under the symbol “STRT.”
Registered shareholders of record at June 30, 2024, were 800.
The Company’s Board of Directors authorized a stock repurchase program on October 16, 1996, and the program was publicly announced on October 17, 1996. Since inception of the stock repurchase program, the Board of Directors has periodically increased the number of shares authorized for repurchase under the program. At June 30, 2024, the number of shares of the Company’s common stock authorized for repurchase under the program totaled 3,839,395. The program currently authorizes the repurchase of the Company’s 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 June 30, 2024, a total of 3,655,322 shares have been repurchased at a cost of approximately $136.4 million. No shares were repurchased during the fiscal year ended June 30, 2024.
ITEM 6. [RESERVED]
18
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Discussion and Analysis should be read in conjunction with STRATTEC SECURITY CORPORATION’s accompanying Financial Statements and Notes thereto included in this Form 10-K. Unless otherwise indicated, all references to years or quarters refer to fiscal years or fiscal quarters of STRATTEC.
Executive Overview
Historically, traditional domestic automotive OEMs (General Motors, Ford and Stellantis) have comprised a majority of our total net sales. During the past two decades, these customers have lost North American market share to New Domestic automotive manufacturers (primarily Japanese and Korean automotive manufacturers). In addition, our financial performance depends in large part on conditions in the North American automotive industry, which in turn, are largely dependent upon the U.S. economy. During fiscal years 2024 and 2023, the traditional domestic automotive OEMs represented 66 percent of our total net sales.
Fiscal 2024 net sales were $537.8 million compared to $492.9 million in fiscal 2023. $32.7 million of the $44.9 million net sales increase was driven by net price increases to our major OEM customers. When excluding this pricing effect, underlying sales increased by $12.2 million, up 2.5% over the prior year, largely reflecting the launch of new customer programs in the latter half of the fiscal year. The $32.7 million of aforementioned net price increase was composed of $9.7 million one-time retroactive pricing that is not expected to recur, and $23.0 million in ongoing increases in current part prices to our customers. In addition, we settled negotiations with certain key suppliers and paid $5.7 million in higher prices during the year, of which $1.7 million relates to one-time retroactive pricing with the remaining $4.0 million attributable to higher supplier prices on an ongoing basis. The net margin result of both customer and supplier changes in price represented a $27.0 million net margin improvement in fiscal 2024, comprised of $8.0 million of nonrecurring one-time pricing and $19.0 million of ongoing pricing. These net margin improvements surpassed the higher end of our target ranges of $6.0 million and $15.0 million for one-time and ongoing net pricing respectively, which were provided in the fiscal 2024 Outlook in our 2023 Form 10-K.
During fiscal 2024, our cost of sales performance proved challenging. Despite favorability in our raw materials costs, which recovered from elevated levels in fiscal 2023, and improved efficiency of our Mexican operations through a salaried staff reduction in the first quarter and production efficiencies implemented throughout the year, our overall cost of sales performance deteriorated. Factors driving higher costs in our manufacturing operations were primarily:
Sales, engineering and administrative expenses decreased in fiscal 2024, primarily due to historically high engineering cost reimbursements from our customers, offset by expenses related to the company bonus plan and the transition of our Chief Executive Officer position. Our improved operating performance enabled us to achieve net income attributable to STRATTEC of $16.3 million in fiscal 2024 compared with a net loss attributable to STRATTEC of $6.7 million in fiscal 2023.
Based on July 2024 projections from our third-party forecasting service, S&P Global, North American light vehicle production is forecasted to grow modestly between 2024 and 2028. Model year 2024 preliminary North American vehicle build was 15.8 million. S&P Global currently expects 2025 model year vehicle build to remain at 15.8 million vehicles, growing to 16.2 million vehicles in 2026 and then to 16.4 million vehicles for 2027 and 2028. The North American vehicle build forecasts for our primary customers (Ford, General Motors and Stellantis) project a modest decline from 6.7 million vehicles in 2024 to 6.5 million vehicles in 2025 and then an increase to 6.9 million vehicles in model year 2026, stabilizing at that level for model years 2027 and 2028. In an effort to increase our sales, we will continue pursuing opportunities to expand our offerings with existing and new customers. These forecasts are subject to variability based upon a number of factors, including the overall North American economy, current employment levels, availability and cost of consumer credit, home equity values, fuel prices, changes in customer vehicle and option preferences, product quality issues, including those related to recall and product warranty coverage issues, and other key factors that we believe could determine whether consumers can or will purchase new vehicles or particular brands.
19
Results of Operations
2024 Compared to 2023
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Net Sales (millions of dollars) |
|
$ |
537.8 |
|
|
$ |
492.9 |
|
Net Sales to each of our customers or customer groups in the current year and prior year were as follows (millions of dollars):
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
General Motors Company |
|
$ |
163.1 |
|
|
$ |
150.3 |
|
Ford Motor Company |
|
|
114.9 |
|
|
|
96.6 |
|
Stellantis |
|
|
77.7 |
|
|
|
78.1 |
|
Tier 1 Customers |
|
|
77.5 |
|
|
|
73.3 |
|
Commercial and Other OEM Customers |
|
|
58.9 |
|
|
|
56.3 |
|
Hyundai / Kia |
|
|
45.7 |
|
|
|
38.3 |
|
Total |
|
$ |
537.8 |
|
|
$ |
492.9 |
|
The year-over-year sales increase of $44.9 million reflects net price increases from our major OEM customers of $32.7 million of which $23.0 million is attributable to ongoing increases in current part prices and $9.7 million relates to one-time retroactive price increases for parts shipped in the prior year for which the net price increase was agreed to during the current year. In addition to the net price increases, the following items specifically impacted sales to the noted customer groups between years:
Cost of goods sold in the current year and prior year were as follows (millions of dollars):
|
|
Years Ended |
|
|||||||||||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||||||||||
|
|
Millions of Dollars |
|
|
Percent of Net Sales |
|
|
Millions of Dollars |
|
|
Percent of Net Sales |
|
||||
Direct Material Costs |
|
$ |
301.7 |
|
|
|
56.1 |
% |
|
$ |
295.6 |
|
|
|
60.0 |
% |
Labor and Overhead Costs |
|
|
170.6 |
|
|
|
31.7 |
% |
|
|
155.2 |
|
|
|
31.5 |
% |
Total Cost of Goods Sold |
|
$ |
472.3 |
|
|
|
|
|
$ |
450.8 |
|
|
|
|
||
Prior year reclassifications have been made for consistency with current year presentation.
Total cost of goods sold increased $21.5 million between years. The year-over-year increase in direct material costs of $6.1 million was the result of increases in sales volumes and content we supply, as discussed above, and $5.7 million of negotiated material price increases paid to key suppliers. Price increases paid to suppliers attributed to ongoing operations totaled $4.0 million while the remaining $1.7 million related to one-time retroactive price increases. The impact of content and material price increases was partially offset by reduced zinc costs of approximately $3.1 million in the current year as compared to the prior year. The year-over-year increase in labor and overhead costs of $15.4 million was impacted by the following:
Cost Increases:
20
Cost Decreases:
The net unfavorable impact of specific labor and overhead costs noted above was partially offset by more favorable absorption of our fixed overhead costs in the current year as compared to the prior year due to higher production volumes driven by an increase in finished goods inventory during the year and increased sales volumes.
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Gross Profit (millions of dollars) |
|
$ |
65.5 |
|
|
$ |
42.2 |
|
Gross Profit as a percentage of net sales |
|
|
12.2 |
% |
|
|
8.6 |
% |
Gross profit margin improvement between years was driven by pricing relief achieved during the current year as discussed above. The impact of one-time retroactive pricing in the current year increased the gross profit margin percentage by 1.3 percentage points. Additionally, favorable impacts of ongoing customer price increases, reduced zinc costs, favorable absorption, production efficiencies in Mexico and reduced royalty costs were partially offset by an unfavorable U.S. dollar to Mexican peso exchange rate, wage increases in Mexico, and increased freight, bonus, and severance costs, all as discussed above.
Engineering, Selling and Administrative Expenses in the current year and prior year were as follows:
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Expenses (millions of dollars) |
|
$ |
47.7 |
|
|
$ |
48.2 |
|
Expenses as a percentage of net sales |
|
|
8.9 |
% |
|
|
9.8 |
% |
Engineering, selling and administrative expenses were impacted by the following:
Cost Decrease:
Cost Increase:
Income from operations in the current year was $17.8 million compared to loss from operations of $6.1 million in the prior year. This change between years was the result of an increase in sales in the current year as compared to the prior year along with a reduction in engineering, selling and administrative expenses partially offset by an increase in cost of goods sold, all as discussed above.
Effective June 30, 2023, STRATTEC sold its one-third interest in VAST LLC to WITTE. Refer to the discussion of the Equity Restructuring Agreement within Joint Ventures and Majority Owned Subsidiaries included in the Notes to Financial Statements within this Form 10-K for additional information regarding the sale. The equity loss of joint ventures was $331,000 in the current year compared to equity earnings of joint ventures of $1.6 million in the prior year. The current year loss was the result of additional professional fees incurred related to the sale of STRATTEC's investment in VAST LLC. The $331,000 loss is an adjustment to the gain on sale of VAST LLC, which was recorded in the prior year. Our adjusted loss to date on the sale of VAST LLC totals $221,000. Prior year equity earnings includes STRATTEC's one-third of a loss on disposal of VAST LLC's investment in Brazil of $531,000 and a gain on sale of STRATTEC's one-third share of VAST LLC of $110,000.
21
Included in other income (expense), net in the current year and prior year were the following items (thousands of dollars):
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Foreign currency transaction gain (loss) |
|
$ |
2,153 |
|
|
$ |
(2,935 |
) |
Rabbi Trust Assets gain |
|
|
211 |
|
|
|
202 |
|
Realized and unrealized gain on Mexican peso forward contracts, net |
|
|
885 |
|
|
|
1,022 |
|
Pension and postretirement plans cost |
|
|
(395 |
) |
|
|
(722 |
) |
Other |
|
|
194 |
|
|
|
255 |
|
|
|
$ |
3,048 |
|
|
$ |
(2,178 |
) |
Our effective income tax rate for 2024 was 18.7 percent compared to (16.7) percent in 2023. Our 2024 effective tax rate was reduced by $1.2 million due to changes in the estimate of our 2023 foreign tax credits associated with the sale of our interest in VAST LLC. Our 2023 effective tax rate was impacted by $2.2 million in China non-resident capital gain tax resulting from the sale of our interest in VAST LLC, a valuation allowance of $1.4 million related to our assessment of the future realization of capital loss carryforwards generated from the sale of our interest in VAST LLC, a net Global Intangible Low Tax Income (GILTI) cost of $613,000 and the impact of available R&D and foreign tax credits on pre-tax book losses. Our income tax provision for each year 2024 and 2023 was affected by the non-controlling interest portion of our pre-tax income and R&D tax credit. The non-controlling interest impacts the effective tax rate as our ADAC-STRATTEC LLC entity was taxed as a partnership for U.S. tax purposes in 2024 and our ADAC-STRATTEC LLC and STRATTEC POWER ACCESS LLC entities were taxed as partnerships for U.S. tax purposes in 2023.
Liquidity and Capital Resources
Working Capital (millions of dollars)
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Current Assets |
|
$ |
253.8 |
|
|
$ |
225.8 |
|
Current Liabilities |
|
|
118.3 |
|
|
|
109.0 |
|
Working Capital |
|
$ |
135.5 |
|
|
$ |
116.8 |
|
Outstanding Receivable Balances from Major Customers
Our primary source of cash flow is from our major customers, which include Stellantis, General Motors Company and Ford Motor Company. As of the date of filing this Annual Report 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 June 30, 2024 and July 2, 2023 was as follows (millions of dollars):
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
General Motors Company |
|
$ |
28.6 |
|
|
$ |
27.5 |
|
Ford Motor Company |
|
|
24.8 |
|
|
|
17.4 |
|
Stellantis |
|
|
12.2 |
|
|
|
14.1 |
|
|
|
$ |
65.6 |
|
|
$ |
59.0 |
|
22
Cash Balances in Mexico
We earn a portion of our operating income in Mexico. As of June 30, 2024, $1.4 million of our $25.4 million cash and cash equivalents balance was held in Mexico. These funds are available for repatriation as deemed necessary.
Cash Flow Analysis
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Cash Flows from (millions of dollars): |
|
|
|
|
|
|
||
Operating Activities |
|
$ |
12.3 |
|
|
$ |
10.1 |
|
Investing Activities |
|
|
(7.8 |
) |
|
|
8.9 |
|
Financing Activities |
|
|
— |
|
|
|
(7.4 |
) |
|
|
$ |
4.5 |
|
|
$ |
11.6 |
|
Cash flow from operating activities increased $2.2 million between years as the impact of increased profitability between years, as previously discussed, was offset by a net increase in working capital. The net increase in our working capital included the following working capital changes (millions of dollars):
|
|
Increase (Decrease) in Working Capital Requirements |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
Accounts Receivable |
|
$ |
9.4 |
|
|
$ |
13.7 |
|
|
$ |
(4.3 |
) |
Inventories |
|
|
4.1 |
|
|
|
(2.9 |
) |
|
|
7.0 |
|
Customer Tooling |
|
|
1.4 |
|
|
|
10.0 |
|
|
|
(8.6 |
) |
Other Assets |
|
|
12.2 |
|
|
|
0.5 |
|
|
|
11.7 |
|
Accounts Payable and Other Liabilities |
|
|
(10.7 |
) |
|
|
(24.0 |
) |
|
|
13.3 |
|
|
|
$ |
16.4 |
|
|
$ |
(2.7 |
) |
|
$ |
19.1 |
|
23
- Accrued salaries and benefits increased $6.3 million due to the accrual of $4.5 million under our incentive bonus plan as well as increased benefit accruals for our Mexican associates, which resulted from annual wage increases, including January 1, 2024 government mandated increases. There was no bonus accrual as of June 2023.
- VAT payable balances increased $3.5 million due to periods from 2024 being open to audit. Refer to the discussion of VAT recoverable balances and the VAT certification issue above.
- Income tax payable balances increased $2.5 million in 2024 based on the required income tax provision, the timing and amounts of federal, state and foreign tax payments made, and the timing of utilization of tax credits.
The prior year increase was due to the following:
- Accounts payable increased $14.0 million primarily due to a change in inventory management, shipping terms, and payment terms with a significant vendor and the temporary suspension of ADAC-STRATTEC LLC's payment of engineering, research and design fees and sales fees to ADAC in order to comply with ADAC-STRATTEC debt covenants.
- Accrued salaries and benefits increased $4.7 million due to increased salaries and benefits for our Mexican associates.
- Income taxes payable increased $2.4 million primarily due to the accrual of a China non-resident capital gain tax as a result of the sale of our interest in VAST LLC.
- Value added tax payable balances increased $3.0 million due to several periods being open to audit in Mexico.
Net cash used in investing activities of $7.8 million during 2024 included capital expenditures of $9.8 million in support of requirements for new product programs and the upgrade and replacement of existing equipment partially offset by additional proceeds from the sale of our interest in VAST LLC of $2.0. Net cash provided by investing activities of $8.9 million during 2023 included proceeds from the sale of our interest in VAST LLC of $26.2 million and a net increase in cash of $354,000 resulting from STRATTEC's purchase of the net assets of VAST Korea. The cash inflows were partially offset by capital expenditures of $17.4 million in support of requirements for new product programs and the upgrade and replacement of existing equipment and a $278,000 investment in VAST LLC for the purpose of funding general operating expenses for Sistema de Acesso Veicular Ltda, VAST LLC's Brazilian joint venture.
Net cash provided by financing activities of $72,000 during 2024 included additional borrowings under our credit facilities of $2.0 million and $72,000 received for purchases under our employee stock purchase plan. These cash inflows were partially offset by the repayment of borrowings under credit facilities of $2.0 million. Net cash used in financing activities of $7.4 million during 2023 included a payment of $9.0 million related to STRATTEC's purchase of the remaining non-controlling interest of STRATTEC POWER ACCESS LLC from WITTE Automotive, the repayment of borrowings under credit facilities of $15.0 million, and $600,000 of dividend payments to non-controlling interests in our subsidiaries. These cash outflows were partially offset by additional borrowings under our credit facilities of $17.0 million and $183,000 received for the exercise of stock options under our stock incentive plan and purchases under our employee stock purchase plan.
Cash Requirements
Dividends
On May 13, 2020, our Board of Directors took action to temporarily suspend payment of our quarterly dividend for the foreseeable future in order to conserve cash as a result of the economic downturn that began with COVID-19. No dividends were paid to shareholders during fiscal 2024 or fiscal 2023.
Future Capital Expenditures
We anticipate capital expenditures will be approximately $15.0 million in fiscal 2025 in support of requirements for new product programs and the upgrade and replacement of existing equipment.
Stock Repurchase Program
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 June 30, 2024. A total of 3,655,322 shares have been repurchased over the life of the program through June 30, 2024, at a cost of approximately $136.4 million. No shares were repurchased during fiscal 2024 or 2023. 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.
24
Other Cash Requirements
In connection with the June 30, 2023 sale of our interest in VAST LLC to WITTE Automotive, we will be required to pay nonresident capital gain tax in China. The payment, which is expected to be made during our fiscal 2025, is expected to total approximately $1.9 million.
We anticipate payments of approximately $4.5 million to associates in connection with our incentive bonus plan during the first quarter of our fiscal 2025 related to bonuses earned in our fiscal 2024.
We also have an operating lease for our El Paso, Texas finished goods and service parts distribution warehouse, which has a term in excess of one year. We also have purchase commitments related to zinc and other purchased parts. Refer to required future payments under the lease and purchase commitments in the discussion of Leases under Organization and Summary of Significant Accounting Policies and in the discussion of Commitments and Contingencies included in the Notes to Financial Statements included as part of Item 8 within this Form 10-K.
Credit Facilities
STRATTEC has a $40 million secured revolving credit facility (the “STRATTEC Credit Facility”) with BMO Harris Bank N.A. ADAC-STRATTEC LLC has a $20 million secured revolving credit facility (the “ADAC-STRATTEC Credit Facility”) with BMO Harris Bank N.A., which is guaranteed by STRATTEC. The ADAC-STRATTEC Credit Facility borrowing limit decreases to $18 million on August 1, 2025. The credit facilities both expire August 1, 2026. Borrowings under either credit facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixed assets located in the U.S. Interest on borrowings under the STRATTEC Credit Facility were at varying rates based, at our option, on LIBOR plus 1.25 percent or the bank’s prime rate through February 22, 2023, SOFR plus 1.35 percent for the period February 23, 2023 through September 5, 2023, and SOFR plus 1.85 percent subsequent to September 5, 2023. Interest on borrowings under the ADAC-STRATTEC Credit Facility were at varying rates based, at our option, on the bank's prime rate with no interest rate margin through May 30, 2024 and a 2 percent interest rate margin subsequent to May 30, 2024 or LIBOR plus 1.25 percent through February 6, 2023, SOFR plus 1.35 percent for the period February 7, 2023 through May 30, 2024, and SOFR plus 3.10 percent subsequent to May 30, 2024. Both credit facilities contain a restrictive financial covenant that requires the applicable borrower to maintain a minimum net worth level. The ADAC-STRATTEC Credit Facility includes an additional restrictive financial covenant that requires the maintenance of a minimum fixed charge coverage ratio. As of June 30, 2024, we were in compliance with all financial covenants required by these credit facilities. There were no outstanding borrowings under the STRATTEC Credit Facility as of June 30, 2024 or July 2, 2023. The average outstanding borrowings and weighted average interest rate on the STRATTEC Credit Facility loans were approximately $33,000 and 8.5 percent, respectively, during 2024. The average outstanding borrowings and weighted average interest rate on the STRATTEC Credit Facility loans were approximately $15.4 million and 5.7 percent, respectively, during 2023. Outstanding borrowings under the ADAC-STRATTEC Credit Facility totaled $13 million at both June 30, 2024 and July 2, 2023. The average outstanding borrowings and weighted average interest rate on the ADAC-STRATTEC Credit Facility loans were approximately $13.0 million and 6.8 percent, respectively, during 2024. The average outstanding borrowings and weighted average interest rate on the ADAC-STRATTEC Credit Facility loans were approximately $12.4 million and 5.3 percent, respectively, during 2023. We believe that the credit facilities are adequate, along with existing cash flows from operations, to meet our anticipated capital expenditure, working capital, dividend, and operating expenditure requirements.
Joint Ventures and Majority Owned Subsidiaries
Refer to the discussion of Investment in Joint Ventures and Majority Owned Subsidiaries and discussion of Equity (Loss) Earnings of Joint Ventures included in the Notes to Financial Statements included within this Form 10-K.
Critical Accounting Policies
We believe the following represents our critical accounting policies:
Liability for Uncertain Tax Positions – We are subject to income taxation in many jurisdictions around the world. Significant management judgment is required in the accounting for income tax contingencies because the outcomes are often difficult to determine. We are required to measure and recognize uncertain tax positions that we have taken or expect to take in our income tax returns. The benefit of an uncertain tax position can only be recognized in the financial statements if management concludes that it is more likely than not that the position will be sustained with the tax authorities. For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest amount that is greater than 50 percent likely of being realized. A reserve is established for the difference between a position taken in an income tax return and the amount recognized in the financial statements. The amount of unrecognized benefits, that if recognized, would affect the effective tax rate was $1.2 million at June 30, 2024 and $1.1 million at July 2, 2023. An increase or decrease in our assessment of the recorded amount of unrecognized benefits by
25
10 percent would result in an increase or decrease in the reported tax provision, before the impact of interest and penalties, of $120,000 at June 30, 2024 and $110,000 at July 2, 2023. Refer to the discussion of Income Taxes included in the Notes to Financial Statements included as part of Item 8 within this Form 10-K.
Warranty Reserve – We have a warranty reserve recorded related to our exposure to warranty claims in the event our products fail to perform as expected, and we may be required to participate in the repair costs incurred by our customers for such products. The recorded warranty reserve balance involves judgment and estimates. Our reserve estimate is based on an analysis of historical warranty data as well as current trends and information. Actual warranty costs might differ from estimates due to the level of actual claims varying from our claims experience and estimates and final negotiations and settlements reached with our customers. Therefore, future actual claims experience could result in changes in our estimates of the required reserve. Sensitivity of potential warranty or product recall claims is dependent on the respective customer platform, volumes, production years and product content. We have product recall insurance once a recall claim exceeds $2.5 million with a limit of $30 million. Refer to the discussion of Warranty Reserve under Organization and Summary of Significant Accounting Policies included in the Notes to Financial Statements included as part of Item 8 within this Form 10-K.
We believe the reserve discussed above is estimated using consistent and appropriate methods. However, changes to the assumptions could materially affect the recorded reserve amount.
New Accounting Standards
Refer to the discussion of New Accounting Standards under Organization and Summary of Significant Accounting Policies included in the Notes to Financial Statements included as part of Item 8 within this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Page |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Deloitte & Touche LLP PCAOB |
28 |
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
30 |
31 |
|
32 |
|
33 |
|
34 |
|
|
|
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of STRATTEC SECURITY CORPORATION
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of STRATTEC SECURITY CORPORATION and subsidiaries (the "Company") as of June 30, 2024 and July 2, 2023, the related consolidated statements of income (loss) and comprehensive income (loss), shareholders’ equity, and cash flows, for the fiscal years ended June 30, 2024 and July 2, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and July 2, 2023, and the results of its operations and its cash flows for the fiscal years ended June 30, 2024 and July 2, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 5, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Specific Warranty Reserve – Refer to the Warranty Reserve Footnote to the Financial Statements
Critical Audit Metter Description
The Company records a specific warranty reserve for known warranty claims when its products fail to perform as expected and when it is probable that they will participate in the repair costs incurred by its customers for such products.
The specific warranty reserve is estimated based on management’s analysis of historical warranty data, current trends and information, known and projected claims for products sold, and the terms of specific agreements. The specific warranty reserve requires management to apply significant judgment to develop its estimate. Actual warranty costs may differ from management’s estimated costs as a result of, but not limited to, negotiation with customers, changes to the assumptions of repair and/or replacement costs, and repair rate. Such matters may require future adjustments to the reserve which could be material.
We identified a certain specific warranty reserve as a critical audit matter because estimating future warranty costs requires significant judgment by management. Auditing management’s assumptions about management’s estimated future warranty costs involves a high degree of auditor judgment and an increased extent of effort to evaluate the reasonableness of management’s estimates.
28
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination of the certain specific warranty reserve included the following, among others:
/s/
September 5, 2024
We have served as the Company's auditor since 2023.
29
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
NET SALES |
|
$ |
|
|
$ |
|
||
Cost of goods sold |
|
|
|
|
|
|
||
GROSS PROFIT |
|
|
|
|
|
|
||
Engineering, selling, and administrative expenses |
|
|
|
|
|
|
||
INCOME (LOSS) FROM OPERATIONS |
|
|
|
|
|
( |
) |
|
Equity (loss) earnings of joint ventures |
|
|
( |
) |
|
|
|
|
Interest expense |
|
|
( |
) |
|
|
( |
) |
Investment Income |
|
|
|
|
|
— |
|
|
Other income (expense), net |
|
|
|
|
|
( |
) |
|
INCOME (LOSS) BEFORE BENEFIT FOR INCOME TAXES |
|
|
|
|
|
( |
) |
|
Provision for income taxes |
|
|
|
|
|
|
||
NET INCOME (LOSS) |
|
|
|
|
|
( |
) |
|
Net income (loss) attributable to non-controlling interest |
|
|
|
|
|
( |
) |
|
NET INCOME (LOSS) ATTRIBUTABLE TO STRATTEC |
|
$ |
|
|
$ |
( |
) |
|
COMPREHENSIVE INCOME (LOSS): |
|
|
|
|
|
|
||
NET INCOME (LOSS) |
|
$ |
|
|
$ |
( |
) |
|
Currency translation adjustments, net of tax |
|
|
( |
) |
|
|
|
|
Pension and postretirement plans, net of tax |
|
|
|
|
|
|
||
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME |
|
|
( |
) |
|
|
|
|
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
( |
) |
|
Comprehensive (loss) income attributable to non-controlling interest |
|
|
( |
) |
|
|
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO |
|
$ |
|
|
$ |
( |
) |
|
INCOME (LOSS) PER SHARE ATTRIBUTABLE TO STRATTEC |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
( |
) |
|
Diluted |
|
$ |
|
|
$ |
( |
) |
|
AVERAGE SHARES OUTSTANDING: |
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
30
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE AMOUNTS)
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
ASSETS |
|
|
|
|
|
|
||
CURRENT ASSETS: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Receivables, less allowance for credit losses of $ |
|
|
|
|
|
|
||
Inventories, net |
|
|
|
|
|
|
||
Customer tooling in progress, net |
|
|
|
|
|
|
||
Income taxes recoverable |
|
|
|
|
|
|
||
Value added tax recoverable |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
DEFERRED INCOME TAXES |
|
|
|
|
|
|
||
OTHER LONG-TERM ASSETS |
|
|
|
|
|
|
||
PROPERTY, PLANT AND EQUIPMENT, NET |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
||
CURRENT LIABILITIES: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued liabilities: |
|
|
|
|
|
|
||
Payroll and benefits |
|
|
|
|
|
|
||
Value added tax payable |
|
|
|
|
|
|
||
Income tax payable |
|
|
|
|
|
|
||
Environmental |
|
|
|
|
|
|
||
Warranty |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
– see note beginning on page 46 |
|
|
|
|
|
|
||
BORROWINGS UNDER CREDIT FACILITIES |
|
|
|
|
|
|
||
ACCRUED PENSION OBLIGATIONS |
|
|
|
|
|
|
||
ACCRUED POSTRETIREMENT OBLIGATIONS |
|
|
|
|
|
|
||
OTHER LONG-TERM LIABILITIES |
|
|
|
|
|
|
||
SHAREHOLDERS’ EQUITY: |
|
|
|
|
|
|
||
Common stock, authorized |
|
|
|
|
|
|
||
Capital in excess of par value |
|
|
|
|
|
|
||
Retained earnings |
|
|
|
|
|
|
||
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Less: Treasury stock at cost ( |
|
|
( |
) |
|
|
( |
) |
Total STRATTEC SECURITY CORPORATION shareholders’ equity |
|
|
|
|
|
|
||
Non-controlling interest |
|
|
|
|
|
|
||
Total shareholders’ equity |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
The accompanying Notes to Financial Statements are an integral part of these Consolidated Balance Sheets.
31
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
Total |
|
|
Common |
|
|
Capital in |
|
|
Retained |
|
|
Accumulated |
|
|
Treasury |
|
|
Non- |
|
|||||||
BALANCE July 3, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Net loss |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Currency translation |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Pension and postretirement |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Cash dividends paid to non- |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Purchase of SPA Non- |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Stock option exercises |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Employee stock purchases |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
BALANCE July 2, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Net income |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Currency translation |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Pension and postretirement |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Purchase of SPA Non- |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Employee stock purchases |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
BALANCE June 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Shareholders’ Equity.
32
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating |
|
|
|
|
|
|
||
Equity loss (earnings) of joint ventures |
|
|
|
|
|
( |
) |
|
Depreciation |
|
|
|
|
|
|
||
Foreign currency transaction (gain) loss |
|
|
( |
) |
|
|
|
|
Loss on settlement of pension obligation |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
|
|
|
|
||
Change in operating assets and liabilities: |
|
|
|
|
|
|
||
Receivables |
|
|
( |
) |
|
|
( |
) |
Inventories |
|
|
( |
) |
|
|
|
|
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued liabilities |
|
|
|
|
|
|
||
Other, net |
|
|
|
|
|
|
||
Net cash provided by operating activities |
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|
||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Investment in joint ventures |
|
|
|
|
|
( |
) |
|
Proceeds from Sale of interest in VAST LLC |
|
|
|
|
|
|
||
Purchase of VAST Korea net assets |
|
|
|
|
|
|
||
Additions to property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds received on sale of property, plant and equipment |
|
|
|
|
|
|
||
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Borrowings under credit facilities |
|
|
|
|
|
|
||
Repayments under credit facilities |
|
|
( |
) |
|
|
( |
) |
Purchase of SPA non-controlling interest |
|
|
|
|
|
( |
) |
|
Exercise of stock options and employee stock purchases |
|
|
|
|
|
|
||
Dividends paid to non-controlling interests of subsidiaries |
|
|
|
|
|
( |
) |
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
FOREIGN CURRENCY IMPACT ON CASH |
|
|
|
|
|
|
||
NET INCREASE IN CASH AND CASH |
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
||
Beginning of year |
|
|
|
|
|
|
||
End of year |
|
$ |
|
|
$ |
|
||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
||
Cash Paid During the Period For: |
|
|
|
|
|
|
||
Income taxes |
|
$ |
|
|
$ |
|
||
Interest |
|
$ |
|
|
$ |
|
||
Non-Cash Investing Activities: |
|
|
|
|
|
|
||
Purchase price receivable from sale of interest in VAST LLC |
|
$ |
|
|
$ |
( |
) |
|
Change in capital expenditures in accounts payable |
|
$ |
|
|
$ |
( |
) |
|
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Cash Flows.
33
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STRATTEC SECURITY CORPORATION designs, develops, manufactures and markets automotive security, access control, and user interface controls products and solutions. This includes mechanical locks and keys, electronically enhanced locks and keys, passive entry passive start systems (PEPS), phone as a key systems (PaaK), steering column and instrument panel ignition lock housings, latches, power sliding side door systems, power tailgate systems, power lift gate systems, power deck lid systems, door handles steering wheel switches and controller, E-shifters, paddle switches and related products for primarily North American automotive customers. We also previously supplied global automotive manufacturers through a strategic relationship with WITTE Automotive (“WITTE”) of Velbert, Germany and ADAC Plastics Inc. (doing business as ADAC Automotive (“ADAC”), of Grand Rapids, Michigan) called Vehicle Access Systems Technology LLC ("VAST LLC"), doing business as the VAST Automotive Group (“VAST”). Under this unique strategic relationship, STRATTEC, WITTE and ADAC marketed the products of each company to global customers under the “VAST Automotive Group” brand name. Effective as of June 30, 2023, STRATTEC sold its one-third interest in VAST LLC to WITTE. As of the closing of the sale of its VAST LLC interest, STRATTEC entered into a strategic preferred partner relationship with WITTE covering VAST LLC pursuant to the terms of a cooperation framework agreement that enables STRATTEC to continue to market and rely on the global capabilities of VAST LLC. STRATTEC products are shipped to customer locations in the United States, Canada, Mexico, Europe, South America, Korea, and China, and we, along with our partners, provide full service and aftermarket support for each VAST Automotive Group partners’ products.
The accompanying consolidated financial statements reflect the consolidated results of STRATTEC SECURITY CORPORATION, its wholly owned subsidiaries, STRATTEC de Mexico and STRATTEC POWER ACCESS LLC (“SPA”), and its majority owned subsidiary, ADAC-STRATTEC, LLC. Effective June 30, 2023, SPA became a wholly owned subsidiary of STRATTEC SECURITY CORPORAITON as a result of the purchase of the remaining non-controlling interest. Prior to June 30, 2023, STRATEC owned 80 percent of SPA. STRATTEC is headquartered in Milwaukee, Wisconsin. STRATTEC de Mexico is located in Juarez, Mexico. ADAC-STRATTEC, LLC and SPA have operations in El Paso, Texas and in Juarez and Leon, Mexico. For periods prior to June 30, 2023, the accompanying financial statements also reflect the results of our one-third equity investment in VAST LLC for which we exercised significant influence but did not control and were not variable interest entities of STRATTEC. VAST LLC was accounted for using the equity method and consisted primarily of
Risks and Uncertainties: STRATTEC’s operating performance is subject to global economic conditions, inflationary pressures and levels of consumer spending specifically within the automotive industry. In our fiscal year 2023, the inflationary pressures negatively affected the areas of raw materials, purchased materials and wage rates in Mexico, resulting in increased raw material and purchased part costs in the year. While our fiscal 2024 results reflect reduced raw material costs as compared to our fiscal 2023, inflationary pressures on purchased material and wage rates in Mexico persist and may continue to negatively impact our fiscal 2025 operating results.
Additionally, unforeseen global economic conditions may adversely impact our supply chain and our operations, including impacting our customers, workforce and suppliers, any of which may continue to disrupt and limit sourcing of critical supply chain components needed by us and our customers to meet expected production schedules. Moreover, these events may create added inflationary pressures on our operations, including further increases in wages and the prices of raw materials and purchased parts. All of these foregoing matters, including their scope and duration, are uncertain and cannot be predicted as to timing and cost impacts upon our operations. These changing conditions may also affect the estimates and assumptions made by our management in our financial statements. Such estimates and assumptions affect, among other things, our long-lived asset valuations, assessment of our annual effective tax rate, valuation of deferred income taxes, assessment of excess and obsolete inventory reserves, and assessment of collectability of trade receivables.
Significant Accounting Policies: The significant accounting policies followed in the preparation of these financial statements, as summarized in the following paragraphs, are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
Principles of Consolidation and Presentation: The accompanying consolidated financial statements include the accounts of STRATTEC SECURITY CORPORATION, its wholly owned subsidiaries and its majority owned subsidiary. Equity investments for which STRATTEC exercises significant influence but does not control and are not variable interest entities of STRATTEC are accounted for using the equity method. All significant inter-company transactions and balances have been eliminated.
New Accounting Standards: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The update revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, the update was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15,
34
2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, Financial Instruments – Credit Losses, Derivatives and Hedging, and Leases. This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. The update incorporates into the Codification several disclosures and presentation requirements currently residing in SEC Regulations S-X and S-K. The effective date of ASU 2023-06 will be the date that the SEC eliminates the corresponding disclosure requirement from Regulation S-X and Regulation S-K. All amendments must be applied prospectively. The adoption of this pronouncement is not expected to have a material impact on our consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The update enhances annual and interim reportable segment disclosures primarily by requiring disclosures about significant reportable segment expenses and provides new segment disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for public business entities for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. This update is to be applied retrospectively to all periods presented in the financial statements. As a result of this update, we will be required to provide single reportable segment disclosure. Annual reporting under this update becomes effective for us in our fiscal 2025. Interim reporting under this update becomes effective for us in our fiscal 2026. We are currently assessing the required disclosure impacts of this update.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. The update requires greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024, with early adoption permitted. This update is to be applied on a prospective basis. Retrospective application is permitted. Annual reporting under this update becomes effective for us in our fiscal 2026. We are currently assessing the required disclosure impacts of this update.
Subsequent Event: In August 2024, we entered into a peso forward contract providing for monthly settlements during the period September 2024 through August 2025. The notional amount over the contract period totals $
Fiscal Year: Our fiscal year ends on the Sunday nearest June 30. The years ended June 30, 2024 and July 2, 2023 are each comprised of
Cash and Cash Equivalents: Cash and cash equivalents include all short-term investments with an original maturity of three months or less due to the short-term nature of the instruments. Excess cash balances are placed in money market funds comprised of government agency securities, bank money market deposits and short-term certificates of deposit.
Derivative Instruments: We own and operate manufacturing operations in Mexico. As a result, a portion of our manufacturing costs are incurred in Mexican pesos, which causes our earnings and cash flows to fluctuate due to changes in the U.S. dollar/Mexican peso exchange rate. During 2023 and 2024, we had contracts with Bank of Montreal that provide for monthly Mexican peso currency forward contracts for a portion of our estimated peso denominated operating costs. Our objective in entering into currency forward contracts is to minimize our earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. The Mexican peso forward contracts are not used for speculative purposes and are not designated as hedges. As a result, all currency forward contracts are recognized in our accompanying consolidated financial statements at fair value and changes in the fair value are reported in current earnings as part of Other Income (Expense), net.
35
The pre-tax effects of the Mexican peso forward contracts on the accompanying Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) consisted of the following (thousands of dollars):
|
|
Other Income (Expense), net |
|
|||||
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Not Designated as Hedging Instruments: |
|
|
|
|
|
|
||
Realized and unrealized gain, net |
|
$ |
|
|
$ |
|
||
Fair Value of Financial Instruments: The fair value of our cash and cash equivalents, accounts receivable, accounts payable and borrowings under our credit facilities approximated their book value as of June 30, 2024 and July 2, 2023. Fair value is defined as the exchange price that would be received for an asset or paid for a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. There is an established fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. Level 1 – Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 – Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments. Level 3 – Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.
|
|
June 30, 2024 |
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|
July 2, 2023 |
|
||||||||||||||||||||||||||
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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|
Level 1 |
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Level 2 |
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Level 3 |
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Total |
|
||||||||
Assets: |
|
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||||||||
Rabbi Trust assets: |
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||||||||
Stock index funds: |
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|
|
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|
|
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||||||||
Small cap |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||||
Mid cap |
|
|
|
|
|
— |
|
|
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— |
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|
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|
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— |
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|
|
— |
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|
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|
||||
Large cap |
|
|
|
|
|
— |
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|
|
— |
|
|
|
|
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|
|
|
|
— |
|
|
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— |
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|
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|
||||
International |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
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|
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— |
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|
||||
Fixed income funds |
|
|
|
|
|
— |
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|
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— |
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|
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|
|
|
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|
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— |
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— |
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|
||||
Cash and cash equivalents |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
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|
|
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|
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— |
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|
||||
Total assets at fair value |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||
The Rabbi Trust assets fund our supplemental executive retirement plan and are included in Other Long-Term Assets in the accompanying Consolidated Balance Sheets. The reduction in Rabbi trust assets between periods resulted from $
Receivables: Receivables consist primarily of trade receivables due from Original Equipment Manufacturers in the automotive industry and locksmith/dealership distributors relating to our service and aftermarket sales. We evaluate the collectability of receivables based on a number of factors. An allowance for credit losses is recorded for significant past due receivable balances based on a review of the past due items, general economic conditions (including with respect to the impact of the Ukraine conflict and the supply chain disruptions on our customers) and the industry as a whole. The allowance for credit losses totaled $
Inventories: Inventories are comprised of material, direct labor and manufacturing overhead, and are stated at net realizable value using the first-in, first-out (“FIFO”) cost method of accounting.
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Finished products |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Purchased materials |
|
|
|
|
|
|
||
Inventories, net |
|
$ |
|
|
$ |
|
||
36
We record a reserve for excess and obsolete inventory based on historical and estimated future demand and market conditions. The reserve level is determined by comparing inventory levels of individual materials and parts to historical usage and estimated future sales by analyzing the age of the inventory in order to identify specific materials and parts that are unlikely to be sold. Technical obsolescence and other known factors are also considered in evaluating the reserve level.
|
|
Balance, |
|
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Provision |
|
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Amounts |
|
|
Balance, |
|
||||
Year ended June 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Year ended July 2, 2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Customer Tooling in Progress: We incur costs related to tooling used in component production and assembly. Costs for development of certain tooling, which will be directly reimbursed by the customer whose parts are produced from the tool, are accumulated on the balance sheet and are then billed to the customer. The accumulated costs are billed upon formal acceptance by the customer of products produced with the individual tool. Other tooling costs are not directly reimbursed by the customer. We capitalize and amortize these other tooling costs over the life of the related product based on the fact that the related tool will be used over the life of the supply arrangement. To the extent that estimated costs exceed expected reimbursement from the customer we recognize a loss.
Value-Added Tax: Our Mexican entities are subject to value-added tax ("VAT"). VAT is paid on goods and services and collected on sales. A VAT certification generally allows for relief from VAT tax for temporarily imported goods. Our VAT recoverable and payable balances were increased as of July 2, 2023 due to several monthly VAT tax periods being open to audit by the Mexican tax authority. As of June 30, 2024, the audits for periods prior to July 2023 have been closed. VAT recoverable balances increased $
Property, Plant and Equipment:
Classification |
|
Expected |
Land improvements |
|
|
Buildings and improvements |
|
|
Machinery and equipment |
|
Property, plant and equipment consisted of the following (thousands of dollars):
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Land and improvements |
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Machinery and equipment |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Depreciation expense was as follows for the periods indicated (thousands of dollars):
Fiscal Year |
|
Depreciation |
|
|
2024 |
|
$ |
|
|
2023 |
|
$ |
|
|
37
The gross and net book value of property, plant and equipment located outside of the United States, primarily in Mexico, were as follows (thousands of dollars):
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Gross book value |
|
$ |
|
|
$ |
|
||
Net book value |
|
$ |
|
|
$ |
|
||
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such indicators are present, the recoverability of assets to be held and used is assessed by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If an asset is determined to not be recoverable, the impairment recognized is calculated as the excess of the carrying amount of the asset over the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less estimated costs to sell. There were
Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated. Upon retirement or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income.
Leases: Our right-of-use operating lease assets are recorded at the present value of future minimum lease payments, net of amortization. We have an operating lease for our El Paso, Texas finished goods and service parts distribution warehouse. This lease has a current lease term through
As the lease does not provide an implicit rate, we used our incremental borrowing rate at lease commencement to determine the present value of our lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest we would pay to borrow over a similar term with similar payments.
The operating lease asset and obligation related to our operating leases included in the accompanying Consolidated Balance Sheets are presented below (thousands of dollars):
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Right-of-Use Asset Under Operating Lease: |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Lease Obligation Under Operating Lease: |
|
|
|
|
|
|
||
Current Liabilities: Accrued Liabilities: |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Future minimum lease payments, by our fiscal year, including options to extend that are reasonably certain to be exercised, under the non-cancelable leases are as follows as of June 30, 2024 (thousands of dollars):
2025 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total Future Minimum Lease Payments |
|
|
|
|
Less: Imputed Interest |
|
|
( |
) |
Total Lease Obligations |
|
$ |
|
38
Cash flow information related to the operating leases is shown below (thousands of dollars):
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Operating Cash Flows: |
|
|
|
|
|
|
||
Cash Paid Related to Operating Lease Obligation |
|
$ |
|
|
$ |
|
||
The weighted average remaining lease term and discount rate for our operating leases are shown below:
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Weighted Average Remaining Lease Term, (in years) |
|
|
|
|
|
|
||
Weighted Average Discount Rate |
|
|
% |
|
|
% |
||
Fiscal Year |
|
Percentage of |
|
|
Number of |
|
||
2024 |
|
|
% |
|
|
|
||
2023 |
|
|
% |
|
|
|
||
We have long-term contracts or arrangements with most of our suppliers to assist in guaranteeing the availability of raw materials and component parts.
Labor Concentrations: We had approximately
Revenue Recognition: We generate revenue from the production of parts sold to automotive and light-truck Original Equipment Manufacturers (“OEMs”), or Tier 1 suppliers at the direction of the OEM, under long-term supply agreements supporting new vehicle production. Such agreements also require related production of service parts subsequent to the initial vehicle production periods. Additionally, we generate revenue from the production of parts sold in aftermarket service channels and to non-automotive commercial customers.
Revenue Recognition:
Our contracts with customers under long-term supply agreements do not commit the customer to a specified quantity of parts. However, we are generally required to fulfill our customers’ purchasing requirements for the production life of the vehicle. Contracts do not become a performance obligation until we receive either a purchase order and/or customer release for a specific number of parts at a specified price. While long-term supply agreements may range from to
Revenue is recognized at a point in time when control of the parts produced are transferred to the customer according to the terms of the contract, which is usually when the parts are shipped or delivered to the customer’s premises. Customers are generally invoiced upon shipment or delivery and payment generally occurs within
39
We do not have an enforceable right to payment at any time prior to when the parts are shipped or delivered to the customer. Therefore, we recognize revenue at the point in time we satisfy a performance obligation by transferring control of a part to a customer. Amounts billed to customers related to shipping and handling costs are included in Net Sales in the accompanying Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). Shipping and handling costs are accounted for as fulfillment costs and are included in Cost of Goods Sold in the accompanying Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
Tooling and Pre-Production Engineering Costs Related to Long-Term Supply Arrangements:
We incur pre-production engineering and tooling costs related to the products produced for our customers under long-term supply agreements. Customer reimbursements for tooling and pre-production engineering activities that are part of a long-term supply arrangement are accounted for as a reduction of cost in accordance with ASC 340, Other Assets and Deferred Costs. Pre-production costs related to long-term supply agreements with a contractual guarantee for reimbursement are included in Other Current Assets in the accompanying Consolidated Balance Sheets. We expense all pre-production engineering costs for which reimbursement is not contractually guaranteed by the customer. All pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for which we do not have a non-cancelable right to use the tooling is also expensed when incurred.
Receivables, net:
Receivables, net include amounts billed and currently due from customers. We maintain an allowance for credit losses to provide for estimated amounts of receivables not expected to be collected. We continually assess our receivables for collectability and any allowance is recorded based upon age of the outstanding receivables, historical payment experience, customer creditworthiness and general economic conditions.
Contract Balances:
We had no material contract assets or contract liabilities as of June 30, 2024 or July 2, 2023.
Product Sales and Sales and Receivable Concentration:
Refer to Product Sales and Sales and Receivable Concentration included herein for revenue by product group and revenue by customer.
Research and Development Costs: Expenditures relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. Research and development expenditures were approximately $
Other Income (Expense), Net: Net other income (expense) included in the accompanying Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) primarily included foreign currency transaction gains and losses, realized and unrealized gains and losses on our Mexican peso currency forward contracts, the components of net periodic benefit cost other than the service cost component related to our pension and postretirement plans and Rabbi Trust gains and losses. Foreign currency transaction gains and losses resulted from activity associated with foreign denominated assets and liabilities held by our Mexican subsidiaries. The Rabbi Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in the Trust are considered trading securities. We entered into the Mexican peso currency forward contracts during fiscal 2024 and 2023 to reduce earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. Pension and postretirement plan costs include the components of net periodic benefit cost other than the service cost component.
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Foreign currency transaction gain (loss) |
|
$ |
|
|
$ |
( |
) |
|
Rabbi Trust Assets gain |
|
|
|
|
|
|
||
Realized and unrealized gain on Mexican peso forward contracts, net |
|
|
|
|
|
|
||
Pension and postretirement plans cost |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
( |
) |
|
40
Warranty Reserve: We have a warranty reserve recorded related to our known and potential exposure to warranty claims in the event our products fail to perform as expected, and in the event we may be required to participate in the repair costs incurred by our customers for such products. The recorded warranty reserve balance involves judgment and estimates. Our reserve estimate is based on an analysis of historical warranty data as well as current trends and information received from our customers. During 2024 and 2023, we recorded warranty provisions associated with customer-specific warranty claims involving our product. As additional information becomes available, actual results may differ from recorded estimates, which may require us to adjust the amount of our warranty provision.
Changes in the warranty reserve were as follows (thousands of dollars):
|
|
Balance, |
|
|
Provision |
|
|
Payments |
|
|
Balance, |
|
||||
Year ended June 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Year ended July 2, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Foreign Currency Translation: The financial statements of our foreign subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the average exchange rate for each applicable period for sales, costs and expenses. Foreign currency translation adjustments are included as a component of accumulated other comprehensive loss. Foreign currency transaction gains and losses are included in other income (expense), net in the accompanying Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
Accumulated Other Comprehensive Loss (“AOCL”): The following tables summarize the changes in AOCL for the years ended June 30, 2024 and July 2, 2023 (thousands of dollars):
|
|
Year Ended June 30, 2024 |
|
|||||||||
|
|
Foreign |
|
|
Retirement |
|
|
Total |
|
|||
Balance July 2, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Other comprehensive loss before reclassifications |
|
|
|
|
|
( |
) |
|
|
|
||
Income Tax |
|
|
— |
|
|
|
|
|
|
|
||
Net other comprehensive loss before |
|
|
|
|
|
( |
) |
|
|
|
||
Reclassifications: |
|
|
|
|
|
|
|
|
|
|||
Actuarial losses (A) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Total reclassifications before tax |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Income Tax |
|
|
— |
|
|
|
|
|
|
|
||
Net reclassifications |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive loss |
|
|
|
|
|
( |
) |
|
|
|
||
Other comprehensive loss attributable |
|
|
|
|
|
|
|
|
|
|||
to non-controlling interest |
|
|
|
|
|
— |
|
|
|
|
||
Balance June 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
41
|
|
Year Ended July 2, 2023 |
|
|||||||||
|
|
Foreign |
|
|
Retirement |
|
|
Total |
|
|||
Balance July 3, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Other comprehensive income before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income Tax |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net other comprehensive income before |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Reclassifications: |
|
|
|
|
|
|
|
|
|
|||
Sale of interest in VAST LLC |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Actuarial losses (A) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Total reclassifications before tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income Tax |
|
|
— |
|
|
|
|
|
|
|
||
Net reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other comprehensive income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other comprehensive income attributable |
|
|
|
|
|
|
|
|
|
|||
to non-controlling interest |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance July 2, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
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
Nonqualified and incentive stock options and shares of restricted stock have been granted to our officers, outside directors and specified associates under the 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 our Board of Directors. The options expire
Unrecognized compensation cost as of June 30, 2024 related to restricted stock granted under the plan was as follows (thousands of dollars):
|
|
Compensation |
|
|
Weighted Average |
|
||
Restricted stock granted |
|
$ |
|
|
|
|
||
Unrecognized compensation cost will be adjusted for any future changes in estimated and actual forfeitures.
42
Cash received from stock option exercises and the related income tax benefit were as follows (thousands of dollars):
Fiscal Year |
|
Cash Received |
|
|
Income Tax |
|
||
2024 |
|
$ |
— |
|
|
$ |
— |
|
2023 |
|
$ |
|
|
$ |
— |
|
|
The intrinsic value of stock options exercised and the fair value of options vested were as follows (thousands of dollars):
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Intrinsic value of options exercised |
|
$ |
— |
|
|
$ |
|
|
Fair value of stock options vested |
|
$ |
— |
|
|
$ |
— |
|
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
||
$ |
|
|
|
|
$ |
|
|
|||
Income Taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered, settled or utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. We recognize the benefit of an income tax position only if it is more likely than not (greater than 50 percent) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. Additionally, we accrue interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest and penalties on uncertain tax positions are classified in the (Benefit) Provision for Income Taxes in the accompanying Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
INVESTMENT IN JOINT VENTURES AND MAJORITY OWNED SUBSIDIARIES
ADAC-STRATTEC LLC, a Delaware limited liability company, was formed in fiscal year 2007 to support injection molding and door handle assembly operations in Mexico. For all periods presented in this report, ADAC-STRATTEC LLC was
43
ADAC charges ADAC STRATTEC LLC an engineering, research and design fee as well as a sales fee. Such fees are calculated as a percentage of net sales and are included in the consolidated results of STRATTEC. Additionally, ADAC-STRATTEC LLC sells production parts to ADAC. Sales to ADAC are included in the consolidated results of STRATTEC.
|
Years Ended |
|||||
|
June 30, 2024 |
|
|
July 2, 2023 |
||
Engineering, research and design fee charged to |
$ |
|
|
|
$ |
|
Sales to ADAC |
$ |
|
|
|
$ |
|
|
Years Ended |
|||||
|
June 30, 2024 |
|
|
July 2, 2023 |
||
Accounts receivable due from ADAC |
$ |
|
|
$ |
||
Accounts payable to ADAC |
$ |
|
|
$ |
||
STRATTEC POWER ACCESS LLC (“SPA”) was formed in fiscal year 2009 to supply the North American portion of the power sliding door, lift gate, tail gate and deck lid system access control products which were acquired from Delphi Corporation. Prior to June 30, 2023, SPA was
Prior to June 30, 2023, we participated in certain Alliance Agreements with WITTE and ADAC. Additionally, a joint venture company, Vehicle Access Systems Technology LLC (“VAST LLC”), in which WITTE, STRATTEC and ADAC each held a equity interest, existed to seek opportunities to manufacture and sell each company’s products in areas of the world outside of North America and Europe. VAST LLC had investments in China, Brazil, and India with sales and engineering branch offices in South Korea and Japan. Due to these relationships, STRATTEC purchased $
As a result of the Restructuring Agreement, STRATTEC sold its one-third interest in VAST LLC to WITTE and STRATTEC purchased WITTE's
|
|
Cash Received (Paid) |
|
|
Sale of STRATTEC's one-third ownership interest in VAST LLC |
|
$ |
|
|
Purchase of |
|
|
( |
) |
Purchase of net assets of VAST LLC's Korean branch office |
|
|
( |
) |
Net purchase price received by STRATTEC |
|
$ |
|
|
The Restructuring Agreement positions STRATTEC to redeploy assets, both financial and technical, to create greater focus on STRATTEC-specific strategic growth opportunities in North America and around the world. This transaction allows STRATTEC to be well-positioned to take advantage of new opportunities, including more of our product applications on Electric Vehicles, growing consumer demand for Power Access products, expansion of electronics capabilities and other new automotive products. It also gives us greater resources to further explore diversification of markets, complimentary technology and regions outside of North America. As part of the Restructuring Agreement, STRATTEC also entered into a cooperation framework agreement with WITTE related to VAST LLC which provides a framework for the parties to collaborate on global programs related to product development and manufacturing.
44
Prior to the Restructuring Agreement, VAST LLC investments were accounted for using the equity method of accounting. The activities of VAST LLC resulted in equity loss of joint ventures to STRATTEC of $
EQUITY (LOSS) EARNINGS OF JOINT VENTURES
As discussed above within Investment in Joint Ventures and Majority Owned Subsidiaries, effective June 30, 2023, we sold our ownership interest in VAST LLC, for which we exercised significant influence but did not control. VAST LLC was not a variable interest entity of STRATTEC. Until the effective date of the sale, our investment in VAST LLC was accounted for using the equity method. The results of the VAST LLC foreign subsidiaries and joint venture were reported on a one-month lag basis.
As a result of the Restructuring Agreement, STRATTEC no longer held an ownership interest in VAST LLC as of July 2, 2023. The following are summarized statements of operations for VAST LLC (thousands of dollars):
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Net sales |
|
$ |
— |
|
|
$ |
|
|
Cost of goods sold |
|
|
— |
|
|
|
|
|
Gross profit |
|
|
— |
|
|
|
|
|
Engineering, selling and administrative expense |
|
|
— |
|
|
|
|
|
Income from operations |
|
|
— |
|
|
|
|
|
Other income, net |
|
|
— |
|
|
|
|
|
Loss on disposal of investment in Brazil |
|
|
— |
|
|
|
( |
) |
Income before provision for income taxes |
|
|
— |
|
|
|
|
|
Provision for income taxes |
|
|
— |
|
|
|
|
|
Net income |
|
$ |
— |
|
|
$ |
|
|
STRATTEC’s share of VAST LLC net income |
|
$ |
— |
|
|
$ |
|
|
Intercompany profit eliminations |
|
|
— |
|
|
|
|
|
STRATTEC’s equity earnings of VAST LLC |
|
|
— |
|
|
|
|
|
(Loss) gain on sale of VAST LLC |
|
|
( |
) |
|
|
|
|
STRATTEC's equity (loss) earnings of VAST LLC |
|
$ |
( |
) |
|
$ |
|
|
We had sales of component parts to VAST LLC, purchases of component parts from VAST LLC, expenses charged to VAST LLC for engineering and accounting services and expenses charged from VAST LLC to STRATTEC for general headquarter expenses. As a result of the Restructuring Agreement, STRATTEC no longer held an ownership interest in VAST LLC as of July, 2, 2023.
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Sales to VAST LLC |
|
$ |
— |
|
|
$ |
|
|
Purchases from VAST LLC |
|
$ |
— |
|
|
$ |
|
|
Expenses charged to VAST LLC |
|
$ |
— |
|
|
$ |
|
|
Expenses charged from VAST LLC |
|
$ |
— |
|
|
$ |
|
|
45
CREDIT FACILITIES
STRATTEC has a $
Outstanding borrowings under the credit facilities referenced in the above paragraph as of the end of 2024 and 2023 were as follows (thousands of dollars):
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
STRATTEC Credit Facility |
|
$ |
— |
|
|
$ |
— |
|
ADAC-STRATTEC Credit Facility |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Average outstanding borrowings and the weighted average interest rate under each such credit facility during 2024 and 2023 were as follows (thousands of dollars):
|
|
Average Outstanding |
|
|
Weighted Average |
|
||||||||||
|
|
Years Ended |
|
|
Years Ended |
|
||||||||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||||
STRATTEC Credit Facility |
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
||||
ADAC-STRATTEC Credit Facility |
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
||||
We believe that the credit facilities referenced above are adequate, along with existing cash balances and cash flow from operations, to meet our anticipated capital expenditure, working capital, dividend and operating expenditure requirements.
COMMITMENTS AND CONTINGENCIES
We are from time to time subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, alleged breaches of contracts, product warranties, intellectual property matters and employment related matters. It is our opinion that the outcome of such matters will not have a material adverse impact on the consolidated financial position, results of operations or cash flows of STRATTEC. With respect to warranty matters, although we cannot ensure that the future costs of warranty claims by customers will not be material, we believe our established reserves are adequate to cover potential warranty settlements.
In 1995, we recorded a provision for estimated costs to remediate an environmental contamination site at our Milwaukee facility. The facility 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, in fiscal years 2010, 2016, and 2021, we obtained updated third party estimates of projected costs to adequately cover the cost for active remediation of this contamination and adjusted the reserve as needed. We monitor and evaluate the site with the use of these groundwater monitoring wells. 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 at the site, 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 our
46
estimated 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 of $
At June 30, 2024, we had purchase commitments related to zinc. We also had minimum rental commitments under non-cancelable operating leases with a term in excess of one year. The purchase and minimum rental commitments are payable as follows (thousands of dollars):
|
|
Purchase |
|
|
Minimum Rental |
|
||
Fiscal Year |
|
Commitments |
|
|
Commitments |
|
||
2025 |
|
$ |
|
|
$ |
|
||
2026 |
|
$ |
— |
|
|
$ |
|
|
2027 |
|
$ |
— |
|
|
$ |
|
|
2028 |
|
$ |
— |
|
|
$ |
|
|
Thereafter |
|
$ |
— |
|
|
$ |
|
|
INCOME TAXES
The provision for income taxes consisted of the following (thousands of dollars):
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Currently payable (recoverable): |
|
|
|
|
|
|
||
Federal |
|
$ |
|
|
$ |
|
||
State |
|
|
|
|
|
|
||
Foreign |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Deferred tax provision |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
The 2024 and 2023 federal provisions for income taxes excluded deductions of $
The items accounting for the difference between income taxes computed at the federal statutory tax rate and the provision for income taxes were as follows:
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
U.S. statutory rate |
|
|
% |
|
|
% |
||
State taxes, net of federal tax benefit |
|
|
|
|
|
|
||
Foreign subsidiaries |
|
|
|
|
|
— |
|
|
China non-resident capital gain tax |
|
|
( |
) |
|
|
( |
) |
U.S. tax impact on sale of VAST LLC |
|
|
— |
|
|
|
( |
) |
Valuation allowance |
|
|
|
|
|
( |
) |
|
Return to provision adjustment |
|
|
( |
) |
|
|
|
|
Global intangible low-taxed income |
|
|
— |
|
|
|
( |
) |
Research and development tax credit |
|
|
( |
) |
|
|
|
|
Non-controlling interest |
|
|
|
|
|
|
||
Uncertain tax positions |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
|
|
|
|
||
Other |
|
|
( |
) |
|
|
( |
) |
|
|
|
% |
|
|
( |
%) |
|
47
Impacts of the sale of our one-third interest in VAST LLC on our 2023 effective rate included the China non-resident capital gain tax, the U.S. tax impact on the sale of VAST LLC, and the capital loss carryforward valuation allowance. As discussed above, the 2023 foreign provision for income taxes includes $
The components of deferred tax (liabilities) assets were as follows (thousands of dollars):
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Unrecognized pension and postretirement benefit |
|
$ |
|
|
$ |
|
||
Accrued warranty |
|
|
|
|
|
|
||
Payroll-related accruals |
|
|
|
|
|
|
||
Research and development costs |
|
|
|
|
|
|
||
Capital loss carryforward related to sale of interest in VAST LLC |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Inventory reserve |
|
|
|
|
|
|
||
Environmental reserve |
|
|
|
|
|
|
||
Repair and maintenance supply parts reserve |
|
|
|
|
|
|
||
Allowance for credit losses |
|
|
|
|
|
|
||
Lease Liability |
|
|
|
|
|
|
||
Right of Use Assets |
|
|
( |
) |
|
|
( |
) |
Credit carry-forwards |
|
|
|
|
|
|
||
Postretirement obligations |
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Accrued pension obligations |
|
|
|
|
|
|
||
Joint ventures |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
Net deferred tax assets |
|
$ |
|
|
$ |
|
||
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.
Foreign tax credit carry-forwards at June 30, 2024 resulted in future benefits of approximately $
The total liability for unrecognized tax benefits was $
48
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended June 30, 2024 and July 2, 2023 (thousands of dollars):
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Unrecognized tax benefits, beginning of year |
|
$ |
|
|
$ |
|
||
Gross increases – tax positions in prior years |
|
|
|
|
|
|
||
Gross decreases – tax positions in prior years |
|
|
( |
) |
|
|
— |
|
Gross increases – current period tax positions |
|
|
|
|
|
|
||
Tax years closed |
|
|
( |
) |
|
|
( |
) |
Unrecognized tax benefits, end of year |
|
$ |
|
|
$ |
|
||
We or one of our subsidiaries files income tax returns in the United States (federal), Wisconsin (state), Michigan (state) and various other states, Mexico and other foreign jurisdictions. Tax years open to examination by tax authorities under the statute of limitations include fiscal 2021 through 2024 for federal, fiscal 2020 through 2024 for most states and calendar 2019 through 2023 for foreign jurisdictions.
RETIREMENT PLANS AND POSTRETIREMENT COSTS
We have a noncontributory Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified defined benefit plan. The SERP is funded through a Rabbi Trust with TMI Trust Company. Under the SERP, as amended December 31, 2013, participants received an accrued lump-sum benefit as of December 31, 2013 which was credited to each participant’s account. Subsequent to December 31, 2013, each eligible participant receives a supplemental retirement benefit equal to the foregoing lump-sum benefit, plus an annual benefit accrual equal to
During 2023, SERP benefits of $
We also sponsor a postretirement health care plan for all current and future eligible U.S. retirees hired prior to June 1, 2001. The expected cost of retiree health care benefits is recognized during the years the associates who are covered under the plan render service. Effective January 1, 2010, an amendment to the postretirement health care plan limited the benefit for future eligible retirees to $
49
Amounts included in accumulated other comprehensive loss, net of tax, at June 30, 2024, which have not yet been recognized in net periodic benefit cost were as follows (thousands of dollars):
|
|
SERP |
|
|
Postretirement |
|
||
Net actuarial loss |
|
$ |
|
|
$ |
|
||
Unrecognized net actuarial losses included in accumulated other comprehensive loss at June 30, 2024 which are expected to be recognized in net periodic benefit cost (credit) in fiscal 2024, net of tax, for the SERP and postretirement plans are as follows (thousands of dollars):
|
|
SERP |
|
|
Postretirement |
|
||
Net actuarial loss |
|
$ |
|
|
$ |
|
||
The following tables summarize the SERP and postretirement plans’ income and expense, funded status and actuarial assumptions for the years indicated (thousands of dollars). We use a June 30 measurement date for our SERP and postretirement plans.
|
|
SERP Benefits |
|
|
Postretirement Benefits |
|
||||||||||
|
|
Years Ended |
|
|
Years Ended |
|
||||||||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||||
COMPONENTS OF NET PERIODIC BENEFIT |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Plan settlements |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Amortization of unrecognized net loss |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net periodic benefit cost (credit) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
WEIGHTED-AVERAGE ASSUMPTIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Benefit Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Discount rate (SERP / postretirement life) |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Discount rate (postretirement health) |
|
|
|
|
|
|
|
|
% |
|
|
% |
||||
Rate of compensation increases |
|
|
% |
|
|
% |
|
n/a |
|
|
n/a |
|
||||
Net Periodic Benefit Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Discount rate (SERP / postretirement life) |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Discount rate (postretirement health) |
|
|
|
|
|
|
|
|
% |
|
|
% |
||||
Rate of compensation increases |
|
|
% |
|
|
% |
|
n/a |
|
|
n/a |
|
||||
CHANGE IN PROJECTED BENEFIT |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Benefit obligation at beginning of year |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Service cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Actuarial loss (gain) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Plan settlements |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Benefits paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Benefit obligation at end of year |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
CHANGE IN PLAN ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fair value of plan assets at beginning of year |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Employer contribution |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Benefits paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Fair value of plan assets at end of year |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Funded status – accrued benefit obligations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
AMOUNTS RECOGNIZED IN CONSOLIDATED |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accrued payroll and benefits (current liabilities) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Accrued benefit obligations (long-term liabilities) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net amount recognized |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
50
|
|
SERP Benefits |
|
|
Postretirement Benefits |
|
||||||||||
|
|
Years Ended |
|
|
Years Ended |
|
||||||||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||||
CHANGES IN PLAN ASSETS AND BENEFIT |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net periodic benefit cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net actuarial loss (gain) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Plan settlements |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Amortization of unrecognized net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total recognized in other comprehensive |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total recognized in net periodic benefit |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
An annual rate increase in the per capita cost of covered health care benefits is not applicable as all eligible retirees will be limited to $
We expect to contribute $
|
|
SERP |
|
|
Postretirement |
|
||
2025 |
|
$ |
|
|
$ |
|
||
2026 |
|
$ |
|
|
$ |
|
||
2027 |
|
$ |
|
|
$ |
|
||
2028 |
|
$ |
|
|
$ |
|
||
2029 |
|
$ |
|
|
$ |
|
||
2030-2034 |
|
$ |
|
|
$ |
|
||
All U.S. associates may participate in our 401(k) Plan. We contribute
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Company contributions |
|
$ |
|
|
$ |
|
||
SHAREHOLDERS’ EQUITY
We had
Our Board of Directors previously authorized a stock repurchase program to buy back up to
51
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed on the basis of the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings (loss) per share is computed on the basis of the weighted average number of shares of common stock plus the potential dilutive common shares outstanding during the applicable period using the treasury stock method. Potential dilutive common shares include outstanding stock options and unvested restricted stock awards.
|
|
Years Ended |
|
|||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||
Net income (loss) attributable to STRATTEC |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
||
Weighted average shares of common stock outstanding |
|
|
|
|
|
|
||
Incremental shares – stock based compensation |
|
|
|
|
|
— |
|
|
Diluted weighted average shares of common stock |
|
|
|
|
|
|
||
Basic earnings (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
Diluted earnings (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
Potentially dilutive common shares that were excluded from the calculation of diluted earnings per share because their inclusion would have been antidilutive were as follows:
Years Ended |
|
Number of Shares |
|
|
June 30, 2024 |
|
|
|
|
July 2, 2023 |
|
|
|
|
STOCK OPTION AND PURCHASE PLANS
A summary of stock option activity under our stock incentive plan was as follows:
|
|
|
|
|
Weighted Average |
|
|
Weighted Average |
|
|
Aggregate |
|
||||
|
|
Shares |
|
|
Exercise Price |
|
|
Term (in years) |
|
|
(in thousands) |
|
||||
Balance at July 3, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Balance at July 2, 2023 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Balance at June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Exercisable as of: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
July 2, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
52
A summary of restricted stock activity under our stock incentive plan was as follows:
|
|
|
|
|
Weighted Average |
|
||
|
|
|
|
|
Grant Date |
|
||
|
|
Shares |
|
|
Fair Value |
|
||
Nonvested Balance at July 3, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
Nonvested Balance at July 2, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
Nonvested Balance at June 30, 2024 |
|
|
|
|
$ |
|
||
We have an Employee Stock Purchase Plan to provide substantially all U.S. full-time associates an opportunity to purchase shares of STRATTEC common stock through payroll deductions. A participant may contribute a maximum of $
EXPORT SALES
Total export sales, sales from the United States to locations outside of the United States, are summarized as follows (thousands of dollars and percent of total net sales):
|
|
Years Ended |
||||||||||
|
|
June 30, 2024 |
|
July 2, 2023 |
||||||||
|
|
Net Sales |
|
|
% |
|
Net Sales |
|
|
% |
||
Export sales |
|
$ |
|
|
|
$ |
|
|
||||
During the years ended June 30, 2024 and July 2, 2023, sales to Canada totaled $
PRODUCT SALES
Sales by product group were as follows (thousands of dollars and percent of total net sales):
|
|
Years Ended |
|
|||||||||||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||||||||||
|
|
Net Sales |
|
|
% |
|
|
Net Sales |
|
|
% |
|
||||
Door handles & exterior trim |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Power access |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Keys & locksets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Latches |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Aftermarket & OE service |
|
|
|
|
|
|
|
|
|
|
|
|
||||
User Interface Controls |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
53
SALES AND RECEIVABLE CONCENTRATION
Sales to our largest customers were as follows (thousands of dollars and percent of total net sales):
|
|
Years Ended |
|
|||||||||||||
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||||||||||
|
|
Net Sales |
|
|
% |
|
|
Net Sales |
|
|
% |
|
||||
General Motors Company |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Ford Motor Company |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stellantis |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Receivables from our largest customers were as follows (thousands of dollars and percent of gross receivables):
|
|
June 30, 2024 |
|
|
July 2, 2023 |
|
||||||||||
|
|
Receivables |
|
|
% |
|
|
Receivables |
|
|
% |
|
||||
General Motors Company |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Ford Motor Company |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stellantis |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 by STRATTEC in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that the information required to be disclosed by STRATTEC in reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation as of the end of the period covered by this report, 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 STRATTEC’s disclosure controls and procedures. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report 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 was necessarily 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) that occurred during the quarter ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
55
Management’s Annual Report on Internal Controls over Financial Reporting
STRATTEC SECURITY CORPORATION is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with accounting principles generally accepted in the United States of America and necessarily include some amounts that are based on management’s best estimates and judgments.
We, as management of STRATTEC SECURITY CORPORATION, are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.
The Audit Committee of the Company’s Board of Directors, consisting entirely of independent directors, meets regularly with management and the independent registered public accounting firm, and reviews audit plans and results, as well as management’s actions taken in discharging responsibilities for accounting, financial reporting, and internal control. Deloitte & Touche LLP, independent registered public accounting firm, has direct and confidential access to the Audit Committee at all times to discuss the results of their audits.
Management assessed the Corporation’s system of internal control over financial reporting as of June 30, 2024, in relation to criteria for effective internal control over financial reporting as described in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management concluded that, as of June 30, 2024, its system of internal control over financial reporting was effective and met the criteria of the Internal Control – Integrated Framework. Deloitte & Touche LLP, independent registered public accounting firm, has issued an attestation report on the Corporation’s internal control over financial reporting, which is included herein.
/s/ Jennifer L. Slater |
|
/s/ Dennis Bowe |
Jennifer L. Slater |
|
Dennis Bowe |
President and Chief Executive Officer |
|
Vice President and Chief Financial Officer |
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of STRATTEC SECURITY CORPORATION
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of STRATTEC SECURITY CORPORATION and subsidiaries (the “Company”) as of June 30, 2024, based on criteria established in Internal Control —Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2024, of the Company and our report dated September 5, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
September 5, 2024
57
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
58
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information included in our Proxy Statement, dated on or about September 20, 2024, under “Proposal 1: Election of Directors,” “Corporate Governance Matters-Code of Business Ethics,” “Audit Committee Matters-Audit Committee Financial Expert,” “Executive Officers,” “Delinquent Section 16(a) Reports,” “Director’s Meetings and Committees – Nominating and Corporate Governance Committee,” and “Corporate Governance Matters-Director Nominations” is incorporated herein by reference.
The Audit Committee of our Board of Directors is an “audit committee” for purposes of Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee consist of five outside independent directors, David R. Zimmer, Audit Committee Chairman, Frederic Jack Liebau, Jr., Bruce Lisman, Harold M. Stratton II, and Tina Chang.
ITEM 11. EXECUTIVE COMPENSATION
The information included in our Proxy Statement, dated on or about September 20, 2024, under “Director Compensation” and “Executive Compensation” is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
The information included in our Proxy Statement, dated on or about September 20, 2024, under “Security Ownership” is incorporated herein by reference.
Equity Compensation Plan Information
The following table summarizes share information, as of June 30, 2024, for our Amended and Restated Stock Incentive Plan.
Plan Category |
|
Number of |
|
|
Weighted-average |
|
|
Number of |
|
|||
Equity compensation plans |
|
|
8,070 |
|
|
$ |
79.73 |
|
|
|
361,085 |
|
Equity compensation plans not |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
8,070 |
|
|
$ |
79.73 |
|
|
|
361,085 |
|
The information included in our Proxy Statement, dated on or about September 20, 2024, under “Transactions With Related Persons” and “Corporate Governance Matters-Director Independence” is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information included in our Proxy Statement, dated on or about September 20, 2024, under “Audit Committee Matters-Fees of Independent Registered Public Accounting Firm” is incorporated herein by reference.
59
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
10 |
|
(a) |
|
Financial Statements |
|
|
|
|
See Item 8 for the Consolidated Financial Statements included in this Form 10-K |
|
|
(b) |
|
Exhibits |
|
|
|
|
See the following List of Exhibits: |
Exhibit |
|
|
|
3.1 (13) |
|
Amended and Restated Articles of Incorporation of the Company |
* |
3.2 (19) |
|
Amendment to Amended and Restated Articles of Incorporation of the Company |
* |
3.3 (26) |
|
Amendment to Amended and Restated Articles of Incorporation of the Company |
* |
3.4 (1) |
|
* |
|
4.1 (20) |
|
* |
|
4.2 (2) |
|
* |
|
4.3 (12) |
|
* |
|
4.4 (13) |
|
* |
|
4.5 (5) |
|
* |
|
4.6 (6) |
|
* |
|
4.7 (10) |
|
* |
|
4.8 (12) |
|
* |
|
4.9 (15) |
|
* |
|
4.10 (18) |
|
* |
|
4.11 (24) |
|
* |
|
4.12 (27) |
|
* |
|
4.13 (31) |
|
* |
|
4.14 (6) |
|
* |
|
4.15 (6) |
|
* |
|
4.16 (6) |
|
* |
|
4.17 (9) |
|
* |
|
4.18 (12) |
|
* |
|
4.19 (14) |
|
* |
|
4.20 (16) |
|
* |
|
4.21 (18) |
|
* |
|
4.22 (24) |
|
* |
|
4.23 (28) |
|
* |
|
4.24 (32) |
|
* |
60
* Previously filed
** Management contract or compensatory plan or arrangement
61
ITEM 16. FORM 10-K SUMMARY
None
62
SIGNATURES
Pursuant to the requirements of Section 13 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 |
|
|
|
|
|
By: |
/s/ Jennifer L. Slater |
|
|
Jennifer L. Slater |
|
|
President and Chief Executive Officer |
Date: September 5, 2024
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Jennifer L. Slater |
|
President, Chief Executive Officer, |
|
September 5, 2024 |
Jennifer L. Slater |
|
and Director |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ Frederic Jack Liebau, Jr. |
|
Chairman and Director |
|
August 21, 2024 |
Frederic Jack Liebau, Jr. |
|
|
|
|
|
|
|
|
|
/s/ Harold M. Stratton II |
|
Director |
|
August 21, 2024 |
Harold M. Stratton II |
|
|
|
|
|
|
|
|
|
/s/ Tina Chang |
|
Director |
|
August 21, 2024 |
Tina Chang |
|
|
|
|
|
|
|
|
|
/s/ Thomas W. Florsheim, Jr. |
|
Director |
|
August 21, 2024 |
Thomas W. Florsheim, Jr. |
|
|
|
|
|
|
|
|
|
/s/ Bruce Lisman |
|
Director |
|
August 21, 2024 |
Bruce Lisman |
|
|
|
|
|
|
|
|
|
/s/ David R. Zimmer |
|
Director |
|
August 21, 2024 |
David R. Zimmer |
|
|
|
|
|
|
|
|
|
/s/ Dennis Bowe |
|
Vice President, Chief |
|
September 5, 2024 |
Dennis Bowe |
|
Financial Officer, |
|
|
|
|
Secretary and Treasurer |
|
|
|
|
(Principal Financial and |
|
|
|
|
Accounting Officer) |
|
|
63
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-4300, 333-31002, 333-103219, 333-140715, 333-199906, 333-249611, 333-45221, and 333-277037 on Form S-8 of our reports dated September 5, 2024, relating to the financial statements of STRATTEC SECURITY CORPORATION, and the effectiveness of STRATTEC SECURITY CORPORATION’s internal control over financial reporting, appearing in this Annual Report on Form 10-K for the year ended June 30, 2024.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
September 5, 2024
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jennifer L. Slater, certify that:
1. I have reviewed this annual report on Form 10-K of STRATTEC SECURITY CORPORATION;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 5, 2024
/s/ Jennifer L. Slater
Jennifer L. Slater,
Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis Bowe, certify that:
1. I have reviewed this annual report on Form 10-K of STRATTEC SECURITY CORPORATION;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 5, 2024
/s/ Dennis Bowe
Dennis Bowe,
Chief Financial Officer
Exhibit 32
Certification of Periodic Financial Report
Pursuant to 18 U.S.C. Section 1350
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of STRATTEC SECURITY CORPORATION (the "Company") certifies that the Annual Report on Form 10-K of the Company for the year ended June 30, 2024 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and information contained in that Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: September 5, 2024 |
|
/s/ Jennifer L. Slater |
|
|
Jennifer L. Slater, |
|
|
Chief Executive Officer |
Dated: September 5, 2024 |
|
/s/ Dennis Bowe |
|
|
Dennis Bowe, |
|
|
Chief Financial Officer |
This certification is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.