UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 2019.
FORM 10-K
Commission File Number 0-25150
STRATTEC SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin
(State of Incorporation)
39-1804239
(I.R.S. Employer Identification No.)
3333 West Good Hope Road, Milwaukee, WI 53209
(Address of principal executive offices)
(414) 247-3333
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.01 par value
Trading Symbol
STRT
Securities registered pursuant to Section 12(g) of the Act:
None
Name of exchange on which registered
The NASDAQ Stock Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐Yes ☒No
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 ☒No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒Yes ☐No
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).
☒Yes ☐No
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.:
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐ Accelerated filer
☐ Smaller Reporting Company
☐
☒
☒
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒No
The aggregate market value of the voting Common Stock held by non-affiliates of the registrant as of December 28, 2018 (the last business day of the
Registrant’s most recently completed second quarter), was approximately $106,933,000 (based upon the last reported sale price of the Common Stock at
December 28, 2018 on the NASDAQ Global Market). Shares of common stock held by any executive officer or director of the registrant have been excluded
from this computation because such persons may be deemed to be affiliates. This determination of affiliate status is not a conclusive determination for other
purposes.
On August 2, 2019, there were outstanding 3,755,027 shares of the Registrant’s $.01 par value Common Stock (which includes any unvested restricted shares
previously awarded).
Documents Incorporated by Reference
Document
Portions of the Proxy Statement dated September 5, 2019, for the Annual Meeting of Shareholders to be held on October 8,
2019.
Part of the Form 10-K
into which incorporated
III
STRATTEC SECURITY CORPORATION
ANNUAL REPORT IN FORM 10-K
June 30, 2019
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTING FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
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PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
SIGNATURES
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 5, 2019, 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’ recall policies, foreign currency fluctuations, uncertainties stemming from U.S. trade policies, tariffs and reactions to the
same from foreign countries, costs of operations (including fluctuations in the cost of raw materials), the volume and scope of product
returns and warranty claims 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.
1
ITEM 1. BUSINESS
Basic Business
PART I
STRATTEC SECURITY CORPORATION designs, develops, manufactures and markets automotive access control products
including mechanical locks and keys, electronically enhanced locks and keys, steering column and instrument panel ignition lock
housings, latches, power sliding side door systems, power lift gate systems, power deck lid systems, door handles and related products
for North American automotive customers. We also supply global automotive manufacturers through a unique strategic joint venture
relationship with WITTE Automotive (“WITTE”) of Velbert, Germany and ADAC Plastics Inc., doing business as ADAC
Automotive (“ADAC”), of Grand Rapids, Michigan called VAST Automotive Group (“VAST”). Under this unique strategic
relationship STRATTEC, WITTE and ADAC market the products of each company to global customers under the “VAST
Automotive Group” brand name (as more fully described Vehicle Access Systems Technology LLC herein). STRATTEC’s products
are shipped to customer locations in the United States, Canada, Mexico, Europe, South America, Korea, China and India, and we
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-four years.
Our history in the automotive security business spans over 110 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 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 have been
added to our product line and are gaining in popularity.
Ignition lock housings represent another access control 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 are now supplying power access devices for sliding side doors, lift gates and trunk lids. 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.
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.
STRATTEC’s customer-focused structure and formalized product development process helps us identify and meet customer
needs in the shortest time possible. Form concept and design, through implementation and into the aftermarket, STRATTEC delivers
products that provide the optimum value solution to security and access control 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 access control 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 market place is enhanced.
2
Markets
We are a direct supplier to OEM automotive and light truck manufacturers as well as other transportation-related manufacturers.
Our largest customers are Fiat Chrysler Automobiles, General Motors Company and Ford Motor Company. Our access control
product mix varies by customer, but generally our overall sales tend to be highest in lock and key, including aftermarket produced by
STRATTEC de Mexico, followed by door handles and trim components produced by ADAC-STRATTEC de Mexico, power access
products produced by STRATTEC Power Access de Mexico, and latch mechanisms and ignition lock housing produced by
STRATTEC de Mexico. See Operations discussion included herein for further description.
Direct sales to various OEMs represented approximately 77% of our total sales for fiscal 2019. The remainder of our revenue is
received 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 automotive assembly
plants in Europe, Asia and South America, we are in the process of expanding our presence in these markets and elsewhere through
the Vehicle Access Systems Technology LLC (VAST LLC) joint venture we jointly own with WITTE Automotive and ADAC
Automotive. VAST is described in more detail on pages 4, 5, 43 and 44 in this Form 10-K.
OEM service and replacement parts are sold to the OEM’s own service operations. In addition, we distribute our components
and security products to the automotive aftermarket through approximately 50 authorized wholesale distributors, as well as other
marketers and users of component parts, including export customers. Increasingly, our products find their way into the retail channel,
specifically the hardware store channel. Our ability to provide a full line of keys to that channel has been accomplished through the
introduction of the STRATTEC “XL” key line. This extension to our product line includes keys that we currently do not supply on an
OEM basis, including keys for Toyota, Honda and other popular domestic and import vehicles. This extended line of keys enables
automotive repair specialists to satisfy consumer needs for repair or replacement parts. Our aftermarket activities are serviced through
a warehousing operation in El Paso, Texas.
Customer Sales Focus
To bring the proper focus to the relationships with our major customers, we have seven customer-focused teams, each with a
Director of Sales, one or two Engineering Program Managers and various Customer Application Engineers. In addition to customer
teams for General Motors, Ford and Fiat Chrysler, we currently have teams for New Domestic Vehicle Manufacturers (primarily the
Japanese and Korean automotive manufactures), Driver Control/Ignition Lock Housing 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. 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
Devices, Driver Control/Ignition Lock Housings and Electrical. 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.
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 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.
3
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 assembly operations for
locksets and ignition lock housings. Plant No. 2 was built during fiscal 2009 to replace a leased facility. It houses our key finishing
and plastic injection molding operations, as well as containing dedicated space for the assembly operations of ADAC-STRATTEC de
Mexico. Plant No. 3 was purchased in fiscal 2015 and 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. This facility became operational during the
second quarter of fiscal year 2018.
Vehicle Access Systems Technology LLC
In fiscal 2001, we entered into a formal 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. The first was a set of legal agreements 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. The second initiative
was 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 announced the expansion of this alliance and related joint venture with the addition of a third partner,
ADAC Plastics, Inc. ADAC, of Grand Rapids, Michigan, adds North American expertise in door handles, a part of WITTE’s core
product line that STRATTEC did not support, and an expertise in color-matched painting of these components.
With the expansion of the alliance, we can offer a full range of access control related products available on a global basis to
support customer programs. To identify this powerful combination of independent companies focused on working together, we
renamed the joint venture Vehicle Access Systems Technology LLC (VAST LLC). We now refer to the combination of the alliance
structure and joint venture as “VAST Automotive Group” (VAST). WITTE is now called WITTE Automotive, and ADAC is now
doing business as ADAC Automotive. We have adopted a common graphic image in which we share a logo mark and colors, and a
specific VAST logo used on the partners’ printed and electronic presentation materials. What is now VAST made investments with a
local partner in Brazil in September, 2001, and local partners in China in March, 2002. However, during fiscal 2010, VAST LLC
purchased the remaining 40 percent interest of its local partners in the China venture. VAST China is now wholly owned by VAST
LLC and had annual net sales of approximately $162 million and $174 million during fiscal 2019 and 2018, respectively. This was an
important step which gives STRATTEC a one-third interest in VAST China’s activities in the important growing Chinese/Asian
market for manufacturing and assembly of painted door handles, locksets and latch products. VAST China currently operates out of
two manufacturing facilities in Taicang and Fuzhou, China and is in the process of constructing a new third manufacturing facility in
Jingzhou, China, which is expected to be operational during the fourth quarter of our fiscal 2020 to support new growth in the China
market. In March, 2014, VAST LLC purchased the remaining 49 percent interest of its local partner in Brazil, which had annual net
sales of approximately $724,000 and $1 million during fiscal years 2019 and 2018, respectively.
On April 30, 2015 VAST LLC executed a purchase agreement to become a 50:50 Joint Venture partner with Minda
Management Services Limited, an affiliate of both Minda Corporation Limited and Spark Minda, Ashok Minda Group of New Delhi,
India (collectively, “Minda”). As part of this transaction, VAST acquired a fifty percent equity interest in the former Minda-Valeo
Security Systems joint venture entity, based in Pune, India, for approximately $12 million. This joint venture entity was renamed
Minda-VAST Access Systems (“Minda-VAST”). Minda-VAST has operations in Pune and Delhi and had annual sales of
approximately $30 million and $36 million during fiscal years 2019 and 2018, respectively. Minda is a leading manufacturer of
security & access products and handles, for both OEMs and the aftermarket in India. Minda-VAST financial results are accounted for
on the equity method of accounting by VAST LLC.
For further VAST LLC financial information, see “Equity Earnings of Joint Ventures” included in Notes to Financial Statements
under Item 8 in this Form 10-K.
VAST is the embodiment of STRATTEC’s, WITTE’s and ADAC’s globalization strategy. We are developing VAST as a global
brand with which we are jointly pursuing business with identified global customers. Those identified customers are General Motors,
Ford, Fiat/Chrysler, Volkswagen, Honda, Toyota, Renault/Nissan and Hyundai/Kia.
4
To manage our customer relationships and coordinate global ventures and activities, we have established a VAST Management
Group led by a President. The Management Group includes three Vice Presidents, one each from WITTE, STRATTEC and ADAC.
With the focus provided by this Management Group, VAST is able to manage global programs with a single point of contact for
customers, with the added advantage of providing regional support from the partners’ operating entities. Combined with VAST LLC’s
ventures in China and Brazil, and sales/engineering offices in Japan and Korea, this structure establishes our global footprint.
5
STRATTEC de MEXICO
We have formed STRATTEC de Mexico as a wholly owned subsidiary of STRATTEC to own and operate three production
facilities in Juarez, Mexico. At these three facilities we 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 noted below and our
latch and power access assembly operations for STRATTEC POWER ACCESS de Mexico noted below.
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. In our fiscal years ending 2019 and 2018, ASdM was profitable and represented $117.0 million and $88.8 million,
respectively, of our consolidated net sales. 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. This facility became operational during the second quarter
of fiscal year 2018.
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 is a 20 percent minority owner. SPA in
turn 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, lift gates and trunk lids. STRATTEC POWER ACCESS de Mexico currently
operates out of defined space in STRATTEC de Mexico Plant No. 3 located in Juarez, Mexico. Financial results for SPA are
consolidated in STRATTEC’s financial statements. For fiscal years ending 2019 and 2018, SPA was profitable and represented $92.7
million and $86.4 million, respectively, of our consolidated net sales.
6
STRATTEC Advanced Logic LLC
During the fourth quarter of fiscal year 2013, we formed a new joint venture with Actuator Systems LLC called NextLock LLC
subsequently renamed STRATTEC Advanced Logic LLC. The initial capitalization of the joint venture was $1.5 million. The purpose
of this joint venture is to assemble and sell the next generation of biometric security products based upon the residential and
commercial designs of Actuator Systems. This joint venture had minimal sales activity in both fiscal 2019 and 2018. During fiscal
2018, we, along with our joint venture partner, reduced operating the business of STRATTEC Advanced Logic LLC to winding down
and selling only RTS commercial biometric locks. STRATTEC owns 51% of this joint venture and its financial results are accounted
for on the equity method of accounting.
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
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.
7
Vehicle List
2020 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 2020 fiscal year:
PASSENGER CARS
Acura NSX
Aston Martin DB 11*
Aston Martin Rapide *
Aston Martin Vanquish*
Aston Martin Vantage *
Buick Excelle *
Buick LaCrosse *
Buick Regal *
Cadillac ATS *
Cadillac CT6*
Cadillac XTS *
Chevrolet Bolt EV
Chevrolet Camaro
Chevrolet Corvette
Chevrolet Impala
Chevrolet Malibu
Chevrolet Sonic *
Chevrolet Spin *
Chrysler 300
Dodge Challenger
Dodge Charger
Ford Focus *
Ford Fusion
Ford GT
Ford Ka *
Ford Mustang
Honda Accord
Honda Civic
LIGHT TRUCKS, VANS AND SPORT UTILITY VEHICLES
Acura MDX
Acura RDX
Buick Enclave
Buick Encore*
Buick Envision*
Cadillac Escalade
Cadillac Escalade ESV
Cadillac XT4
Cadillac XT5
Chevrolet Blazer
Chevrolet Colorado *
Chevrolet Equinox
Chevrolet Express Van
Chevrolet Silverado &
Silverado HD Pickup
Chevrolet Suburban
Chevrolet Tahoe
Chevrolet Trail Blazer *
Chevrolet Trax *
Chevrolet Traverse
Chrysler Pacifica
Chrysler Voyager
Dodge Durango
Dodge Grand Caravan
Dodge Journey
Ford Edge
Ford Escape
Ford Expedition
Ford Explorer
Ford Flex
Ford F-Series Pickup
Ford F-Series Super Duty
Pickup
Ford Ranger
Ford Transit Connect *
GMC Acadia
GMC Terrain
GMC Canyon *
GMC Savana
GMC Sierra & Sierra HD
Pickup
GMC Yukon and Yukon XL
Honda CRV
Honda RDX
* Vehicles produced outside of North America, or both in and outside North America.
Lincoln Continental
Lincoln MKZ
Maserati Ghibli *
Maserati Quattroporte *
Opel Adam *
Opel Astra *
Opel Cascada *
Opel Corsa*
Tesla Model S
Tesla Model X
Tesla Model 3
Volkswagen Jetta
Honda Odyssey
Jeep Cherokee
Jeep Compass
Jeep Gladiator
Jeep Grand Cherokee
Jeep Wrangler/Wrangler
Unlimited
Kia Carnival *
Kia Sedona *
Lincoln Avaitor
Lincoln Corsair
Lincoln MKC
Lincoln MKT
Lincoln MKX
Lincoln Nautilus
Lincoln Navigator
Maserati Levante *
Opel Mokka *
Ram 1500/2500/3500
Pickup
Volkswagen Tiguan
8
Emerging Technologies
Automotive vehicle access systems, which are both theft deterrent and consumer friendly, are trending toward electro-mechanical
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 access control supplier by building our product, engineering and manufacturing expertise in the required electro-mechanical
products, which include vehicle access latches, keys with remote entry electronic systems, and ignition interface systems with passive start
capabilities. 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 end gates and other consumer convenience features into these
types of vehicles.
These technologies benefit us by increasing its 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 and plastic resins. These materials are generally
available from a number of suppliers, but we have chosen to concentrate our sourcing with one primary vendor for each commodity. We
believe our sources for raw materials are very reliable and adequate for its needs. We have not experienced any significant long term supply
problems in our operations and do not anticipate any significant supply problems in 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 will not only result 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 are of considerable importance to the manufacturing and
marketing of many of our access control 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 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 very significant portion of our annual sales are to General Motors Company, Ford Motor Company, and Fiat Chrysler
Automobiles. These three customers accounted for approximately 60 percent our net sales in 2019 and 59 percent of our net sales in 2018.
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, Fiat Chrysler Automobiles, Ford Motor Company 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.
9
Sales and Marketing; Backlog
We provide our customers with engineered access control products including locksets, fobs, push button passive entry passive start
ignition systems, steering column lock housings, electromechanical latches, power sliding door systems, power liftgate systems, power
decklids, painted and non-painted door handles, door handle components and trim and other access products which are unique to specific
vehicles. Any given vehicle will typically take 1 to 3 years of development and engineering design time prior to being offered to the public.
The access control 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 an engineering staff
that assists in providing design and technical solutions to our customers. We believe that our engineering expertise is a competitive
advantage and contributes toward 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 access control 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
access control 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 reduce access control product 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, steering column lock housing, latches and power access competitors include Huf North America, Ushin, Valeo, Tokai-
Rika, Alpha-Tech, Honda Lock, Shin Chang, Magna, Edscha, Stabilus, Aisin, Brose, Mitsuba, Ohi, Kiekert, Inteva, Key Plastics 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 access control. A major area of focus for research is the
expanding role of vehicle access 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 2019
and 2018, we spent approximately $13.8 million and $4.8 million, respectively, on research and development. 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.
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.
10
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.
Employees
At June 30, 2019, we had approximately 4,209 full-time employees, of which approximately 250 or 5.9 percent were represented by
a labor union, which accounts for all production employees at our Milwaukee facility. The current contract with the unionized employees
is effective through September 17, 2021. During June 2001, there was a 16-day strike by the represented employees at our Milwaukee
facility. Further information regarding the strike, work stoppages and other labor matters are discussed under “Risk Factors - Disruptions
Due to Work Stoppages and Other labor Matters” under Item 1A in this Form 10-K.
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 report 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:
Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share – Sales to General Motors Company,
Ford Motor Company and Fiat Chrysler Automobiles represented approximately 60 percent of our annual net sales (based on fiscal
2019 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 and net income.
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, incur impairment charges or
require restructuring actions.
Production Slowdowns by Customers – Our major customers and many of their suppliers were significantly impacted by the
recession of 2008/2009. Many of our major customers instituted production cuts during our fiscal 2009 and 2010. While production
subsequently increased after the cuts made in 2009, additional economic slowdowns could bring about new production cuts which
could have a material adverse effect on our existing and future revenues and net income.
11
Financial Distress of Automotive Supply Base – During 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 and 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 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 and
net income.
Shortage of Raw Materials or Components Supply – In the event of catastrophic acts of nature such as fires, tsunamis,
hurricanes and earthquakes or a rapid increase in production demands, either we or our customers or other suppliers may experience
supply shortages of raw materials or components. This could be caused by a number of factors, including a lack of production line
capacity or manpower or working capital constraints. In order to manage and reduce the 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 and financial condition.
We consider the production capacities and financial condition of suppliers in our selection process, and expect that they will
meet our delivery requirements. However, there can be no assurance that strong demand, capacity limitations, shortages of raw
materials, labor disputes or other problems will not result in any shortages or delays in the supply of components to us.
Cost Reduction – There is continuing pressure from our major customers to reduce the prices we charge for our products. This
requires us to generate cost reductions, including reductions in the cost of components purchased from outside suppliers. If we are
unable to generate sufficient production cost savings in the future to offset pre-programmed price reductions, our gross margin and
profitability will be adversely affected.
Cyclicality and Seasonality in the Automotive Market – The automotive market is cyclical and is dependent on consumer
spending, 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.
Foreign Operations – We own and operate manufacturing operations in Mexico. As discussed below under “Investment in
Joint Ventures and Majority Owned Subsidiaries” included in Notes to Financial Statements under Item 8 in this Form 10-K, we also
have joint venture and majority owned investments in Mexico, Brazil, China and India. As these operations continue to expand, their
success will depend, in part, on our and our partners’ ability to anticipate and effectively manage certain risks inherent in international
operations, including: enforcing agreements and collecting receivables through certain foreign legal systems, payment cycles of
foreign customers, compliance with foreign tax laws, general economic and political conditions in these countries and compliance
with foreign laws and regulations. The success of these joint venture operations may be impacted by our partners’ ability to influence
business decisions and therefore the operating results of the joint ventures could be adversely impacted. These influences, as well as
conflicts or disagreements with our joint venture partners, could negatively impact the operations and financial results of our joint
venture investments, which could have an adverse impact on our financial results. In addition, failure of our partners to be able to
continue to fund their portion of the joint venture operations could have a material adverse effect on the financial condition and
financial results of our joint venture investments, which could have a material adverse effect on our financial results. The joint venture
investments in China generated losses in 2012 and 2013 due to relocation costs associated with moves to a new facility and start-up
costs associated with a new product line. These relocation costs and start-up costs have been financed internally and externally by
VAST China. Additionally, our VAST LLC joint venture in Brazil continues to report losses due to the weak automotive build in that
region. The impact of any future planned capital expenditures or future expansion by VAST LLC in China, Brazil and India, may
result in the need for additional future capital contributions to fund the operations of these joint venture investments.
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 or financial
condition or reduce profitability on certain of our products.
12
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.
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. These materials are generally available from a limited number of suppliers, but we
have chosen to concentrate our sourcing with one primary vendor for each commodity or purchased component. We believe our
sources of raw materials are reliable and adequate for our needs. However, the development of future sourcing issues related to using
existing or alternative raw materials and the global availability of these materials as well as significant fluctuations in the market
prices of these materials may have an adverse effect on our financial results if the increased raw material costs cannot be recovered
from our customers.
Given the significant financial impact on us relating to changes in the cost of our primary raw materials, commencing with fiscal
2008 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
with each customer. It is not a standard practice for our customers to include such price adjustments in their contracts. We have been
successful in obtaining quarterly price adjustments in some of our customer contracts. However, we have not been successful in
obtaining the adjustments with all of our customers.
Disruptions Due to Work Stoppages and Other Labor Matters – Our major customers and many of their suppliers have
unionized work forces. Work stoppages or slow-downs experienced by our customers or their suppliers could result in slow-downs or
closures of assembly plants where our products are included in assembled vehicles. For example, strikes 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 in 1998. A material work stoppage experienced by one or more of our customers could have an adverse effect on our
business and our financial results. In addition, all production associates at our Milwaukee facility are unionized. A sixteen-day strike
by these associates in June 2001 resulted in increased costs as all salaried associates worked with additional outside resources to
produce the components necessary to meet customer requirements. The current contract with our unionized associates is effective
through September 17, 2021. 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 and our financial results. Labor
contracts between General Motors Company, Ford Motor Company and Fiat Chrysler Automobiles and their unionized associates
under the United Auto Workers union expire in October and November 2019. In addition, their respective labor agreements with the
Canadian auto workers union expire in September and October 2020. Labor disruptions encountered by our customers during the
contract period could have an adverse effect on our business and our financial results.
Compliance Related to Regulations Related to Conflict Minerals – 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.
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
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.
13
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 net sales and net income.
In addition, our competitive position in the North American automotive component supply industry could be adversely affected
in the event that we are unsuccessful in making strategic investments, acquisitions or alliances or in establishing joint ventures that
would enable us to expand globally, in particular, with the VAST Automotive Group and their ability to fund and service global
vehicle platforms. We principally compete for new business at the beginning of the development of new models and upon the redesign
of existing models by our major customers. New model development generally begins two to five years prior to the marketing of such
new models to the public. The failure to obtain new business on new models or to retain or increase business on redesigned existing
models could adversely affect our business and financial results. In addition, as a result of relatively long lead times for many of our
components, it may be difficult in the short-term for us to obtain new sales to replace any unexpected decline in the sale of existing
products. Finally, we may incur significant product development expense in preparing to meet anticipated customer requirements
which may not be recovered.
Program Volume and Pricing Fluctuations – We incur costs and make capital expenditures for new program awards based
upon certain estimates of production volumes over the anticipated program life for certain vehicles. While we attempt to establish the
price of our products for variances in production volumes, if the actual production of certain vehicle models is significantly less than
planned, our net sales and net income may be adversely affected. We cannot predict our customers’ demands for the products we
supply either in the aggregate or for particular reporting periods.
Investments in Customer Program Specific Assets – We make investments in machinery and equipment used exclusively to
manufacture products for specific customer programs. This machinery and equipment is capitalized and depreciated over the expected
useful life of each respective asset. Therefore, the loss of any one of our major customers, the loss of specific vehicle models or the
early cancellation of a vehicle model could result in impairment in the value of these assets which may have a material adverse effect
on our financial results.
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. Our largest customers have recently
extended and/or expanded their warranty protection for their vehicles. Other automotive OEMs have similarly extended and/or
expanded their warranty programs. 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. The extended and/or expanded warranty trend may also result in higher cost recovery claims by OEMs from suppliers
whose products incur a higher rate of warranty claims above an OEM derived nominal level. 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 and 2018, 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 and June 2018, respectively, for which amounts were reasonably estimable. As additional
information becomes available, actual results may differ from recorded estimates. If our customers demand higher warranty-related
cost recoveries, or if our products fail to perform as expected, it could have a material adverse impact on our results of operations and
financial condition.
Cyber Vulnerability – Cyber attacks or security breaches could compromise confidential, business critical information, cause a
disruption in our operations or harm our reputation. While we have a cyber security monitoring program, a significant cyber attack
could result in loss of critical business information and/or could negatively impact our operations, any of which could have a negative
impact on our financial results.
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.
14
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We have four manufacturing plants, one warehouse, and one sales office. These facilities are described as follows:
Location
Milwaukee, Wisconsin ..................
Headquarters and General Offices; Component Parts
Manufacturing
Type
Juarez, Chihuahua Mexico ............ Subsidiary Offices and Assembly
Juarez, Chihuahua Mexico ............ Subsidiary Offices and Assembly
Juarez, Chihuahua Mexico ............
Leon, Mexico.................................
Subsidiary Offices, Key Finishing, Injection Molding
and Assembly Operations
Subsidiary Offices, Door Handle Injecting Molding,
Painting and Assembly
El Paso, Texas ............................... Finished Goods and Service Parts Distribution Warehouse
Auburn Hills, Michigan................. Sales and Engineering Office for Detroit Customer Area
Sq. Ft.
Owned or
Leased
345,123
169,488
69,900
Owned
Owned
Owned
114,877
Owned
129,887
114,715
62,736
Owned
Leased**
Owned
**
Leased unit within a complex.
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.
15
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
PART II
Our common stock is traded on the NASDAQ Global Market under the symbol “STRT.”
Registered shareholders of record at June 30, 2019, were 1,119.
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, 2019, 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, 2019, a total of 3,655,322 shares have been repurchased at a cost of approximately $136.4
million. No shares were repurchased during the year ended June 30, 2019.
ITEM 6. SELECTED FINANCIAL DATA
The financial data for each period presented below reflects the consolidated results of STRATTEC SECURITY
CORPORATION, its wholly owned Mexican subsidiary and its majority owned subsidiaries. Fiscal year 2015 has been
retrospectively adjusted for the adoption of an update to an accounting standard issued by the FASB which simplifies the presentation
of deferred taxes in a classified statement of financial position by requiring that deferred tax assets and liabilities be classified as non-
current. Fiscal years 2015 through 2017 have been retrospectively adjusted for the adoption of an update to the accounting guidance
for the presentation of net periodic pension cost and net periodic postretirement benefit cost which requires the service cost component
of net periodic benefit cost to be reported in the same line items as other compensation costs arising from services rendered by the
pertinent employees during the applicable period while remaining components of net periodic benefit cost are required to be presented
separately outside a subtotal of income from operations. The information below should be read in conjunction with “Management’s
Discussion and Analysis,” and the Financial Statements and Notes thereto included elsewhere herein. The following data are in
thousands of dollars except per share amounts.
INCOME STATEMENT DATA
Net sales ................................................................................. $
Gross profit ............................................................................
Engineering, selling and administrative expenses .................
Income from operations .........................................................
Interest income .......................................................................
Equity earnings (loss) of joint ventures .................................
Interest expense......................................................................
Pension termination settlement charge ..................................
Other (expense) income, net ..................................................
(Loss) income before taxes and non-controlling interest.......
(Benefit) provision for income taxes .....................................
Net (loss) income ...................................................................
Net income attributable to non-controlling interest ...............
Net (loss) income attributable to
STRATTEC SECURITY CORPORATION ...................... $
(Loss) earnings per share attributable to
STRATTEC SECURITY CORPORATION:
Basic ................................................................................. $
Diluted .............................................................................. $
Cash dividends declared per share..................................... $
BALANCE SHEET DATA
Net working capital ................................................................ $
Total assets ............................................................................. $
Long-term liabilities............................................................... $
Total STRATTEC SECURITY
CORPORATION Shareholders’ equity .............................. $
2019
2018
2017
2016
2015
Fiscal Years
487,006 $
57,800
47,186
10,614
—
2,783
(1,615)
(31,878)
(337)
(20,433)
(7,740)
(12,693)
4,336
439,195 $
54,443
41,168
13,275
8
4,532
(1,137)
—
1,020
17,698
2,070
15,628
3,345
417,325 $
60,955
46,113
14,842
136
666
(417)
—
1,167
16,394
4,284
12,110
4,913
401,419 $
65,726
43,547
22,179
25
(2,235)
(176)
—
(603)
19,190
5,068
14,122
4,973
411,475
73,230
41,277
31,953
185
(788)
(71)
—
2,654
33,933
9,382
24,551
3,897
(17,029) $
12,283 $
7,197 $
9,149 $
20,654
(4.63) $
(4.63) $
0.56 $
3.39 $
3.32 $
0.56 $
2.01 $
1.96 $
0.56 $
2.55 $
2.51 $
0.52 $
5.80
5.66
0.48
77,369 $
312,736 $
45,657 $
82,310 $
307,175 $
55,136 $
61,110 $
273,714 $
33,105 $
70,236 $
242,176 $
23,449 $
63,871
230,834
13,698
163,388 $
162,158 $
151,088 $
139,332 $
140,312
16
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, a significant portion of our total net sales are to domestic automotive OEMs (General Motors, Ford and Fiat
Chrysler). During the past two decades these customers lost North American market share to the New Domestic automotive
manufacturers (primarily the Japanese and Korean automotive manufacturers). In addition to our dependence on our customers’
maintaining their market share, our financial performance depends in large part on conditions in the overall automotive industry,
which in turn, are dependent upon the U.S. and global economies. During fiscal years 2019 and 2018, the above domestic automotive
OEMs together represented 60 percent and 59 percent, respectively, of our total net sales.
During fiscal years 2019 and 2018, we experienced stronger sales demand for our components from our major North American
customers noted above as it relates to light trucks and both sport utility and car based utility vehicles in comparison to passenger cars,
which was likely influenced by lower gas prices and customer preferences. If gas prices continue to remain flat or slightly higher over
the next year, we anticipate this consumer buying trend will continue, which is approximately 70 percent light trucks and sport utility
vehicles in comparison to 30 percent passenger car vehicle purchases today.
Fiscal 2019 net sales were $487 million compared to $439 million in 2018. Net loss attributable to STRATTEC for fiscal 2019
was $17.0 million (which includes non-cash pension settlement and compensation expense charges of approximately $28.0, net of tax)
compared to net income of $12.3 million in 2018. The financial health of our three largest customers continues to be stable. General
Motors, Ford and Fiat Chrysler continued to report profitable results after implementing significant restructuring plans that modified
their cost structures by closing manufacturing facilities, reducing benefits and wages and eliminating certain models and brands in
2009 and 2010. With the new United Auto Workers contracts signed in the United States during November 2015, our major customers
planned to move passenger car production from the United States into Mexico over the next 3-5 years to improve their overall
profitability on these vehicles. Fiat Chrysler, Ford, and General Motor’s plans have changed subsequent to the above contract date and
all three have started eliminating passenger car production on certain models in North America entirely. In spite of such recent
developments, STRATTEC and our joint venture partner ADAC Automotive just completed a new production facility in Leon,
Mexico to capture these new opportunities as well as other OEM’s as it relates to painted door handles and assemblies in the
expanding Mexican market.
As we look out into the future, the July 2019 projections from our third-party forecasting service indicate that North American
light vehicle production will show steady to flat production for the next five years. By model year, based on these projections we are
expecting a 2019 build of 16.7 million vehicles, 16.6 million vehicles for 2020, 16.3 million vehicles for 2021, 16.6 million vehicles
for 2022 and 16.9 million vehicles for 2023. As part of this third party projection, the Ford Motor Company and Fiat Chrysler are
expected to experience flat to slightly reduced vehicle production volumes in their production levels during this time period. General
Motors, however, is expected to slightly decrease production as they eliminate or reduce passenger car production on certain models
during this time horizon. Of course, all of these forecasts are subject to variability based on what happens in the overall North
American and global economies, especially as it relates to potential tariff enactment by the United States Government or other foreign
countries, the current levels of employment, availability of consumer credit, home equity values, fluctuating fuel prices, changes in
customer vehicle and option preferences, product quality issues, including 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.
As described in "Retirement Plans and Postretirement Costs" in the Notes to Financial Statements under Item 8 in this Form 10-
K, our Board of Directors has approved proceeding with the termination of the STRATTEC qualified, noncontributory defined benefit
pension plan. During our fiscal quarter ending December 30, 2018, we completed a substantial portion of the termination by (1)
making distributions from the qualified pension plan trust to participants electing lump sum distributions and (2) entering into an
agreement with an insurance company whereby we sold, through a series of annuity contracts, our remaining obligations under the
qualified pension plan and, therefore, settled the remaining obligations under this plan with use of funds remaining in the plan. No
additional cash contributions to the pension trust were required from STRATTEC to settle these pension obligations. In connection
with those actions, we incurred a pre-tax settlement charge of $31.9 million during fiscal 2019. We also incurred a $4.2 million non-
cash compensation charge during fiscal 2019 related to the future transfer of the remaining excess pension plan assets to a
STRATTEC defined contribution plan for subsequent pay-out to eligible participating STRATTEC employees. We expect to incur an
additional $4.3 million in non-cash compensation charges during the first six months of our fiscal 2020 related to this future transfer
and pay-out of the excess pension plan assets.
Focus and Strategy Going Forward
STRATTEC’s long-term strategy is focused on maximizing long-term shareholder value by driving profitable growth. Our
management believes productivity improvements and cost reductions are critical to our competitiveness, while enhancing the value we
deliver to our customers. In order to accomplish this, we have been pursuing, and we intend to continue to pursue over the foreseeable
future, the following objectives as summarized below:
-
-
Streamline and standardize processes to increase productivity and improve the quality of our products
Maintain a disciplined and flexible cost structure to leverage scale and optimize asset utilization and procurement
17
-
-
-
-
Maintain our strong financial position by deploying capital spending targeted for growth and productivity improvement
Leverage the “VAST Automotive Group Brand” with customer relationships to generate organic growth from global
programs
Offer our customers innovative products and technologies along with cost savings solutions to meet their changing demands
Explore and execute targeted mergers and acquisitions or other joint venture opportunities with a disciplined due diligence
approach and critical financial analysis to drive shareholder value
We use several key performance indicators to gauge progress toward achieving these objectives. These indicators include net
sales growth, operating margin improvement, return on capital employed and cash flow from operations.
Results of Operations
2019 Compared to 2018
Net Sales (millions of dollars).................................................... $
487.0 $
June 30, 2019
July 1, 2018
439.2
Years Ended
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, 2019
Fiat Chrysler Automobiles ......................................................... $
General Motors Company ..........................................................
Ford Motor Company.................................................................
Tier 1 Customers ........................................................................
Commercial and Other OEM Customers ...................................
Hyundai / Kia .............................................................................
Total ...................................................................................... $
115.3 $
112.7
63.3
75.2
89.5
31.0
487.0 $
July 1, 2018
110.7
85.8
64.4
70.5
82.0
25.8
439.2
Sales to Fiat Chrysler Automobiles in the current year increased over the prior year due to higher product content on the
components we supply on certain vehicles, in particular the Ram pickup truck, which impact was partially offset by lower vehicle
production volumes on the FCA minivan component we supply. The increase in sales to General Motors Company in the current year
compared to the prior year was attributed to higher vehicle production volumes and content on models for which we supply
components, in particular power access products and latches. Decreased sales to Ford Motor Company in the current year as compared
to the prior year was due to a combination of discontinued models and lower production volumes on the vehicles for which we supply
components. Sales to Tier 1 Customers increased in the current year as compared to the prior year due to due to higher production
volumes of our door handle and component products. Sales to Commercial and Other OEM Customers during the current year
increased in comparison to the prior year due to due to new door handle customer programs at Honda of America Manufacturing, Inc.
and Volkswagen as well as higher sales volumes related to our Aftermarket business. These Commercial and Other OEM Customers,
along with our Tier 1 Customers, represent purchasers of vehicle access control products, such as latches, fobs, driver controls and
door handles that we have developed in recent years to complement our historic core business of locks and keys. The increased sales
to Hyundai / Kia in the current year as compared to the prior year were due to higher levels of production on vehicles for which we
supply components, in particular the Kia Sedona minivan for which we supply primarily power sliding door components.
Cost of Goods Sold (millions of dollars) ................................... $
429.2 $
June 30, 2019
July 1, 2018
384.8
Years Ended
Direct material costs are the most significant component of our cost of goods sold and comprised $280.5 million or 65.4 percent
of cost of goods sold in the current year compared to $245.5 million or 63.8 percent of cost of goods sold in the prior year. This dollar
value increase in our direct material costs of $35.0 million or 14.3 percent was due to increased sales volumes in the current year as
compared to the prior year. The increase in our direct material costs as a percentage of our cost of goods sold in the current year as
compared to the prior year was due to increased nonconforming costs resulting from internal manufacturing process quality issues
incurred in the current year period as compared to the prior year period and an increase in sales of products for certain electrical and
latch programs in the current year period over the prior year period, for which the direct material content represents a more significant
portion of the total cost of the product.
18
The remaining components of cost of goods sold consist of labor and overhead costs which increased $9.4 million or 6.7 percent
to $148.7 million in the current year from $139.3 million in the prior year as the variable portion of these costs increased due to the
increase in sales volumes between years. Additionally, the increase in labor and overhead costs in the current year as compared to the
prior year was impacted by a $2.5 million non-cash compensation expense charge related to the future transfer of excess Qualified
Pension Plan assets, resulting from the termination of the Qualified Pension Plan, to a STRATTEC defined contribution plan for
subsequent pay-out to eligible STRATTEC employees, an increase in the Mexican minimum wage for our Mexican workforce
effective January 1, 2019, which increased costs approximately $2.2 million in the current year as compared to the prior year, and
higher than expected production costs at our door handle paint and assembly facility in Leon, Mexico. These cost increases were
partially offset by a $1.0 million reduction in bonus expense provisions between years and the impact of a favorable Mexican peso to
U.S. dollar exchange rate affecting our operations in Mexico. The fiscal 2018 bonus expense provisions include the accrual of a
discretionary bonus approved by our Board of Directors as well as the accrual of bonuses under our incentive bonus plans with respect
to fiscal 2018 financial results. There was no similar discretionary or incentive bonus related to fiscal 2019. The U.S. dollar value of
our Mexican operations was favorably impacted by approximately $2.1 million in the current year as compared to the prior year due to
a favorable Mexican peso to U.S. dollar exchange rate between years. The average U.S. dollar / Mexican peso exchange rate increased
to approximately 19.34 pesos to the dollar in the current year from approximately 18.75 pesos to the dollar in the prior year.
Gross Profit (millions of dollars)............................................... $
Gross Profit as a percentage of net sales ...................................
June 30, 2019
57.8
$
11.9%
July 1, 2018
54.4
12.4%
Years Ended
The increase in gross profit dollars in the current year as compared to the prior year was attributed to the increase in sales,
partially offset by the increase in cost of goods sold as discussed above. Gross profit as a percentage of net sales decreased between
years. The current year gross profit as a percentage of net sales was negatively impacted by a non-cash compensation expense charge
related to the future transfer of excess Qualified Pension Plan assets described above, an increase in the Mexican minimum wage, and
higher than expected production costs at our door handle paint and assembly facility in Leon, Mexico, as well as lower gross profit
margins on products associated with certain new electrical, latch and lockset programs, which were implemented during the current
year. The lower gross margins associated with these programs is the result of competitive pricing. These unfavorable impacts were
partially offset by the impact of a reduction in bonus expense provisions and a favorable Mexican peso to U.S. dollar exchange rate
impacting the U.S. dollar value of our Mexican operations, as discussed above.
Engineering, Selling and Administrative Expenses in the current year and prior year were as follows:
Expenses (millions of dollars) ................................................... $
Expenses as a percentage of net sales........................................
June 30, 2019
47.2
$
9.7%
July 1, 2018
41.2
9.4%
Years Ended
Engineering, selling and administrative expenses increased $6.0 million between years. The current year as compared to the
prior year included a $1.7 million non-cash compensation expense charge related to the future transfer of excess Qualified Pension
Plan assets, resulting from the termination of the Qualified Pension Plan, to a STRATTEC defined contribution plan for subsequent
pay-out to eligible STRATTEC employees. Additionally, an increase in outside expenditures on new product development costs
associated with utilizing third party vendors for a portion of our development work and an increase in engineering costs related to our
ADAC-STRATTEC LLC door handle and exterior trim products both increased expenses between years. This increase was partially
offset by a $400,000 reduction in bonus expense provisions between years. The fiscal 2018 bonus expense provisions include the
accrual of a discretionary bonus approved by our Board of Directors as well as the accrual of bonuses under our incentive bonus plans
with respect to fiscal 2018 financial results. There was no similar discretionary or incentive bonus related to fiscal 2019.
Income from operations in the current year was $10.6 million compared to $13.3 million in the prior year. This decrease was the
result of increased engineering, selling and administrative expenses partially offset by increased gross profit margins in the current
year as compared to the prior year, all as discussed above.
The equity earnings of joint ventures was comprised of the following in the current year and prior year (thousands of dollars):
Vehicle Access Systems Technology LLC ................................ $
STRATTEC Advanced Logic, LLC ("SAL LLC")....................
$
2,655 $
128
2,783 $
June 30, 2019
July 1, 2018
4,441
91
4,532
Years Ended
19
Our Vehicle Access Systems Technology LLC (“VAST LLC”) joint ventures in China and India continue to report profitable
operating results while our joint venture in Brazil continues to report losses due to our limited amount of business in that region. The
reduction in equity earnings of VAST LLC in the current year as compared to the prior year related to significantly lower sales
volumes and, as a result, lower profitability in our VAST China operation as well as startup costs related to our new production
facility being built in Jingzhou, China. We continue to invest in the growing China market with higher development costs for new
programs and breaking ground for the new plant in Jingzhou, which we believe will give VAST added capacity, efficiencies and the
advantage of a broader geographic footprint. STRATTEC is not the primary beneficiary and does not control SAL LLC. Accordingly,
our investment in SAL LLC is accounted for using the equity method. Even though we maintain a 51 percent ownership interest in
SAL LLC, effective with our fiscal 2015 fourth quarter, 100 percent of the funding for SAL LLC was being made through loans from
STRATTEC to SAL LLC. Therefore, STRATTEC began recognizing 100 percent of the losses of SAL LLC up to our committed
financial support. The business of SAL LLC has been wound down to sell only commercial biometric locks.
Included in other (expense) income, net in the current year and prior year were the following items (thousands of dollars):
Years Ended
June 30, 2019
Foreign Currency Transaction (Loss) Gain ................................ $
Unrealized Gain (Loss) on Mexican
Peso Forward Contracts ........................................................
Realized Gain on Mexican Peso Forward Contracts ..................
Pension and Postretirement Plans (Cost) Credit.........................
Rabbi Trust gain .........................................................................
Other ...........................................................................................
$
(397) $
39
485
(689)
146
79
(337) $
July 1, 2018
549
(1,160)
1,140
447
193
(149)
1,020
Foreign currency transaction gains and losses resulted from activity associated with foreign denominated assets held by our
Mexican subsidiaries. We entered into the Mexican peso currency forward contracts during fiscal 2019 and 2018 to minimize earnings
volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. Pension and
postretirement plan impacts include the components of net periodic benefit cost other than the service cost component. The Rabbi
Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in the Trust are considered
trading securities.
Our income tax provision for 2018 was impacted by the Tax Cuts and Jobs Act of 2017 (“the Act”), which was signed into law
on December 22, 2017 with an effective date of January 1, 2018. The Act makes broad and complex changes to the U.S. tax code that
affected our fiscal year ending July 1, 2018, including but not limited to (1) a reduction in the U.S. statutory tax rate to 21 percent
following its effective date and a change in the measurement of our deferred tax assets and deferred tax liabilities resulting from the
reduction in the statutory rate, (2) requiring a one-time transition tax on certain deemed repatriated earnings of foreign subsidiaries
that is payable over eight years, and (3) bonus depreciation that will allow for full expensing of qualified property. Section 15 of the
Internal Revenue Code stipulates that for our fiscal year ending July 1, 2018, a blended statutory corporate tax rate of 28% was
applicable, which is based on the applicable statutory tax rates before and after the Act and the number of days in our fiscal year.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a
measurement period that should not extend beyond one year from the Act’s enactment date for companies to complete the accounting
under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the
accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is
incomplete but it is still able to determine a reasonable estimate of the tax effect, it must record a provisional estimate in the financial
statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to
apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act.
In connection with our analysis of the impact of the Act, we recorded a discrete net tax benefit of approximately $3 million
during 2018. This net tax benefit primarily consisted of (1) the impact of the change in measurement of our deferred tax assets and
liabilities, which resulted in a favorable provision impact of $1.6 million, (2) the one-time transition tax on non-previously taxed post-
1986 accumulated foreign earnings, which resulted in a net favorable impact of $500,000 and included a transition tax of $1.4 million
offset by the reversal of net deferred tax liability balances totaling $1.9 million, which related to basis differences in foreign earnings,
and (3) the impact of changing our annualized effective tax rate, which resulted in a favorable provision impact of $900,000. For
various reasons that are discussed more fully below, we did not complete our accounting for the income tax effects for certain
elements of the Act as of December 31, 2017. However, we were able to make reasonable estimates of certain effects and, therefore,
we recorded provisional adjustments of these elements in the accompanying consolidated financial statements. We identified these
items as provisional since our analysis of the items was not complete.
20
The Act reduced the corporate tax rate to 21 percent, effective January 1, 2018. For certain of our net deferred tax assets,
we have recorded a provisional adjustment to reflect the reduction in the corporate tax rate. While we are able to make a
reasonable estimate of the impact of the reduction in the corporate rate, it may be affected by other analyses related to the Act,
including, but not limited to, the impact of our calculation of deemed repatriation of deferred foreign income and the impact of
full expensing for certain assets.
The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current
earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must
determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-
U.S. income taxes paid on such earnings. We were able to make a reasonable estimate of the Transition Tax and recorded a
provisional Transition Tax obligation in these consolidated financial statements. However, as of December 31, 2017, additional
information needed to be gathered to more precisely compute the amount of the Transition Tax.
We were required to assess whether our valuation allowance analyses was affected by various aspects of the Act (e.g.,
deemed repatriation of deferred foreign income, Global Intangible Low-Taxed Income (“GILTI”) inclusions, and new
categories of Foreign Tax Credits). Since, as discussed herein, we have recorded provisional amounts related to certain portions
of the Act, any corresponding determination of the need for, or any change in, a valuation allowance was also provisional.
As of December 30, 2018, we had completed our accounting for all income tax elements of the Act. Measurement period
adjustments related to the Act recorded in 2019 totaled $372,000.
Our income tax provision for 2019 was impacted by a $7.9 million tax benefit resulting from the termination of our qualified,
noncontributory defined benefit pension plan as discussed under Retirement Plans and Postretirement Costs below in the Notes to
Financial Statements under Item 8 in this Form 10-K and a reduction in the expected effective tax rate as compared to 2018. Our
income tax provision for 2019 was also impacted by a discrete benefit of $372,000, which represents measurement period adjustments
to the one-time transition tax on non-previously taxed post-1986 accumulated foreign earnings.
Additionally, our income tax provisions for 2019 and 2018 were affected by the non-controlling interest portion of our pre-tax
income. The non-controlling interest impacts the effective tax rate as ADAC-STRATTEC LLC and STRATTEC POWER ACCESS
LLC entities are taxed as partnerships for U.S. tax purposes.
Liquidity and Capital Resources
Outstanding Receivable Balances from Major Customers
Our primary source of cash flow is from our major customers, which include Fiat Chrysler Automobiles LLC, 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, 2019 was as follows
(millions of dollars):
Fiat Chrysler Automobiles ............................................................ $
General Motors Company ............................................................. $
Ford Motor Company.................................................................... $
19.2
12.8
10.0
Cash Balances in Mexico
We earn a portion of our operating income in Mexico. As of June 30, 2019, $2.2 million of our $7.8 million cash and cash
equivalents balance was held in Mexico. These funds are available for repatriation as deemed necessary.
Cash Flow Analysis
Cash Flows from (millions of dollars):
Operating Activities............................................................................. $
Investing Activities.............................................................................. $
Financing Activities............................................................................. $
29.9 $
(17.6) $
(12.2) $
6.9
(23.9)
16.4
Years Ended
June 30, 2019
July 1, 2018
21
The increase in cash provided by operating activities between 2018 and 2019 reflected a net reduction in working capital
requirements between the two years of $22.4 million, with the net decrease in our working capital requirements being made up of the
following working capital changes (millions of dollars):
Increase (Decrease) in Working Capital Requirements
2018
Change
2019
Accounts Receivable ................................................................ $
Inventories ................................................................................ $
Customer Tooling..................................................................... $
Other Assets ............................................................................. $
Accounts Payable and
10.4 $
0.6 $
(4.3) $
(1.6) $
9.6 $
11.2 $
1.0 $
3.5 $
0.8
(10.6)
(5.3)
(5.1)
Other Liabilities .................................................................. $
(6.1) $
(3.7) $
(2.4)
The year over year change in accounts receivable balances reflected an increase in our accounts receivable balances during both
the current year and the prior year. The increase in accounts receivable balances during both years reflected increased sales levels in
May and June of each fiscal year as compared to May and June of the previous fiscal year. Additionally, an increase in outstanding
customer tooling billings increased the 2018 accounts receivable balances by approximately $5.2 million between years. The year over
year change in inventory reflected an increase in inventory balances during 2018, which was the result of ramping up for new
customer program launches. The year over year change in customer tooling balances, which consisted of costs incurred for the
development of tooling that will be directly reimbursed by the customer whose parts are produced from the tool, was the result of the
timing of tooling development spending required to meet customer production requirements and related billings for customer
reimbursements. The year over year change in other assets was the result of a decrease in the income tax recoverable balance in 2019
as compared to an increase in 2018, which changes were based on the required income tax provision, the timing and amounts of
Federal, state and foreign tax payments made, and the timing of the utilization of foreign tax credits and research and development tax
credits. The year over year change in accounts payable and accrued liability balances reflected a reduction in working capital
requirements during each period. The reductions in working capital requirements were the result of increases in accounts payable and
accrual balances each period, which resulted from the timing of purchases and payments with our vendors based on normal payment
terms. Additionally, the 2018 reduction included an increase in warranty reserve balances of $2.3 million due to expense provisions
for expected warranty payments to be settled in future periods
Net cash used by investing activities of $17.6 million during 2019 and $23.9 million during 2018 included capital expenditures
of $17.5 million and $24.1 million, respectively. Capital expenditures during each year were made in support of requirements for new
product programs and the upgrade and replacement of existing equipment. Capital expenditures included $2.5 million during 2018 for
the purchase of land, equipment and the construction of a new facility in Leon, Mexico, which is used primarily to paint and assemble
door handle products by ADAC-STRATTEC LLC. Net cash used by investing activities during 2019 and 2018 also included an
investment in our VAST LLC joint venture of $200,000 and $125,000, respectively. The investments were made for the purpose of
funding general operating expenses for Sistema de Acesso Veicular Ltda (formerly known as VAST do Brasil). Additionally, prior to
2017, loans were made by each partner, STRATTEC, WITTE and ADAC to our joint venture, VAST LLC. The loans were made in
support of VAST LLC’s purchase of the non-controlling interest in the Brazilian entity and in support of funding general operating
expenses of the Brazilian entity. Repayments of outstanding loan balances totaling $300,000 were made from VAST LLC to each
partner during 2018.
Net cash used in financing activities of $12.2 million during 2019 included repayments of borrowings under credit facilities of
$14.0 million, $2.1 million of regular quarterly dividend payments to shareholders and $1.4 million of dividend payments to non-
controlling interests in our subsidiaries, partially offset by $5 million in additional borrowings under credit facilities. Net cash
provided by financing activities of $16.4 million during 2018 included $24.0 million of borrowings under credit facilities and
$242,000 of proceeds from stock purchases and option plan exercises, partially offset by $3.0 million for repayments of borrowings
under credit facilities, $2.0 million for regular quarterly dividend payments to shareholders and $2.8 million for dividend payments to
non-controlling interests in our subsidiaries.
VAST LLC Cash Requirements
We currently anticipate that both VAST China and Minda-VAST Access Systems have adequate debt facilities in place over the
next fiscal year to cover the future operating and capital requirements of each business. During 2019 and 2018, capital contributions
totaling $600,000 and $375,000, respectively were made to VAST LLC for purposes of funding operations in Brazil. STRATTEC’s
portion of the capital contributions totaled $200,000 in 2019 and $125,000 in 2018. We anticipate the Brazilian entity will require a
capital contribution of approximately $600,000 collectively by all VAST partners to fund operations during fiscal 2020. STRATTEC’s
portion of the capital contributions is anticipated to be $200,000.
22
STRATTEC Advanced Logic, LLC Cash Requirements
During all periods presented in this report, STRATTEC provided 100 percent of the financial support to fund the start-up
operating losses of SAL LLC due to our partner’s inability to contribute capital to this joint venture. During fiscal 2018, we, along
with our joint venture partner, reduced operating the business of STRATTEC Advanced Logic to winding down and selling only
commercial biometric locks. We anticipate STRATTEC will provide minimal to no funding for SAL LLC in fiscal year 2020.
Future Capital Expenditures
We anticipate capital expenditures will be approximately $15 million in fiscal 2020 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, 2019. A total of 3,655,322 shares have been repurchased over
the life of the program through June 30, 2019, at a cost of approximately $136.4 million. No shares were repurchased during fiscal
2019 or 2018. 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. At this time, we anticipate minimal or no stock repurchase activity in fiscal year 2020.
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 $30 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 decreased to $25
million effective July 1, 2019. The credit facilities both expire August 1, 2021. 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 and interest on borrowings under the ADAC-STRATTEC Credit Facility prior to December 31, 2018 are
at varying rates based, at our option, on the London Interbank Offering Rate (“LIBOR”) plus 1.0 percent or the bank’s prime rate.
Effective December 31, 2018 and thereafter, interest on borrowings under the ADAC-STRATTEC Credit Facility is at varying rates
based, at our option, on the London Interbank Offering Rate (“LIBOR”) plus 1.25 percent or the bank’s prime rate. 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, 2019, we were in compliance with all financial covenants required by these credit
facilities. Outstanding borrowings under the STRATTEC Credit Facility totaled $18 million at June 30, 2019 and $23.0 million at July
1, 2018. The average outstanding borrowings and weighted average interest rate on the STRATTEC Credit Facility loans were
approximately $21.2 million and 3.3 percent, respectively, during 2019. The average outstanding borrowings and weighted average
interest rate on the STRATTEC Credit Facility loans were approximately $21.7 million and 2.5 percent, respectively, during 2018.
Outstanding borrowings under the ADAC-STRATTEC Credit Facility totaled $24 million at June 30, 2019 and $28.0 million at July
1, 2018. The average outstanding borrowings and weighted average interest rate on the ADAC-STRATTEC Credit Facility loans were
approximately $25.9 million and 3.4 percent, respectively, during 2019. The average outstanding borrowings and weighted average
interest rate on the ADAC-STRATTEC Credit Facility loans were approximately $22.6 million and 2.5 percent, respectively, during
2018. 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.
Inflation and Other Changes in Prices
Over the past several years, we have been impacted by rising health care costs, which have increased our cost of associate
medical coverage. A portion of these increases have been offset by plan design changes and associate wellness initiatives. We have
also been impacted by increases in the market price of zinc, nickel silver, and brass and inflation in Mexico, which impacts the U. S.
dollar costs of our Mexican operations. We have negotiated raw material price adjustment clauses with certain, but not all, of our
customers to offset some of the market price fluctuations in the cost of zinc. 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. We executed contracts with Bank of Montreal that provided for
monthly Mexican peso currency forward contracts for a portion of our estimated peso denominated operating costs during 2018 and
2019. Refer to the discussion of Derivative Instruments 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.
23
Joint Ventures and Majority Owned Subsidiaries
Refer to the discussion of Investment in Joint Ventures and Majority Owned Subsidiaries and discussion of Equity 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. 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.
Other Reserves – We have reserves such as a warranty reserve and an excess and obsolete inventory reserve. These reserves
require the use of estimates and judgment with regard to risk exposure, ultimate liability and net realizable value.
Warranty Reserve – We have a warranty liability 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 liability balance involves judgment and estimates. Our liability estimate is based on an analysis of historical
warranty data as well as current trends and information, including our customers’ recent extension or expansion of their warranty
programs. 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 liability. 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.
Excess and Obsolete Inventory Reserve – 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 material and
parts that are unlikely to be sold. Technical obsolescence and other known factors are also considered in evaluating the reserve level.
Actual future write-offs of inventory may differ from estimates and calculations used to determine reserve levels due to changes in
customer demand, changes in technology and other factors. Refer to the discussion of Inventories 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 reserves discussed above are estimated using consistent and appropriate methods. However, changes to the
assumptions could materially affect the recorded reserves.
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.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE INCOME
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Page
26
27
28
29
30
31
53
25
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, 2019 and July 1, 2018, the related consolidated statements of (loss) income and comprehensive income,
shareholders’ equity, and cash flows, for each of the two years in the period ended June 30, 2019, 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, 2019 and July 1, 2018, and the results of its operations and its cash flows for each of the two
years in the period ended June 30, 2019, 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, 2019, 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, 2019, 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.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Milwaukee, WI
September 5, 2019
We have served as the Company's auditor since 2010.
26
CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NET SALES........................................................................................................................... $
Cost of goods sold...................................................................................................................
GROSS PROFIT ...................................................................................................................
Engineering, selling, and administrative expenses .................................................................
INCOME FROM OPERATIONS .......................................................................................
Interest income........................................................................................................................
Equity earnings of joint ventures ............................................................................................
Interest expense.......................................................................................................................
Pension termination settlement charge ...................................................................................
Other (expense) income, net ...................................................................................................
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES AND NON-
CONTROLLING INTEREST ..........................................................................................
(Benefit) provision for income taxes ......................................................................................
NET (LOSS) INCOME.........................................................................................................
Net income attributable to non-controlling interest ................................................................
NET (LOSS) INCOME ATTRIBUTABLE TO STRATTEC SECURITY
CORPORATION ............................................................................................................... $
COMPREHENSIVE INCOME:
NET (LOSS) INCOME......................................................................................................... $
Currency translation adjustments, net of tax...........................................................................
Pension and postretirement plans, net of tax...........................................................................
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)...............................................
COMPREHENSIVE INCOME ...........................................................................................
Comprehensive income attributable to non-controlling interest............................................
COMPREHENSIVE INCOME ATTRIBUTABLE TO
STRATTEC SECURITY CORPORATION ................................................................... $
(LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO STRATTEC
SECURITY CORPORATION:
Basic .................................................................................................................................. $
Diluted............................................................................................................................... $
AVERAGE SHARES OUTSTANDING:
Basic ..................................................................................................................................
Diluted...............................................................................................................................
Years Ended
June 30, 2019
July 1, 2018
487,006 $
429,206
57,800
47,186
10,614
—
2,783
(1,615)
(31,878)
(337)
(20,433)
(7,740)
(12,693)
4,336
439,195
384,752
54,443
41,168
13,275
8
4,532
(1,137)
—
1,020
17,698
2,070
15,628
3,345
(17,029) $
12,283
(12,693) $
(555)
19,861
19,306
6,613
4,724
15,628
(2,219)
602
(1,617)
14,011
2,279
1,889 $
11,732
(4.63) $
(4.63) $
3,676
3,676
3.39
3.32
3,628
3,703
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of (Loss) Income and
Comprehensive Income.
27
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE AMOUNTS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................................................................
Receivables, less allowance for doubtful accounts of $500 at June 30, 2019 and
July 1, 2018 ....................................................................................................................
Inventories, net ..................................................................................................................
Customer tooling in progress, net .....................................................................................
Income taxes recoverable ..................................................................................................
Other current assets ...........................................................................................................
Total current assets ......................................................................................................
INVESTMENT IN JOINT VENTURES ............................................................................
DEFERRED INCOME TAXES ..........................................................................................
OTHER LONG-TERM ASSETS........................................................................................
PROPERTY, PLANT AND EQUIPMENT, NET .............................................................
June 30, 2019
July 1, 2018
$
7,809 $
8,090
84,230
47,262
8,240
2,107
6,984
156,632
23,528
2,933
11,523
118,120
312,736 $
73,832
46,654
12,514
3,559
6,454
151,103
22,192
—
17,338
116,542
307,175
$
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable ..............................................................................................................
Accrued liabilities:
$
41,889 $
38,439
Payroll and benefits .....................................................................................................
Environmental..............................................................................................................
Warranty ......................................................................................................................
Other ............................................................................................................................
Total current liabilities ...........................................................................................
Commitments and Contingencies – see note beginning on page 44
BORROWINGS UNDER CREDIT FACILITIES ............................................................
DEFERRED INCOME TAXES ..........................................................................................
ACCRUED PENSION OBLIGATIONS ............................................................................
ACCRUED POSTRETIREMENT OBLIGATIONS ........................................................
OTHER LONG-TERM LIABILITIES ..............................................................................
SHAREHOLDERS’ EQUITY:
Common stock, authorized 12,000,000 shares, $.01 par value, issued 7,304,994
shares at June 30, 2019 and 7,251,937 shares at July 1, 2018 .......................................
Capital in excess of par value............................................................................................
Retained earnings ..............................................................................................................
Accumulated other comprehensive loss............................................................................
Less: Treasury stock at cost (3,613,439 shares at June 30, 2019 and 3,616,734 shares
at July 1, 2018) ...............................................................................................................
Total STRATTEC SECURITY CORPORATION shareholders’ equity ....................
Non-controlling interest...............................................................................................
Total shareholders’ equity......................................................................................
$
17,339
1,278
7,900
10,857
79,263
42,000
—
1,663
762
1,232
73
96,491
221,117
(18,568)
(135,725)
163,388
24,428
187,816
312,736 $
13,393
1,291
7,800
7,870
68,793
51,000
961
1,553
826
796
73
95,140
236,162
(33,439)
(135,778)
162,158
21,088
183,246
307,175
The accompanying Notes to Financial Statements are an integral part of these Consolidated Balance Sheets.
28
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
72 $ 93,813 $225,913 $
— 12,283
—
—
—
—
Accumulated
Other
Treasury
Comprehensive
Loss
Stock
(32,888) $(135,822) $ 21,626
3,345
(1,066)
Non-
controlling
interest
—
(1,153)
—
—
(2,817)
602
(2,034)
BALANCE July 2, 2017...................................... $172,714 $
Net income ............................................................ 15,628
Currency translation adjustments..........................
(2,219)
Pension and postretirement funded status
adjustment, net of tax of $340............................
Cash dividends declared ($0.56 per share) ...........
Cash dividends paid to non-controlling interests
of subsidiaries ....................................................
Stock-based compensation and shortfall tax
1,130
Benefit ................................................................
140
Stock option exercises...........................................
Employee stock purchases ....................................
102
BALANCE July 1, 2018...................................... $183,246 $
Net (loss) income .................................................. (12,693)
Currency translation adjustments..........................
(555)
Pension and postretirement funded status
adjustment, net of tax of $6,101......................... 19,861
—
Reclassification of stranded tax effects.................
Cash dividends declared ($0.56 per share) ...........
(2,063)
Cash dividends paid to non-controlling interests
(1,384)
of subsidiaries ....................................................
1,133
Stock-based compensation ....................................
172
Stock option exercises...........................................
Employee stock purchases ....................................
99
BALANCE June 30, 2019 ................................... $187,816 $
—
—
—
—
—
(2,034)
602
—
—
—
—
—
—
—
—
—
—
(2,817)
—
1,130
—
—
139
1
—
—
58
73 $ 95,140 $236,162 $
— (17,029)
—
—
—
—
—
—
—
—
—
44
—
—
—
(33,439) $(135,778) $ 21,088
4,336
388
—
(943)
—
—
—
—
—
—
—
—
—
4,047
(2,063)
19,861
(4,047)
—
—
—
—
—
—
—
—
—
—
—
1,133
—
—
172
—
—
—
46
73 $ 96,491 $221,117 $
—
—
—
—
(1,384)
—
—
—
(18,568) $(135,725) $ 24,428
—
—
—
53
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Shareholders’ Equity.
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Years Ended
June 30, 2019
July 1, 2018
(12,693) $
15,628
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income............................................................................................................... $
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Equity earnings of joint ventures .................................................................................
Depreciation and amortization .....................................................................................
Foreign currency transaction loss (gain) ......................................................................
Unrealized (gain) loss on peso forward contracts ........................................................
Loss (gain) on disposition of property, plant and equipment.......................................
Pension termination settlement charge.........................................................................
Non-cash compensation expense .................................................................................
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 ....................................................................
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in joint ventures ..............................................................................................
Repayments from loan to joint ventures............................................................................
Additions to property, plant and equipment ......................................................................
Proceeds received on sale of property, plant and equipment ............................................
Net cash used in investing activities..................................................................................
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under credit facilities .....................................................................................
Repayments under credit facilities ....................................................................................
Exercise of stock options and employee stock purchases .................................................
Dividends paid to non-controlling interests of subsidiaries ..............................................
Dividends paid...................................................................................................................
Net cash (used in) provided by financing activities ..........................................................
FOREIGN CURRENCY IMPACT ON CASH..................................................................
NET DECREASE IN CASH AND CASH
EQUIVALENTS.................................................................................................................
CASH AND CASH EQUIVALENTS
(2,783)
17,159
397
(39)
106
31,878
4,195
(10,122)
1,133
(10,392)
(608)
5,855
6,141
(286)
29,941
(200)
—
(17,453)
53
(17,600)
5,000
(14,000)
271
(1,384)
(2,063)
(12,176)
(446)
(281)
(4,532)
14,585
(549)
1,160
(28)
—
—
1,029
1,130
(9,571)
(11,178)
(4,457)
3,749
(26)
6,940
(125)
300
(24,134)
41
(23,918)
24,000
(3,000)
242
(2,817)
(2,034)
16,391
316
(271)
8,361
8,090
Beginning of year ..............................................................................................................
End of year......................................................................................................................... $
8,090
7,809 $
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period For:
Income taxes ...................................................................................................................... $
Interest ............................................................................................................................... $
530 $
1,624 $
2,503
1,078
Non-Cash Investing Activities:
Change in capital expenditures in accounts payable ......................................................... $
467 $
(1,702)
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Cash Flows.
30
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STRATTEC SECURITY CORPORATION designs, develops, manufactures and markets automotive access control products
including mechanical locks and keys, electronically enhanced locks and keys, steering column and instrument panel ignition lock
housings, latches, power sliding side door systems, power lift gate systems, power deck lid systems, door handles and related products
for primarily North American automotive customers. We also supply global automotive manufacturers through a unique strategic
relationship with WITTE Automotive (“WITTE”) of Velbert, Germany and ADAC Automotive (“ADAC”) of Grand Rapids,
Michigan. Under this relationship, STRATTEC, WITTE and ADAC market the products of each company to global customers under
the “VAST Automotive Group” brand name (as more fully described herein). STRATTEC products are shipped to customer locations
in the United States, Canada, Mexico, Europe, South America, Korea, China and India, and we provide full service and aftermarket
support for each VAST Automotive Group partner’s products. We also maintain a 51 percent interest in a joint venture, STRATTEC
Advanced Logic, LLC (“SAL LLC”), which was established to introduce a new generation of commercial and residential biometric
security products based on the designs of Actuator Systems, our partner and the owner of the remaining ownership interest. The
business of SAL LLC has been wound down to sell only commercial biometric locks.
The accompanying consolidated financial statements reflect the consolidated results of STRATTEC SECURITY
CORPORATION, its wholly owned Mexican subsidiary, STRATTEC de Mexico, and its majority owned subsidiaries, ADAC-
STRATTEC, LLC and STRATTEC POWER ACCESS LLC. STRATTEC SECURITY CORPORATION is located in Milwaukee,
Wisconsin. STRATTEC de Mexico is located in Juarez, Mexico. ADAC-STRATTEC, LLC and STRATTEC POWER ACCESS LLC
have operations in El Paso, Texas and in Juarez and Leon, Mexico. Equity investments in Vehicle Access Systems Technology LLC
(“VAST LLC”) and SAL LLC for which we exercise significant influence but do not control and are not the primary beneficiary, are
accounted for using the equity method. VAST LLC consists primarily of four wholly owned subsidiaries in China, one wholly owned
subsidiary in Brazil and one joint venture entity in India. The results of the VAST LLC foreign subsidiaries and joint venture are
reported on a one-month lag basis. SAL LLC is located in El Paso, Texas. We have only one reporting segment.
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 Mexican subsidiary and its majority owned subsidiaries. Equity
investments for which STRATTEC exercises significant influence but does not control and is not the primary beneficiary are
accounted for using the equity method. All significant inter-company transactions and balances have been eliminated.
New Accounting Standards: In May 2014, the FASB issued an update to the accounting guidance for the recognition of
revenue arising from contracts with customers. The update supersedes most current revenue recognition guidance and outlines a single
comprehensive model for revenue recognition based on the principle that an entity should recognize revenue in an amount that reflects
the expected consideration to be received in the exchange of goods and services. The guidance update also requires additional
disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. We
implemented the new standard effective July 2, 2018, the first day of our 2019 fiscal year, using the modified retrospective approach
to transition to the new standard. We assessed our revenue stream based upon the provisions of our customer contracts in effect on the
July 2, 2018 effective date to determine the cumulative effect of initially applying the guidance. Based on our assessment, the
adoption date financial statement impact was limited to a balance sheet reclassification required to establish the contract liability
concept provided for in the guidance. As such, comparative financial information for reporting periods prior to July 2, 2018 has not
been restated and continues to be reported in accordance with our revenue recognition policies prior to the adoption of the new
guidance. Additionally, there was no cumulative effect adjustment required to be recorded to our retained earnings. The effect of the
reclassification changes made to our July 2, 2018 Consolidated Balance Sheet increased Receivables, net by $1.2 million, with a
corresponding increase to Accrued Liabilities: Other. Refer to the discussion of Revenue Recognition included in these Notes to
Financial Statements.
In February 2016, the FASB issued an update to the accounting guidance for leases. The update increases the transparency and
comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and to
disclose key information about leasing arrangements. The guidance is effective for fiscal years beginning after December 15, 2018 and
interim periods within those years. We expect the adoption of this guidance will result in the recording of one operating lease asset
and lease liability of approximately $4.1 million as of July 1, 2019. Additionally, we expect no cumulative effect adjustment required
to be recorded to our retained earnings.
In August 2016, the FASB issued an update to the accounting guidance on the classification of certain cash receipts and cash
payments. The update aims to eliminate diversity in practice in how certain cash receipts and cash payments are presented and
classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017 and interim
periods within those years. The adoption of this pronouncement did not have a material impact on our consolidated financial
statements.
31
In August 2017, the FASB issued an update to the accounting for hedging activities. The new guidance eliminates the
requirement to separately measure and report hedge ineffectiveness, due to a difference between the economic terms of the hedge
instrument and the underlying transaction, and generally requires, for qualifying hedges, the entire change in the fair value of a
hedging instrument to be presented in the same line as the hedged item in the consolidated statement of income. The standard also
modifies the accounting for components excluded from the assessment of hedge effectiveness and simplifies the application of hedge
accounting in certain situations. The guidance is effective for fiscal years beginning after December 15, 2018 and interim periods
within those years. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial
statements.
In February 2018, the FASB issued guidance on the reclassification of certain tax effects from accumulated other
comprehensive income. The guidance will permit entities to reclassify tax effects stranded in accumulated other comprehensive
income as a result of U.S. tax reform to retained earnings. The guidance is effective for fiscal years beginning after December 15,
2018, and interim periods within these fiscal years. We elected early adoption beginning effective December 30, 2018. The adoption
of the guidance resulted in the reclassification of $4.0 million from accumulated other comprehensive income to retained earnings
during the quarter ended December 30, 2018.
In June 2018, the FASB issued an update to the accounting for nonemployee share-based payment accounting. The update
aligns measurement and classification guidance for share-based payments to nonemployees with the guidance applicable to
employees. Under the new guidance, the measurement of equity-classified nonemployee awards will be fixed at the date of grant. The
guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. We do not expect that
the adoption of this guidance will have a material impact on our consolidated financial statements.
Fiscal Year: Our fiscal year ends on the Sunday nearest June 30. The years ended June 30, 2019 and July 1, 2018 are each
comprised of 52 weeks.
Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the periods presented.
These estimates and assumptions could also affect the disclosure of contingencies. Actual results and outcomes may differ from
management’s estimates and assumptions.
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 short-term commercial paper.
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 the years ended June 30, 2019 and July 1, 2018, we had contracts with Bank of Montreal that provided for
monthly Mexican peso currency forward contracts for a portion of our estimated peso denominated operating costs. Our objective in
entering into these 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 (Expense) Income, net. No
Mexican peso forward contracts were outstanding as of June 30, 2019.
The fair market value of all outstanding Mexican peso forward contracts in the accompanying Consolidated Balance Sheets was
as follows (thousands of dollars):
Not designated as hedging instruments:
Other current liabilities:
Mexican peso forward contracts ...................................... $
— $
39
June 30, 2019
July 1, 2018
The pre-tax effects of the Mexican peso forward contracts on the accompanying Consolidated Statements of (Loss) Income and
Comprehensive Income consisted of the following (thousands of dollars):
Not Designated as Hedging Instruments:
Realized gain ......................................................................... $
Unrealized gain (loss) ........................................................... $
485 $
39 $
1,140
(1,160)
Other (Expense) Income, net
Years Ended
June 30, 2019
July 1, 2018
32
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, 2019 and July 1, 2018. 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. The following table summarizes our financial assets
and liabilities measured at fair value on a recurring basis as of June 30, 2019 and July 1, 2018 (thousands of dollars):
Level 1 Level 2 Level 3
Total
Level 1 Level 2 Level 3
Total
June 30, 2019
July 1, 2018
Assets:
Rabbi Trust assets:
Stock index funds:
Small cap ...........................
Mid cap ..............................
Large cap ...........................
International.......................
Fixed income funds ......................
Cash and cash equivalents ............
Total assets at fair value..........
$
276 $
293
589
864
913
—
$ 2,935 $
— $
—
—
—
—
3
3 $
298 $
276 $
— $
286
293
—
562
589
—
793
864
—
850
913
—
—
—
3
— $ 2,938 $ 2,789 $
— $
—
—
—
—
3
3 $
298
— $
286
—
562
—
793
—
850
—
—
3
— $ 2,792
Liabilities:
Mexican peso forward contracts ........
$
— $
— $
— $
— $
— $
39 $
- $
39
The Rabbi Trust assets fund our supplemental executive retirement plan and are included in Other Long-Term Assets in the
accompanying Consolidated Balance Sheets. Refer to discussion of Mexican peso forward contracts under Derivative Instruments
above. The fair value of the Mexican peso forward contracts considers the remaining term, current exchange rate and interest rate
differentials between the two currencies. There were no transfers between Level 1 and Level 2 assets during 2019 or 2018.
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 doubtful accounts is recorded for significant past due receivable balances
based on a review of the past due items, general economic conditions and the industry as a whole. The allowance for doubtful
accounts totaled $500,000 at June 30, 2019 and July 1, 2018.
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. Inventories consisted of the following (thousands of dollars):
Finished products........................................................................ $
Work in process ..........................................................................
Purchased materials ....................................................................
Excess and obsolete reserve........................................................
Inventories, net ........................................................................... $
11,582 $
10,529
29,376
51,487
(4,225)
47,262 $
June 30, 2019
July 1, 2018
13,410
10,059
27,185
50,654
(4,000)
46,654
33
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. The activity related to the excess and
obsolete inventory reserve was as follows (thousands of dollars):
Year ended June 30, 2019........................................................ $
Year ended July 1, 2018........................................................... $
4,000 $
4,510 $
799 $
1,002 $
574 $
1,512 $
4,225
4,000
Balance,
Beginning
of Year
Provision
Charged to
Expense
Amounts
Written Off
Balance,
End of Year
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. These costs
are capitalized and amortized 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.
Property, Plant and Equipment: Property, plant and equipment are stated at cost. Property, plant and equipment are
depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
Classification
Land improvements ...................................................................
Buildings and improvements.....................................................
Machinery and equipment .........................................................
Expected
Useful Lives
20 years
15 to 35 years
3 to 15 years
Property, plant and equipment consisted of the following (thousands of dollars):
Land and improvements ............................................................. $
Buildings and improvements ......................................................
Machinery and equipment ..........................................................
Less: accumulated depreciation..................................................
$
5,679 $
35,742
246,000
287,421
(169,301)
118,120 $
June 30, 2019
July 1, 2018
5,545
34,483
229,688
269,716
(153,174)
116,542
Depreciation expense was as follows for the periods indicated (thousands of dollars):
Fiscal Year
2019 ............................................................................................... $
2018 ............................................................................................... $
Depreciation
Expense
17,159
14,544
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):
Gross book value ........................................................................ $
Net book value............................................................................ $
157,551 $
80,922 $
June 30, 2019
July 1, 2018
140,681
74,364
34
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. Recoverability of assets to be held and used is measured 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 considered to be impaired, the
impairment recognized is measured by 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 no impairments
recorded in the years ended June 30, 2019 or July 1, 2018.
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.
Supplier Concentrations: The following inventory purchases were made from major suppliers during each fiscal year noted:
Fiscal Year
2019 ............................................................................................
2018 ............................................................................................
Percentage of
Inventory
Purchases
Number of
Suppliers
39%
32%
7
5
We have long-term contracts or arrangements with most of our suppliers to guarantee the availability of raw materials and
component parts.
Labor Concentrations: We had approximately 4,209 full-time associates of which approximately 250 or 5.9 percent were
represented by a labor union at June 30, 2019. The associates represented by a labor union account for all production associates at our
Milwaukee facility. The current contract with the unionized associates is effective through September 17, 2021.
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 four to six years for new vehicle production and ten to
fifteen subsequent years for service parts production, contracts may be terminated by customers at any time. Historically, terminations
have been minimal. Contracts may also provide for annual price reductions over the production life of the vehicle, and prices are
adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors.
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 45 to 90 days after the shipment date. The amount of
revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for those products based on purchase
orders, annual price reductions and ongoing price adjustments, some of which are accounted for as variable consideration. We use the
most likely amount method, the single most likely outcome of the contract, to estimate the amount to which we expect to be entitled.
There were no significant changes to our estimates of variable consideration during the reporting periods referenced in our
accompanying financial statements and significant changes to our estimates of variable consideration are not expected in future
periods.
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 (Loss) Income and Comprehensive Income. Shipping and handling costs are accounted for as fulfillment
costs and are included in Cost of Goods Sold in the accompanying Consolidated Statements of (Loss) Income and Comprehensive
Income.
35
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 doubtful accounts 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 have no material contract assets as of June 30, 2019. Contract liability balances primarily include discounts recognized as a
reduction in sales at the point of revenue recognition, but which will be applied by the customer agreement after the end of the
reporting period. The activity related to contract liability balances during the year ended June 30, 2019 was as follows (thousands of
dollars):
Balance, July 1, 2018........................................................................................................ $
Discounts Recorded as a Reduction in Sales....................................................................
Payments of Discounts to Customers ...............................................................................
Other .................................................................................................................................
Balance, June 30, 2019 ..................................................................................................... $
1,195
1,858
(1,654)
(467)
932
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 $13.8 million in 2019 and $4.8 million in 2018.
Other (Expense) Income, Net: Net other (expense) income included in the accompanying Consolidated Statements of (Loss)
Income and Comprehensive Income 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. Foreign currency transaction gains and losses
resulted from activity associated with foreign denominated assets held by our Mexican subsidiaries. We entered into the Mexican peso
currency forward contracts during fiscal 2018 and 2019 to minimize earnings volatility resulting from changes in exchange rates
affecting the U.S. dollar cost of our Mexican operations. The Rabbi Trust assets fund our amended and restated supplemental
executive retirement plan. The investments held in the Trust are considered trading securities. The impact of these items for the
periods presented was as follows (thousands of dollars):
Years Ended
June 30, 2019
July 1, 2018
Foreign currency transaction (loss) gain ................................................... $
Rabbi Trust gain ........................................................................................
Unrealized gain (loss) on Mexican peso forward contracts ......................
Realized gain on Mexican peso forward contracts....................................
Pension and postretirement plans (cost) credit..........................................
Other ..........................................................................................................
$
(397) $
146
39
485
(689)
79
(337) $
549
193
(1,160)
1,140
447
(149)
1,020
36
Warranty Reserve: We have a warranty liability 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 liability balance involves judgment and estimates. Our liability estimate is
based on an analysis of historical warranty data as well as current trends and information, including our customers’ recent extension
and/or expansion of their warranty programs. In recent fiscal periods, our largest customers have extended their warranty protection
for their vehicles and have since demanded higher warranty cost sharing arrangements from their suppliers in their terms and
conditions to purchase, including from STRATTEC. The 2018 warranty provision included costs for various known or expected
warranty issues as of July 1, 2018 for which amounts were reasonably estimable. 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):
Year ended June 30, 2019........................................................ $
Year ended July 1, 2018........................................................... $
7,800 $
5,550 $
559 $
2,617 $
459 $
367 $
7,900
7,800
Balance,
Beginning
of Year
Provision
Charged
to Expense
Payments
Balance,
End of Year
Foreign Currency Translation: The financial statements of our foreign subsidiaries and equity investees 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 (expense) income, net in the
accompanying Consolidated Statements of (Loss) Income and Comprehensive Income.
Accumulated Other Comprehensive Loss: Accumulated other comprehensive loss (“AOCL”) was comprised of the following
(thousands of dollars):
Unrecognized pension and postretirement benefit
liabilities, net of tax ................................................................................ $
Foreign currency translation, net of tax.....................................................
$
2,251 $
16,317
18,568 $
18,148
15,291
33,439
June 30, 2019
July 1, 2018
The following tables summarize the changes in AOCL for the years ended June 30, 2019 and July 1, 2018 (thousands of
dollars):
Balance July 1, 2018.................................................................. $
Other comprehensive loss before reclassifications ..............
Income Tax................................................................
15,291 $
545
10
18,148 $
170
(40)
Foreign
Currency
Translation
Adjustments
Year Ended June 30, 2019
Retirement
and
Postretirement
Plans
Total
33,439
715
(30)
Net other comprehensive loss before
Reclassifications ..........................................................
Reclassifications:
Pension termination settlements (A)...............................
Prior service credits (A)..................................................
Actuarial gains (A) .........................................................
Total reclassifications before tax....................................
Income Tax................................................................
Net reclassifications........................................................
Other comprehensive loss (income).....................................
Other comprehensive loss attributable
555
130
685
—
—
—
—
—
—
555
(25,668)
439
(1,262)
(26,491)
6,500
(19,991)
(19,861)
(25,668)
439
(1,262)
(26,491)
6,500
(19,991)
(19,306)
(388)
4,047
18,568
to non-controlling interest .........................................
Reclassification of stranded tax effects................................
Balance June 30, 2019 ............................................................... $
(388)
83
16,317 $
—
3,964
2,251 $
37
Balance July 2, 2017.................................................................. $
Other comprehensive loss before reclassifications ..............
Income Tax................................................................
14,138 $
2,370
(151)
18,750 $
820
(193)
Foreign
Currency
Translation
Adjustments
Year ended July 1, 2018
Retirement
and
Postretirement
Plans
Total
32,888
3,190
(344)
Net other comprehensive loss before
Reclassifications ..........................................................
Reclassifications:
Prior service credits (A)..................................................
Actuarial gains (A) .........................................................
Total reclassifications before tax....................................
Income Tax................................................................
Net reclassifications........................................................
Other comprehensive loss (income).....................................
Other comprehensive income attributable to
non-controlling interest .....................................................
Balance July 1, 2018.................................................................. $
2,219
627
2,846
—
—
—
—
—
2,219
752
(2,514)
(1,762)
533
(1,229)
(602)
752
(2,514)
(1,762)
533
(1,229)
1,617
1,066
15,291 $
—
18,148 $
1,066
33,439
(A) Amounts reclassified are included in the computation of net periodic benefit cost, which is included in Other (Expense) Income,
net in the accompanying Consolidated Statements of (Loss) Income and Comprehensive Income. See Retirement Plans and
Postretirement Costs note to these Notes to Financial Statements below.
Accounting For Stock-Based Compensation: We maintain an omnibus stock incentive plan. This plan provides for the
granting of stock options, shares of restricted stock and stock appreciation rights. The Board of Directors has designated 1,850,000
shares of common stock available for the grant of awards under the plan. Remaining shares available to be granted under the plan as of
June 30, 2019 were 149,289. Awards that expire or are cancelled without delivery of shares become available for re-issuance under
the plan. We issue new shares of common stock to satisfy stock option exercises.
Nonqualified and incentive stock options and shares of restricted stock have been granted to our officers, 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 10 years after the grant date unless an
earlier expiration date is set at the time of grant. The options vest 1 to 4 years after the date of grant. Shares of restricted stock granted
under the plan are subject to vesting criteria determined by the Compensation Committee of our Board of Directors at the time the
shares are granted and have a minimum vesting period of one year from the date of grant. Restricted shares granted prior to August
2014 have voting and dividend rights, regardless of whether the shares are vested or unvested. Restricted shares granted during August
2014 and thereafter have voting rights, regardless of whether the shares are vested or unvested, but only have the right to receive cash
dividends after such shares become vested. Restricted stock grants issued vest 1 to 5 years after the date of grant.
The fair value of each stock option grant was estimated as of the date of grant using the Black-Scholes pricing model. The
resulting compensation cost for fixed awards with graded vesting schedules is amortized on a straight-line basis over the vesting
period for the entire award. The expected term of awards granted is determined based on historical experience with similar awards,
giving consideration to the contractual terms and vesting schedules. The expected volatility is determined based on our historical stock
prices over the most recent period commensurate with the expected term of the award. The risk-free interest rate is based on U.S.
Treasury zero-coupon issues with a remaining term commensurate with the expected term of the award. Expected pre-vesting option
forfeitures are based primarily on historical data. The fair value of each restricted stock grant was based on the market price of the
underlying common stock as of the date of grant. The resulting compensation cost is amortized on a straight line basis over the vesting
period. We record stock based compensation only for those awards that are expected to vest.
38
All compensation cost related to stock options granted under the plan has been recognized as of June 30, 2019. Unrecognized
compensation cost as of June 30, 2019 related to restricted stock granted under the plan was as follows (thousands of dollars):
Weighted Average
Period over
which Cost is to
be
Recognized
(in years)
Compensation
Cost
Restricted stock granted ............................................................. $
1,128
0.9
Unrecognized compensation cost will be adjusted for any future changes in estimated and actual forfeitures.
Cash received from stock option exercises and the related income tax benefit were as follows (thousands of dollars):
Fiscal Year
2019 ............................................................................................ $
2018 ............................................................................................ $
Cash Received
from
Stock Option
Exercises
Income Tax
Benefit
172 $
139 $
76
—
The intrinsic value of stock options exercised and the fair value of options vested were as follows (thousands of dollars):
Intrinsic value of options exercised ............................................ $
Fair value of stock options vested .............................................. $
324 $
— $
June 30, 2019
July 1, 2018
110
315
Years Ended
No options were granted during the fiscal years ended June 30, 2019 or July 1, 2018.
The range of options outstanding as of June 30, 2019 was as follows:
$17.59-$18.49 .....................................................................
$26.53-$38.71 .....................................................................
$79.73..................................................................................
Number of
Options
Outstanding/
Exercisable
Weighted
Average
Exercise Price
Outstanding/
Exercisable
26,500/26,500 $18.00/$18.00
81,850/81,850 $31.06/$31.06
$79.73/$79.73
9,010/9,010
$31.85/$31.85
Weighted
Average
Remaining
Contractual
Life Outstanding
(In Years)
0.5
3.2
5.1
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 the years in which those temporary differences and operating loss carry-
forwards 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 Provision for Income Taxes in the accompanying Consolidated
Statements of (Loss) Income and Comprehensive Income.
39
Our income tax provision for 2018 was impacted by the Tax Cuts and Jobs Act of 2017 (“the Act”), which was signed into law
on December 22, 2017 with an effective date of January 1, 2018. The Act makes broad and complex changes to the U.S. tax code that
affected our fiscal year ending July 1, 2018, including but not limited to (1) a reduction in the U.S. statutory tax rate to 21 percent
following its effective date and a change in the measurement of our deferred tax assets and deferred tax liabilities resulting from the
reduction in the statutory rate, (2) requiring a one-time transition tax on certain deemed repatriated earnings of foreign subsidiaries
that is payable over eight years, and (3) bonus depreciation that will allow for full expensing of qualified property. Section 15 of the
Internal Revenue Code stipulates that for our fiscal year ending July 1, 2018, a blended statutory corporate tax rate of 28% was
applicable, which is based on the applicable statutory tax rates before and after the Act and the number of days in our fiscal year.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a
measurement period that should not extend beyond one year from the Act’s enactment date for companies to complete the accounting
under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the
accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is
incomplete but it is still able to determine a reasonable estimate of the tax effect, it must record a provisional estimate in the financial
statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to
apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act.
In connection with our analysis of the impact of the Act, we recorded a discrete net tax benefit of approximately $3 million
during 2018. This net tax benefit primarily consisted of (1) the impact of the change in measurement of our deferred tax assets and
liabilities, which resulted in a favorable provision impact of $1.6 million, (2) the one-time transition tax on non-previously taxed post-
1986 accumulated foreign earnings, which resulted in a net favorable impact of $500,000 and included a transition tax of $1.4 million
offset by the reversal of net deferred tax liability balances totaling $1.9 million, which related to basis differences in foreign earnings,
and (3) the impact of changing our annualized effective tax rate, which resulted in a favorable provision impact of $900,000. For
various reasons that are discussed more fully below, we did not complete our accounting for the income tax effects for certain
elements of the Act as of December 31, 2017. However, we were able to make reasonable estimates of certain effects and, therefore,
we recorded provisional adjustments of these elements in the accompanying consolidated financial statements. We identified these
items as provisional since our analysis of the items was not complete.
The Act reduced the corporate tax rate to 21 percent, effective January 1, 2018. For certain of our net deferred tax assets,
we have recorded a provisional adjustment to reflect the reduction in the corporate tax rate. While we are able to make a
reasonable estimate of the impact of the reduction in the corporate rate, it may be affected by other analyses related to the Act,
including, but not limited to, the impact of our calculation of deemed repatriation of deferred foreign income and the impact of
full expensing for certain assets.
The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current
earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must
determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-
U.S. income taxes paid on such earnings. We were able to make a reasonable estimate of the Transition Tax and recorded a
provisional Transition Tax obligation in these consolidated financial statements. However, as of December 31, 2017, additional
information needed to be gathered to more precisely compute the amount of the Transition Tax.
We were required to assess whether our valuation allowance analyses was affected by various aspects of the Act (e.g.,
deemed repatriation of deferred foreign income, Global Intangible Low-Taxed Income (“GILTI”) inclusions, and new
categories of Foreign Tax Credits). Since, as discussed herein, we have recorded provisional amounts related to certain portions
of the Act, any corresponding determination of the need for, or any change in, a valuation allowance was also provisional.
As of December 30, 2018, we had completed our accounting for all income tax elements of the Act. Measurement period
adjustments related to the Act recorded in 2019 totaled $372,000.
Our income tax provision for 2019 was impacted by a $7.5 million tax benefit resulting from the termination of our qualified,
noncontributory defined benefit pension plan as discussed under Retirement Plans and Postretirement Costs below and a reduction in
the expected effective tax rate as compared to 2018. Our income tax provision for 2019 was also impacted by a discrete benefit of
$372,000, which represents measurement period adjustments to the one-time transition tax on non-previously taxed post-1986
accumulated foreign earnings.
Additionally, our income tax provisions for 2019 and 2018 were affected by the non-controlling interest portion of our pre-tax
income. The non-controlling interest impacts the effective tax rate as ADAC-STRATTEC LLC and STRATTEC POWER ACCESS
LLC entities are taxed as partnerships for U.S. tax purposes.
40
INVESTMENT IN JOINT VENTURES AND MAJORITY OWNED SUBSIDIARIES
We participate in certain Alliance Agreements with WITTE Automotive (“WITTE”) and ADAC Automotive (“ADAC”).
WITTE, of Velbert, Germany, is a privately held automotive supplier. WITTE designs, manufactures and markets automotive
components, including locks and keys, hood latches, rear compartment latches, seat back latches, door handles and specialty fasteners.
WITTE’s primary market for these products has been Europe. ADAC, of Grand Rapids, Michigan, is a privately held automotive
supplier and manufactures engineered products, including door handles and other automotive trim parts, utilizing plastic injection
molding, automated painting and various assembly processes.
The Alliance Agreements include a set of cross-licensing agreements for the manufacture, distribution and sale of WITTE
products by STRATTEC and ADAC in North America, and the manufacture, distribution and sale of STRATTEC and ADAC
products by WITTE in Europe. Additionally, a joint venture company, Vehicle Access Systems Technology LLC (“VAST LLC”), in
which WITTE, STRATTEC and ADAC each hold a one-third equity interest, exists to seek opportunities to manufacture and sell each
company’s products in areas of the world outside of North America and Europe.
VAST LLC has investments in Sistema de Veicular Ltda, VAST Fuzhou, VAST Great Shanghai, VAST Shanghai Co., VAST
Jingzhou Co. Ltd., and Minda-VAST Access Systems. Sistema de Acesso Veicular Ltda is located in Brazil and services customers in
South America. VAST Fuzhou, VAST Great Shanghai, VAST Shanghai Co. anf VAST Jingzhou Co. Ltd. (collectively known as
VAST China), provide a base of operations to service each VAST partner’s automotive customers in the Asian market. Minda-VAST
Access Systems is based in Pune, India and is a 50:50 joint venture with Minda Management Services Limited, an affiliate of both
Minda Corporation Limited and Spark Minda, Ashok Minda Group of New Delhi, India (collectively “Minda”). Minda and its
affiliates cater to the needs of all major car, motorcycle, commercial vehicle, tractor and off-road vehicle manufacturers in India. They
are a leading manufacturer in the Indian marketplace of security & access products, handles, automotive safety, restraint systems,
driver information and telematics systems for both OEMs and the aftermarket. VAST LLC also maintains branch offices in South
Korea and Japan in support of customer sales and engineering requirements.
The VAST LLC investments are accounted for using the equity method of accounting and the results of the VAST LLC foreign
subsidiaries and joint venture are reported on a one-month lag basis. The activities related to the VAST LLC joint ventures resulted in
equity earnings of joint ventures to STRATTEC of approximately $2.7 million during 2019 and approximately $4.4 million during
2018. During 2019 and 2018, capital contributions totaling $600,000 and $375,000, respectively, were made to VAST LLC for
purposes of funding operations in Brazil. STRATTEC’s portion of the capital contributions totaled $200,000 in 2019 and $125,000 in
2018.
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. ADAC-STRATTEC LLC was 51 percent owned by STRATTEC and 49 percent
owned by ADAC for all periods presented in this report. An additional Mexican entity, ADAC-STRATTEC de Mexico, is wholly
owned by ADAC-STRATTEC LLC. ADAC-STRATTEC LLC’s financial results are consolidated with the financial results of
STRATTEC and resulted in increased net income to STRATTEC of approximately $2.7 million in 2019 and $1.8 million in 2018.
STRATTEC POWER ACCESS LLC (“SPA”) was formed in fiscal year 2009 to supply the North American portion of the
power sliding door, lift gate and deck lid system access control products which were acquired from Delphi Corporation. SPA was 80
percent owned by STRATTEC and 20 percent owned by WITTE for all periods presented in this report. An additional Mexican entity,
STRATTEC POWER ACCESS de Mexico, is wholly owned by SPA. The financial results of SPA are consolidated with the financial
results of STRATTEC and resulted in increased net income to STRATTEC of approximately $2.5 million in 2019 and approximately
$2.2 million in 2018.
SAL LLC was formed in fiscal 2013 to introduce a new generation of biometric security products based upon the designs of
Actuator Systems LLC, our partner and the owner of the remaining ownership interest. SAL LLC was 51 percent owned by
STRATTEC for all periods presented in this report. Our investment in SAL LLC, for which we exercise significant influence but do
not control and are not the primary beneficiary, is accounted for using the equity method. The activities related to SAL LLC resulted
in equity earnings of joint ventures to STRATTEC of approximately $128,000 in 2019 and equity earnings of joint ventures to
STRATTEC of approximately $91,000 in 2018. During all periods presented in this report, 100 percent of the funding for SAL LLC
was being made through loans from STRATTEC to SAL LLC. Therefore, for all periods presented in this report, even though
STRATTEC maintains a 51 percent ownership interest in SAL LLC, STRATTEC recognized 100 percent of the losses of SAL LLC
up to our committed financial support through Equity Earnings of Joint Ventures in the accompanying Consolidated Statements of
(Loss) Income and Comprehensive Income.
41
During fiscal 2018, we, along with our joint venture partner, reduced operating the business of SAL LLC to winding down and
selling only commercial biometric locks.
STRATTEC’s joint venture investments are included in the accompanying Consolidated Balance Sheets as follows (thousands
of dollars):
Investment in Joint Ventures:
Investment in VAST LLC ..................................................... $
23,528 $
22,192
June 30, 2019
July 1, 2018
Other Current Liabilities:
Investment in SAL LLC........................................................ $
328 $
458
See further discussion under Equity Earnings of Joint Ventures included in Notes to Financial Statements herein.
EQUITY EARNINGS OF JOINT VENTURES
As discussed above under the note Investment in Joint Ventures and Majority Owned Subsidiaries, we hold a one-third
ownership interest in VAST LLC, for which we exercise significant influence but do not control and are not the primary beneficiary.
Our investment in VAST LLC is accounted for using the equity method. The results of the VAST LLC foreign subsidiaries and joint
venture are reported on a one-month lag basis. The following are summarized statements of operations and summarized balance sheet
data for VAST LLC (thousands of dollars):
Years Ended
June 30, 2019
Net sales ...................................................................................... $
Cost of goods sold .......................................................................
Gross profit ............................................................................
Engineering, selling and administrative expense ........................
Income from operations .........................................................
Other income, net ........................................................................
Income before provision for income taxes ............................
Provision for income taxes..........................................................
Net income............................................................................. $
161,660 $
128,375
33,285
27,624
5,661
3,559
9,220
1,292
7,928 $
July 1, 2018
174,896
134,185
40,711
26,450
14,261
1,757
16,018
2,632
13,386
STRATTEC’s share of VAST LLC net
income.................................................................................... $
Intercompany profit eliminations ................................................
STRATTEC’s equity earnings of VAST LLC............................ $
2,643 $
12
2,655 $
4,463
(22)
4,441
June 30, 2019
Cash and cash equivalents........................................................... $
Receivables, net...........................................................................
Inventories, net ............................................................................
Other current assets .....................................................................
Total current assets ................................................................
Property, plant and equipment, net..............................................
Other long-term assets.................................................................
Total assets............................................................................. $
Current debt................................................................................. $
Other current liabilities................................................................
Long-term debt............................................................................
Other long-term liabilities ...........................................................
Total liabilities ....................................................................... $
Net assets..................................................................................... $
STRATTEC’s share of VAST LLC net assets............................ $
6,854 $
35,639
20,465
19,701
82,659
49,953
16,868
149,480 $
7,240 $
63,799
5,015
2,512
78,566 $
70,914 $
23,638 $
July 1, 2018
8,959
43,930
20,510
16,020
89,419
42,923
14,974
147,316
8,580
66,140
5,143
512
80,375
66,941
22,314
42
As discussed above under the note Investment in Joint Ventures and Majority Owned Subsidiaries, we hold a 51 percent
ownership interest in a joint venture company, SAL LLC, which was established to introduce a new generation of commercial and
residential biometric security products based on the designs of Actuator Systems, our partner and the owner of the remaining
ownership interest. During fiscal 2018, we, along with our joint venture partner, reduced operating the business of SAL LLC to
winding down and selling only commercial biometric locks. SAL LLC is considered a variable interest entity based on the
STRATTEC guarantee and additional loans from STRATTEC as discussed below. STRATTEC is not the primary beneficiary and
does not control the entity. Accordingly, our investment in SAL LLC is accounted for using the equity method.
SAL LLC maintained a license agreement with Westinghouse allowing SAL LLC to do business as Westinghouse Security.
This license agreement expired August 16, 2018. Payments due to Westinghouse under the license agreement were guaranteed by
STRATTEC. STRATTEC made a payment to Westinghouse of $250,000 on this guarantee during 2018. STRATTEC’s proportionate
share of the guarantee of this payment based on our ownership percentage in SAL LLC totaled $127,000, and accordingly, our
investment in SAL LLC was increased by this amount as of July 1, 2018.
Loans were made from STRATTEC to SAL LLC in support of operating expenses and working capital needs. The outstanding
loan amount totaled $2.6 million as of June 30, 2019 and July 1, 2018 and was eliminated against STRATTEC’s negative Investment
in SAL LLC in the preparation of the consolidated financial statements.
Even though we maintain a 51 percent ownership interest in SAL LLC, effective with our fiscal 2015 fourth quarter, 100 percent
of the funding for SAL LLC was being made by loans from STRATTEC to SAL LLC. Therefore, STRATTEC began recognizing 100
percent of the losses of SAL LLC up to our committed financial support through Equity Earnings of Joint Ventures in the
accompanying Consolidated Statements of (Loss) Income and Comprehensive Income effective with our fiscal 2015 fourth quarter.
We have sales of component parts to VAST LLC and SAL 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. The following tables summarize the related party transactions with VAST LLC and SAL LLC for the periods
indicated (thousands of dollars):
Years Ended
Sales to VAST LLC.................................................................... $
Sales to SAL LLC....................................................................... $
Purchases from VAST LLC........................................................ $
Expenses charged to VAST LLC ............................................... $
Expenses charged from VAST LLC........................................... $
3,731 $
34 $
221 $
1,594 $
834 $
June 30, 2019
Accounts receivable from VAST LLC ....................................... $
Accounts receivable from SAL LLC (A) ..................................... $
Current loan receivable from SAL LLC (A)................................. $
Accounts payable to VAST LLC................................................ $
264 $
— $
— $
127 $
June 30, 2019
July 1, 2018
3,151
98
183
984
886
July 1, 2018
53
—
—
87
(A) As of June 30, 2019, outstanding loan and accounts receivable balances due from SAL LLC to STRATTEC totaled $2.6
million and $82,000, respectively. As of July 1, 2018, outstanding loan and accounts receivable balances due from SAL
LLC to STRATTEC totaled $2.6 million and $82,000, respectively. As of June 30, 2019 and July 1, 2018, these
outstanding balances have been offset against our investment in SAL LLC, which is included in Other Current Liabilities
in the Consolidated Balance Sheet.
43
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 $30 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 decreased to $25
million effective July 1, 2019. The credit facilities both expire on August 1, 2021. Interest on borrowings under the STRATTEC
Credit Facility and interest on borrowings under the ADAC-STRATTEC Credit Facility prior to December 31, 2018 were at varying
rates based, at our option, on the London Interbank Offering Rate (“LIBOR”) plus 1.0 percent or the bank’s prime rate. Effective
December 31 2018, and thereafter, interest on borrowings under the ADAC-STRATTEC Credit Facility is at varying rates based, at
our option, on LIBOR plus 1.25 percent or the bank’s prime rate. 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, 2019,
we were in compliance with all financial covenants required by these credit facilities.
Outstanding borrowings under the credit facilities referenced in the above paragraph as of the end of 2019 and 2018 were as
follows (thousands of dollars):
STRATTEC Credit Facility ........................................................ $
ADAC-STRATTEC Credit Facility............................................
$
18,000 $
24,000
42,000 $
June 30, 2019
July 1, 2018
23,000
28,000
51,000
Average outstanding borrowings and the weighted average interest rate under each such credit facility during 2019 and 2018
were as follows (thousands of dollars):
Average Outstanding
Borrowings
Years Ended
Weighted Average
Interest Rate
Years Ended
June 30, 2019
July 1, 2018 June 30, 2019
July 1, 2018
STRATTEC Credit Facility..................................................... $
ADAC-STRATTEC Credit Facility ........................................ $
21,212 $
25,901 $
21,668
22,621
3.3%
3.4%
2.5%
2.5%
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.
We have a reserve for estimated costs to remediate an environmental contamination site at our Milwaukee facility. The site was
contaminated by a solvent spill, which occurred in 1985, from a former above ground solvent storage tank located on the east side of
the facility. The reserve was initially established in 1995. Due to changing technology and related costs associated with active
remediation of the site, in fiscal 2010 the reserve was adjusted based on updated third party estimates to adequately cover the cost for
active remediation of the contamination. Additionally, in fiscal 2016, STRATTEC obtained updated third party estimates for
adequately covering the cost of active remediation of this contamination. Based upon the updated estimates, no further adjustment to
the reserve was required. From 1995 through June 30, 2019, costs of approximately $597,000 have been incurred related to the
installation of monitoring wells on the property and ongoing monitoring costs. We monitor and evaluate the site with the use of
groundwater monitoring wells that are installed on the property. An environmental consultant samples these wells one or two times a
year to determine the status of the contamination and the potential for remediation of the contamination by natural attenuation, the
dissipation of the contamination over time to concentrations below applicable standards. If such sampling evidences a sufficient
degree of and trend toward natural attenuation of the contamination, we may be able to obtain a closure letter from the regulatory
authorities resolving the issue without the need for active remediation. If a sufficient degree and trend toward natural attenuation is not
evidenced by sampling, a more active form of remediation beyond natural attenuation may be required. The sampling has not yet
satisfied all of the requirements for closure by natural attenuation. As a result, sampling continues and the reserve remains at an
amount to reflect the 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 $1.3 million at June 30, 2019, is adequate.
44
At June 30, 2019, we had purchase commitments related to zinc, other purchased parts and natural gas. 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
2020 ............................................................................................ $
2021 ............................................................................................ $
2022 ............................................................................................ $
2023 ............................................................................................ $
2024-2025 ................................................................................... $
Commitments Commitments
8,936 $
4,945 $
3,358 $
— $
— $
539
504
495
498
168
Rental expense under all non-cancelable operating leases was as follows (thousands of dollars):
Fiscal Year
2019 ............................................................................................... $
2018 ............................................................................................... $
Rental Expense
773
731
INCOME TAXES
The provision for income taxes consisted of the following (thousands of dollars):
Years Ended
June 30, 2019
July 1, 2018
Currently payable:
Federal................................................................................... $
State.......................................................................................
Foreign ..................................................................................
Deferred tax provision ................................................................
$
705 $
162
1,515
2,382
(10,122)
(7,740) $
156
73
812
1,041
1,029
2,070
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, 2019
July 1, 2018
U.S. statutory rate .......................................................................
State taxes, net of Federal tax benefit .........................................
Foreign subsidiaries ....................................................................
U.S. tax reform: transition tax.....................................................
U.S. tax reform: change in deferred rate.....................................
Research and development tax credit .........................................
Non-controlling interest ..............................................................
Uncertain tax positions ...............................................................
Stock based compensation ..........................................................
Other ...........................................................................................
21.0%
3.7
(1.8)
2.7
—
9.4
6.7
(2.3)
(0.7)
(0.8)
37.9%
28.0%
1.6
(0.7)
(3.0)
(9.3)
(2.5)
(5.6)
2.1
1.7
(0.6)
11.7%
45
The components of deferred tax (liabilities) assets were as follows (thousands of dollars):
June 30, 2019
July 1, 2018
Unrecognized pension and postretirement benefit
plan liabilities ........................................................................... $
Accrued warranty ........................................................................
Payroll-related accruals ...............................................................
Stock-based compensation ..........................................................
Inventory reserve.........................................................................
Environmental reserve.................................................................
Repair and maintenance supply parts reserve .............................
Allowance for doubtful accounts ................................................
Credit carry-forwards ..................................................................
Postretirement obligations...........................................................
Accumulated depreciation...........................................................
Accrued pension obligations .......................................................
Non-cash compensation expense ................................................
Joint ventures...............................................................................
Other............................................................................................
$
701 $
446
2,180
470
834
300
229
118
1,990
(416)
(5,023)
(1,578)
986
968
728
2,933 $
6,887
517
1,959
727
799
303
212
118
248
(375)
(4,902)
(9,235)
—
814
967
(961)
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.
Federal credit carry-forwards at June 30, 2019 resulted in future benefits of approximately $1.8 million and expire between 2033
and 2034. We currently anticipate having sufficient Federal taxable income to offset these credit carry-forwards. State credit carry-
forwards at June 30, 2019 resulted in future benefits of approximately $199,000 and expire at varying times between 2025 and 2034.
A valuation allowance of $120,000 has been recorded as of June 30, 2019, due to our assessment of the future realization of certain
credit carry-forward benefits. We do not currently anticipate having sufficient state taxable income to offset these credit carry-
forwards.
Foreign income before the provision for income taxes was $4.0 million in 2019 and $1.1 million in 2018.
The total liability for unrecognized tax benefits was $1.2 million as of June 30, 2019 and $796,000 as of July 1, 2018 and was
included in Other Long-term Liabilities in the accompanying Consolidated Balance Sheets. This liability includes approximately $1.1
million of unrecognized tax benefits at June 30, 2019 and $741,000 at July 1, 2018 and approximately $93,000 of accrued interest at
June 30, 2019 and $55,000 at July 1, 2018. This liability does not include an amount for accrued penalties. The amount of
unrecognized tax benefits that, if recognized, would affect the effective tax rate was approximately $854,000 at June 30, 2019 and
$375,000 at July 1, 2018. We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended June 30,
2019 and July 1, 2018 (thousands of dollars):
Unrecognized tax benefits, beginning of year ............................ $
Gross increases – tax positions in prior years.............................
Gross increases – current period tax positions ...........................
Tax years closed .........................................................................
Unrecognized tax benefits, end of year ...................................... $
741 $
229
238
(70)
1,138 $
June 30, 2019
July 1, 2018
571
101
126
(57)
741
Years Ended
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. We are currently subject to a Wisconsin income tax examination for fiscal
2014 through 2017. Tax years open to examination by tax authorities under the statute of limitations include fiscal 2016 through 2019
for Federal, fiscal 2015 through 2019 for most states and calendar 2014 through 2018 for foreign jurisdictions.
46
RETIREMENT PLANS AND POSTRETIREMENT COSTS
We have a qualified, noncontributory defined benefit pension plan (“Qualified Pension Plan”) covering substantially all U.S.
associates employed by us prior to January 1, 2010. Effective December 31, 2009, the Board of Directors amended the Qualified
Pension Plan to freeze benefit accruals and future eligibility. The Board of Directors has subsequently approved to proceed with the
termination of the Qualified Pension Plan. During the quarter ended December 30, 2018, we completed a substantial portion of
terminating the Qualified Pension Plan. In connection with the termination of the Qualified Pension Plan, distributions from the
Qualified Pension Plan trust were made during the three month period ended December 30, 2018 to participants who elected lump-
sum distributions. Additionally, during the three months ended December 30, 2018, we entered into an agreement with an insurance
company to purchase from us, through a series of annuity contracts, our remaining obligations under the Qualified Pension Plan and,
as a result, we settled the remaining obligations under the plan for the remaining participants utilizing funds available in the Qualified
Pension Plan trust. No additional cash contributions to the trust were required to settle the pension obligations. As a result of these
actions, a non-cash pre-tax settlement charge of $31.9 million was recorded during fiscal 2019. A non-cash compensation expense
charge of $4.2 million was also recorded during fiscal 2019 related to the future transfer of the excess assets in the Qualified Pension
Plan to a STRATTEC defined contribution plan for subsequent pay-out to eligible STRATTEC employees based on a plan approved
by the Board of Directors in June 2019. It is expected that an additional $4.3 million in non-cash compensation expense will be
recorded in the six month period ending December 2019 related to this future transfer and pay-out of the excess Qualified Pension
Plan assets.
We have historically had in place a noncontributory supplemental executive retirement plan (“SERP”), which prior to January 1,
2014 was a nonqualified defined benefit plan that essentially mirrored the Qualified Pension Plan, but provided benefits in excess of
certain limits placed on our Qualified Pension Plan by the Internal Revenue Code. As noted above, we froze our Qualified Pension
Plan effective as of December 31, 2009 and the SERP provided benefits to participants as if the Qualified Pension Plan had not been
frozen. Because the Qualified Pension Plan was frozen and because new employees were not eligible to participate in the Qualified
Pension Plan, our Board of Directors adopted amendments to the SERP on October 8, 2013 that were effective as of December 31,
2013 to simplify the SERP calculation. The SERP is funded through a Rabbi Trust with BMO Harris Bank N.A. Under the amended
SERP, 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 8 percent of the participant’s base salary and cash bonus, plus annual credited
interest on the participant’s account balance. All then current participants as of December 31, 2013 are fully vested in their account
balances with any new individuals participating in the SERP effective on or after January 1, 2014 being subject to a five year vesting
period. The SERP, which is considered a defined benefit plan under applicable rules and regulations of the Internal Revenue Code,
will continue to be funded through use of a Rabbi Trust to hold investment assets to be used in part to fund any future required lump
sum benefit payments to participants. The Rabbi Trust assets had a value of $2.9 million at June 30, 2019 and $2.8 million at July 1,
2018, and are included in Other Long-Term Assets in the accompanying Consolidated Balance Sheets. The projected benefit
obligation under the amended SERP was $2.2 million at June 30, 2019 and $1.9 million at July 1, 2018. The SERP liabilities are
included in the pension tables below. However, the Rabbi Trust assets are excluded from the tables as they do not qualify as plan
assets.
We also sponsor a postretirement health care plan for all U.S. associates 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 $4,000 per plan year and
the benefit is further subject to a maximum five year coverage period based on the associate’s retirement date and age. The
postretirement health care plan is unfunded.
Amounts included in accumulated other comprehensive loss, net of tax, at June 30, 2019, which have not yet been recognized in
net periodic benefit cost were as follows (thousands of dollars):
Prior service credit ..................................................................... $
Net actuarial loss ........................................................................
$
SERP
Postretirement
(28)
2,054
2,026
— $
225
225 $
Prior service cost (credit) and unrecognized net actuarial losses included in accumulated other comprehensive loss at June 30,
2019 which are expected to be recognized in net periodic benefit cost (credit) in fiscal 2020, net of tax, for the pension, SERP and
postretirement plans are as follows (thousands of dollars):
Prior service credit ..................................................................... $
Net actuarial loss ........................................................................
$
SERP
Postretirement
(22)
304
282
— $
9
9 $
47
The following tables summarize the pension, 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 pension and postretirement
plans.
Pension and SERP Benefits
Years Ended
Postretirement Benefits
Years Ended
June 30, 2019
July 1, 2018
June 30, 2019
July 1, 2018
COMPONENTS OF NET PERIODIC BENEFIT
COST (CREDIT):
Service cost .............................................................................. $
Interest cost ..............................................................................
Expected return on plan assets .................................................
Plan settlements........................................................................
Amortization of prior service cost (credit)...............................
Amortization of unrecognized net loss ....................................
Net periodic benefit cost (credit).............................................. $
62 $
2,101
(2,275)
31,878
—
831
32,597 $
66 $
3,857
(6,111)
—
12
2,035
(141) $
11 $
40
—
—
(439)
431
43 $
13
45
—
—
(764)
479
(227)
Pension and SERP Benefits
2019
2018
Postretirement Benefits
2018
2019
WEIGHTED-AVERAGE ASSUMPTIONS:
Benefit Obligations:
Discount rate.........................................................................
Rate of compensation increases – SERP ..............................
Net Periodic Benefit Cost:
Discount rate.........................................................................
Expected return on plan assets .............................................
Rate of compensation increases – SERP ..............................
3.17%
3.0%
4.30%
n/a
3.0%
4.30%
3.0%
3.91%
5.45%
3.0%
$
98,835
62
2,101
(72,400)
5,143
(31,512)
$
2,229
CHANGE IN PROJECTED BENEFIT
OBLIGATION:
Benefit obligation at beginning of year................................... $
Service cost...........................................................................
Interest cost...........................................................................
Plan settlements ....................................................................
Actuarial gain .......................................................................
Benefits paid.........................................................................
Benefit obligation at end of year ............................................. $
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year ......................... $ 111,466
1,077
14
(72,400)
(31,512)
$
8,645
$
6,416
Actual return on plan assets..................................................
Employer contribution..........................................................
Plan settlements ....................................................................
Benefits paid.........................................................................
Fair value of plan assets at end of year ................................... $
Funded status – prepaid (accrued) benefit obligations............ $
AMOUNTS RECOGNIZED IN CONSOLIDATED
BALANCE SHEETS:
Other long-term assets............................................................. $
Accrued payroll and benefits (current liabilities)....................
Accrued benefit obligations (long-term liabilities) .................
Net amount recognized............................................................ $
$
$
101,266
66
3,857
—
(1,392)
(4,962)
$
98,835
$
112,524
3,890
14
—
(4,962)
$
$
111,466
12,631
3.17%
n/a
4.30%
n/a
n/a
$
1,041
11
40
—
39
(217)
$
914
$
—
—
217
—
(217)
—
$
(914) $
4.30%
n/a
3.91%
n/a
n/a
1,268
13
45
—
(8)
(277)
1,041
—
—
277
—
(277)
—
(1,041)
8,585
$
(506)
(1,663)
$
6,416
14,547
$
(363)
(1,553)
$
12,631
—
$
(152)
(762)
(914) $
—
(215)
(826)
(1,041)
48
CHANGES IN PLAN ASSETS AND BENEFIT
OBLIGATIONS RECOGNIZED IN OTHER
COMPREHENSIVE INCOME:
Net periodic benefit (credit) cost............................................. $
Net actuarial loss (gain)...........................................................
Plan settlements.......................................................................
Amortization of prior service (cost) credits ............................
Amortization of unrecognized net loss....................................
Total recognized in other comprehensive
(income) loss, before tax ......................................................
Total recognized in net periodic benefit
cost and other comprehensive (income) loss,
before tax.............................................................................. $
Pension and SERP Benefits
2019
2018
Postretirement Benefits
2018
2019
32,597 $
(57,414)
31,878
—
(831)
(141) $
828
—
(12)
(2,035)
43 $
39
—
439
(431)
(227)
(8)
—
764
(479)
(26,367)
(1,219)
47
277
6,230 $
(1,360) $
90 $
50
The pension benefits have a separately determined accumulated benefit obligation, which is the actuarial present value of
benefits based on service rendered and current and past compensation levels. This differs from the projected benefit obligation in that
it includes no assumptions about future compensation levels. The following table summarizes the accumulated benefit obligations and
projected benefit obligations for the pension and SERP (thousands of dollars):
Accumulated benefit obligation .............................................. $
Projected benefit obligation..................................................... $
60 $
60 $
96,919 $
96,919 $
Pension
SERP
June 30, 2019
July 1, 2018
June 30, 2019
1,981 $
2,169 $
July 1, 2018
1,749
1,916
For measurement purposes as it pertains to the estimated obligation associated with retirees prior to January 1, 2010, a 7.1
percent annual rate increase in the per capita cost of covered health care benefits was assumed for fiscal 2020; the rate was assumed to
decrease gradually to 3.0 percent by the year 2025 and remain at that level thereafter.
The health care cost trend assumption has a minimal effect on our postretirement benefit amounts reported. A 1% change in the
health care cost trend rates would have the following effects (thousands of dollars):
Effect on total of service and interest cost components
in fiscal 2019............................................................................ $
Effect on postretirement benefit obligation as of
June 30, 2019 ........................................................................... $
— $
3 $
—
(3)
1% Increase
1% Decrease
The pension plan weighted-average asset allocations by asset category were as follows for 2019 and 2018:
Equity investments ...................................................................
Fixed-income investments / cash .............................................
Total .........................................................................................
Target Allocation
0-50%
50-100
100%
June 30, 2019
July 1, 2018
0%
100
100%
13%
87
100%
49
The following is a summary, by asset category, of the fair value of pension plan assets at the June 30, 2019 and June 30, 2018
measurement dates (thousands of dollars):
June 30, 2019
June 30, 2018
Level 1 Level 2 Level 3
Asset Category
Cash and cash equivalents ............................. $ — $ 8,645 $ — $ 8,645 $ — $ 7,617 $ — $
Equity securities/funds:
Level 1 Level 2 Level 3
Total
Total
7,617
Small cap.....................................................
Mid cap........................................................
Large cap.....................................................
International ................................................
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 4,953
— 4,945
— 4,443
—
—
—
—
—
—
—
—
—
4,953
4,945
4,443
Fixed income:
— 89,508
—
Bond funds/bonds ........................................
Total ............................................................... $ — $ 8,645 $ — $ 8,645 $ 14,341 $ 97,125 $ — $111,466
— 89,508
—
—
—
There were no transfers in or out of Level 3 investments during the measurement year ended June 30, 2019.
We expect to contribute $509,000 to our SERP and $152,000 to our postretirement health care plan in fiscal 2020. The
following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the fiscal years noted
below (thousands of dollars):
SERP
Benefits
Postretirement
Benefits
2020............................................................................................ $
2021............................................................................................ $
2022............................................................................................ $
2023............................................................................................ $
2024............................................................................................ $
2025-2029................................................................................... $
569 $
510 $
403 $
14 $
14 $
550 $
152
135
127
108
93
221
All U.S. associates may participate in our 401(k) Plan. We contribute 100 percent up to the first 5 percent of eligible
compensation that a participant contributes to the plan. Our contributions to the 401(k) Plan were as follows (thousands of dollars):
Company contributions............................................................... $
1,903 $
June 30, 2019
July 1, 2018
1,793
Years Ended
SHAREHOLDERS’ EQUITY
We have 12,000,000 shares of authorized common stock, par value $.01 per share, with 3,691,555 and 3,635,203 shares
outstanding at June 30, 2019 and July 1, 2018, respectively. Holders of our common stock are entitled to one vote for each share on all
matters voted on by shareholders.
Our Board of Directors authorized a stock repurchase program to buy back up to 3,839,395 outstanding shares of our common
stock as of June 30, 2019. As of June 30, 2019, 3,655,322 shares have been repurchased under this program at a cost of approximately
$136.4 million. No shares were repurchased under this program during 2019 or 2018.
(LOSS) EARNINGS PER SHARE (“EPS”)
Basic (loss) earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding
during the applicable period. Diluted earnings 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. A reconciliation of the
components of the basic and diluted per share computations follows (in thousands, except per share amounts):
50
Net (loss) income attributable to STRATTEC........................... $
(17,029) $
June 30, 2019
July 1, 2018
12,283
Years Ended
Weighted average shares of common stock outstanding ............
Incremental shares – stock based compensation .........................
Diluted weighted average shares of common stock
Outstanding ..............................................................................
Basic earnings per share.............................................................. $
Diluted earnings per share........................................................... $
3,676
—
3,676
(4.63) $
(4.63) $
3,628
75
3,703
3.39
3.32
Options to purchase shares of common stock that were excluded from the calculation of diluted earnings per share because their
inclusion would have been antidilutive were as follows:
Years Ended
June 30, 2019................................................................................
July 1, 2018 ..................................................................................
STOCK OPTION AND PURCHASE PLANS
A summary of stock option activity under our stock incentive plan was as follows:
Number of Options
Excluded
181,117
41,200
Weighted Average
Remaining
Contractual
Shares
Weighted Average
Exercise Price
Term (in years)
Aggregate
Intrinsic
Value
(in thousands)
Balance at July 2, 2017........................................................... 138,508 $
Exercised.................................................................................
(5,434) $
Balance at July 1, 2018........................................................... 133,074 $
Exercised.................................................................................
(15,714) $
Balance at June 30, 2019 ........................................................ 117,360 $
Exercisable as of:
June 30, 2019 .......................................................................... 117,360 $
July 1, 2018............................................................................. 133,074 $
29.23
25.64
29.37
10.92
31.85
31.85
29.37
No options were granted during fiscal 2019 or 2018.
A summary of restricted stock activity under our stock incentive plan was as follows:
2.7 $
162
2.7 $
3.4 $
162
862
Weighted Average
Grant Date
Fair Value
Shares
Nonvested Balance at July 2, 2017 ............................................
Granted .......................................................................................
Vested.........................................................................................
Forfeited .....................................................................................
Nonvested Balance at July 1, 2018 ............................................
Granted .......................................................................................
Vested.........................................................................................
Forfeited .....................................................................................
Nonvested Balance at June 30, 2019..........................................
75,850 $
27,950 $
(30,400) $
(4,275) $
69,125 $
34,050 $
(37,343) $
(2,075) $
63,757 $
60.61
33.30
62.99
52.47
49.02
37.25
54.93
43.52
39.47
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 $5,200 per calendar
year to the plan. On the last day of each month or if such date is not a trading day on the most recent previous trading day, participant
account balances are used to purchase shares of our common stock at the average of the highest and lowest reported sales prices of a
share of STRATTEC common stock on the NASDAQ Global Market on such date. A total of 100,000 shares may be issued under the
51
plan. Shares issued from treasury stock under the plan totaled 3,295 at an average price of $30.13 during 2019 and 2,753 at an average
price of $37.06 during 2018. A total of 58,117 shares remain available for purchase under the plan as of June 30, 2019.
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, 2019
July 1, 2018
Net Sales
%
Net Sales
%
Export sales .............................................................................. $
160,771
33% $
157,862
36%
Countries for which customer sales account for ten percent or more of total net sales are summarized as follows (thousands of
dollars and percent of total net sales):
Export sales into Canada.......................................................... $
67,516
14% $
70,920
16%
Years Ended
June 30, 2019
July 1, 2018
Net Sales
%
Net Sales
%
PRODUCT SALES
Sales by product group were as follows (thousands of dollars and percent of total net sales):
June 30, 2019
July 1, 2018
Net Sales
%
Net Sales
%
Years Ended
Keys & locksets....................................................................... $
Door handles & exterior trim ..................................................
Power access............................................................................
Latches.....................................................................................
Aftermarket & OE service.......................................................
Driver controls.........................................................................
Other ........................................................................................
$
135,413
116,977
92,744
49,147
44,254
40,942
7,529
487,006
28% $
24
19
10
9
8
2
100% $
118,256
88,788
86,380
42,381
43,311
51,817
8,262
439,195
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, 2019
July 1, 2018
Net Sales
%
Net Sales
%
Fiat Chrysler Automobiles ...................................................... $
General Motors Company .......................................................
Ford Motor Company ..............................................................
$
115,304
112,719
63,333
291,356
24% $
23
13
60% $
110,650
85,827
64,427
260,904
Receivables from our largest customers were as follows (thousands of dollars and percent of gross receivables):
Fiat Chrysler Automobiles ...................................................... $
General Motors Company .......................................................
Ford Motor Company ..............................................................
$
19,151
12,754
9,991
41,896
23% $
15
12
50% $
19,908
16,366
7,537
43,811
June 30, 2019
July 1, 2018
Receivables
%
Receivables
%
27%
20
20
9
10
12
2
100%
25%
20
14
59%
27%
22
10
59%
52
Selected Quarterly Financial Data (unaudited)
The following data are in thousands of dollars except per share amounts.
2019
2018
Quarter
First ..................... $
Second.................
Third ...................
Fourth..................
TOTAL ............... $
First ..................... $
Second.................
Third ...................
Fourth..................
TOTAL ............... $
Net Sales
Gross Profit
Net Income (Loss)
Attributable to
STRATTEC
Earnings (Loss)
per Share
Basic
Diluted
117,159 $
112,913
128,230
128,704
487,006 $
102,460 $
103,182
116,823
116,730
439,195 $
15,183 $
12,736
15,682
14,199
57,800 $
13,463 $
12,646
15,197
13,137
54,443 $
3,467 $
(22,164)
1,730
(62)
(17,029) $
2,456 $
2,882
2,969
3,976
12,283 $
0.95 $
(6.03)
0.47
(0.02)
(4.63) $
0.68 $
0.79
0.82
1.09
3.39 $
0.93
(5.96)
0.46
(0.02)
(4.63)
0.67
0.78
0.80
1.07
3.32
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, 2019 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
53
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 examinations.
Management assessed the Corporation’s system of internal control over financial reporting as of June 30, 2019, 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, 2019, 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/ Frank J. Krejci
Frank J. Krejci
President and Chief Executive Officer
/s/ Patrick J. Hansen
Patrick J. Hansen
Senior Vice President and Chief Financial Officer
54
Attestation 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, 2019, 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, 2019, 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, 2019, of the Company and our report dated
September 5, 2019, 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
DELOITTE & TOUCHE LLP
Milwaukee, WI
September 5, 2019
55
ITEM 9B. OTHER INFORMATION
Not applicable.
56
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information included in our Proxy Statement, dated on or about September 5, 2019, under “Proposal 1: Election of Director,”
“Corporate Governance Matters-Code of Business Ethics,” “Audit Committee Matters-Audit Committee Financial Expert,” “Executive
Officers,” “Deliquent 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 three outside independent directors, David R. Zimmer, Audit
Committee Chairman, Thomas W. Florsheim, Jr., and Michael J. Koss.
ITEM 11. EXECUTIVE COMPENSATION
The information included in our Proxy Statement, dated on or about September 5, 2019, 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 5, 2019, under “Security Ownership” is incorporated
herein by reference.
Equity Compensation Plan Information
The following table summarizes share information, as of June 30, 2019, for our Amended and Restated Stock Incentive Plan.
Plan Category
Equity compensation plans
approved by shareholders .................................
Equity compensation plans not
approved by shareholders .................................
Total.....................................................................
Number of
common shares to
be issued
upon exercise
of outstanding
options,
warrants, and
rights
Weighted-average
exercise price of
outstanding
options,
warrants, and
rights
Number of
common shares
available for future
issuance under
equity
compensation
plans
117,360 $
31.85
149,289
—
117,360 $
—
31.85
—
149,289
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information included in our Proxy Statement, dated on or about September 5, 2019, 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 5, 2019, under “Audit Committee Matters-Fees of
Independent Registered Public Accounting Firm” is incorporated herein by reference.
57
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
See Item 8 for the Consolidated Financial Statements included in this Form 10-K
PART IV
(b) Exhibits
See the following List of Exhibits:
Exhibit
3.1 (15)
3.2 (1)
4.1 (2)
4.2 (14)
4.3 (15)
4.4 (6)
4.5 (7)
4.6 (12)
4.7 (14)
4.8 (17)
4.9 (7)
4.10 (7)
4.11 (7)
4.12 (11)
4.13 (14)
4.14 (16)
4.15 (18)
10.1 (8)**
10.2 (10)**
10.3 **
10.4 **
10.5 **
10.6 (9) **
10.7 (3)**
10.8 (3)**
10.9 (3)**
10.10 (3)**
10.11 (3)**
10.12 (15) **
10.13 (13) **
10.14 (13) **
Amended and Restated Articles of Incorporation of the Company
Amended By-laws of the Company
Credit Agreement, dated as of August 1, 2011, between STRATTEC SECURITY CORPORATION and BMO
Harris Bank N.A., as lender
Amendment No. 1 to Amended and Restated Security Agreement, dated as of June 26, 2017, between
STRATTEC SECURITY CORPORATION and BMO Harris Bank N.A., as lender
Amended and Restated Security Agreement, dated as of June 28, 2012, made by STRATTEC SECURITY
CORPORATION in favor of BMO Harris Bank N.A., as lender
Amendment No. 1 to Credit Agreement, dated as of December 27, 2013, between STRATTEC SECURITY
CORPORATION and BMO Harris Bank N.A., as lender
Amendment No. 2 to Credit Agreement, dated as of June 25, 2015, between STRATTEC SECURITY
CORPORATION and BMO Harris Bank N.A., as lender
Amendment No. 3 to Credit Agreement, dated as of June 24, 2016, between STRATTEC SECURITY
CORPORATION and BMO Harris Bank N.A., as lender
Amendment No. 4 to Credit Agreement, dated as of June 26, 2017, between STRATTEC SECURITY
CORPORATION and BMO Harris Bank N.A., as lender
Amendment No. 5 to Credit Agreement, dated as of September 28, 2018, between STRATTEC SECURITY
CORPORATION and BMO Harris Bank N.A., as lender
Credit Agreement, dated as of June 28, 2012, between ADAC-STRATTEC LLC and BMO Harris Bank N.A.,
as lender
Amendment No. 1 to Credit Agreement, dated as of January 22, 2014, between ADAC-STRATTEC LLC and
BMO Harris Bank N.A., as lender
Amendment No. 2 to Credit Agreement, dated as of June 25, 2015, between ADAC-STRATTEC LLC and
BMO Harris Bank N.A., as lender
Amendment No. 3 to Credit Agreement, dated as of April 27, 2016, between ADAC-STRATTEC LLC and
BMO Harris Bank N.A., as lender
Amendment No. 4 to Credit Agreement, dated as of June 26, 2017, between ADAC-STRATTEC LLC and
BMO Harris Bank N.A., as lender
Amendment No. 5 to Credit Agreement, dated as of March 27, 2018, between ADAC-STRATTEC LLC and
BMO Harris Bank N.A., as lender
Amendment No. 6 to Credit Agreement, dated as of December 30, 2018, between ADAC-STRATTEC LLC
and BMO Harris Bank N.A., as lender
Amended and Restated STRATTEC SECURITY CORPORATION Stock Incentive Plan
Form of Restricted Stock Grant Agreement with employees
STRATTEC SECURITY CORPORATION Team Incentive Plan for STRATTEC: Bonus Plan for Executive
Officers and Senior Managers
STRATTEC SECURITY CORPORATION Team Incentive Plan for STRATTEC: Bonus Plan for Non-
employee Members of the Board of Directors
STRATTEC SECURITY CORPORATION Team Incentive Plan for STRATTEC: Bonus Plan for Salaried
Employees and Represented Employees
Amended and Restated STRATTEC SECURITY CORPORATION Supplemental Executive Retirement Plan
Employment Agreement between the Company and Frank J. Krejci made as of May 5, 2010
Employment Agreement between the Company and Patrick J. Hansen made as of May 5, 2010
Employment Agreement between the Company and Rolando J. Guillot made as of May 5, 2010
Employment Agreement between the Company and Brian J. Reetz made as of May 5, 2010
Employment Agreement between the Company and Richard P. Messina made as of May 5, 2010
Employment Agreement between the Company and Al Hamdan made as of May 4, 2017
Change of Control Employment Agreement between the Company and Frank J. Krejci made as of July 1, 2016
Change of Control Employment Agreement between the Company and Patrick J. Hansen made as of July 1,
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
58
10.15 (13) **
10.16 (13) **
10.17 (13) **
10.18 (15)**
10.19 (10)**
10.20 (5)**
10.21 (4)**
21 (19)
23
31.1
31.2
32 (20)
101
104
2016
Change of Control Employment Agreement between the Company and Rolando J. Guillot made as of July 1,
2016
Change of Control Employment Agreement between the Company and Brian J. Reetz made as of July 1, 2016
Change of Control Employment Agreement between the Company and Richard P. Messina made as of July 1, 2016
Change of Control Employment Agreement between the Company and Al Hamdan made as of May 4, 2017
Form of Restricted Stock Grant Agreement with non-employee directors
Amended STRATTEC SECURITY CORPORATION Employee Stock Purchase Plan
Letter Agreement between the Company and Harold M. Stratton II made as of September 1, 2012
Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm dated September 5, 2019
Rule 13a-14(a) Certification for Frank J. Krejci, Chief Executive Officer
Rule 13a-14(a) Certification for Patrick J. Hansen, Chief Financial Officer
18 U.S.C. Section 1350 Certifications
Interactive Data Files pursuant to Rule 405 of Regulation S-T. XBRL Instance Document – the XBRL
Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document.
The cover page from the Company’s Annual Report on Form 10-K for the year ended June 30, 2019 has been
formatted in Inline XBRL.
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Previously filed
*
** Management contract or compensatory plan or arrangement
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Incorporated by reference from the exhibit to the Form 8-K filed on October 7, 2005.
Incorporated by reference from the exhibit to the Form 8-K filed on August 4, 2011.
Incorporated by reference from the exhibit to the March 28, 2010 Form 10-Q filed on May 6, 2010.
Incorporated by reference from the exhibit to the July 1, 2012 Form 10-K filed on September 6, 2012.
Incorporated by reference from the exhibit to the Form 8-K filed on January 2, 2013.
Incorporated by reference from the exhibit to the Form 8-K filed on December 27, 2013.
Incorporated by reference from the exhibit to the Form 8-K filed on June 25, 2015.
Incorporated by reference from the exhibit to the Form 10-Q filed on November 6, 2014.
Incorporated by reference from the exhibit to the Form 8-K filed on October 10, 2013.
Incorporated by reference from the exhibit to the Form 10-K filed on September 5, 2014.
(13)
(14)
(10)
(11) Incorporated by reference from the exhibit to the Form 8-K filed on April 29, 2016.
(12)
Incorporated by reference from the exhibit to the Form 8-K filed on June 24, 2016.
Incorporated by reference from the exhibit to the Form 10-K filed on September 8, 2016.
Incorporated by reference from the exhibit to the Form 8-K filed on June 27, 2017.
Incorporated by reference from the exhibit to the Form 10-K filed on September 7, 2017.
Incorporated by reference from the exhibit to the Form 8-K filed on March 27, 2018.
Incorporated by reference from the exhibit to the Form 8-K filed on September 28, 2018.
Incorporated by reference from the exhibit to the Form 8-K filed on December 31, 2018.
Incorporated by reference from the exhibit to the Form 10-K filed on September 6, 2018.
(17)
(18)
(16)
(15)
(19)
(20) This certification is not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
ITEM 16. FORM 10-K SUMMARY
None
59
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/ Frank J. Krejci
Frank J. Krejci
President and Chief Executive Officer
Date: September 5, 2019
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
President, Chief Executive Officer,
and Director
(Principal Executive Officer)
Date
September 5, 2019
/s/ Frank J. Krejci
Frank J. Krejci
/s/ Harold M. Stratton II
Harold M. Stratton II
/s/ Michael J. Koss
Michael J. Koss
/s/ Thomas W. Florsheim, Jr.
Thomas W. Florsheim, Jr.
/s/ David R. Zimmer
David R. Zimmer
/s/ Patrick J. Hansen
Patrick J. Hansen
Chairman and Director
August 21, 2019
Director
Director
Director
Senior Vice President, Chief
Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
August 21, 2019
August 21, 2019
August 21, 2019
September 5, 2019
60