UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:3) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(cid:4) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended June 27, 2021.
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
p
,
,
executive offices)
ff
(Address of principal
(
(414) 247-3333
(Registrants 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
g y
STRT
Securities registered pursuant to Section 12(g) of the Act:
None
Name of exchange on which registered
The NASDAQ Stock Market
g
g
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:4)Yes (cid:3)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.
(cid:4)Yes (cid:3)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. (cid:3)Yes (cid:4)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).
(cid:3)Yes (cid:4)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
(cid:4)
(cid:4)
(cid:4)
(cid:3)
(cid:3)
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. (cid:4)
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report.(cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (cid:4)Yes (cid:3)No
The aggregate market value of the voting Common Stock held by non-affiliates of the registrant as of December 24, 2020 (the last business day of the
Registrant’s most recently completed second quarter), was approximately $187,672,000 (based upon the last reported sale price of the Common Stock at
December 24, 2020 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 July 30, 2021, there were outstanding 3,887,345 shares of the Registrant’s $.01 par value Common Stock (which includes any unvested restricted shares
previously awarded).
Documents Incorporated by Reference
Document
Part of the Form 10-K
into which incorporated
Portions of the Proxy Statement dated September 2, 2021, for the Annual Meeting of Shareholders to be held on October 5, 2021.
III
STRATTEC SECURITY CORPORATION
ANNUAL REPORT IN FORM 10-K
June 27, 2021
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
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 ANDAA
FINANCIAL DISCLOSURE.................................................................................................................................
CONTROLS AND PROCEDURES ......................................................................................................................
OTHER INFORMATION......................................................................................................................................
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
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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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 2, 2021, 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,
m
product offerings, global expansion, liquidity needs, financing ability, planned capital expenditures, management’s or the Company’s
expectations and beliefs, and similar matters discussed, or otherwise incorporated herein by reference, in this Form 10-K. The
discussions of such matters and subject areas are qualified by the inherent risks and uncertainties surrounding future expectations
generally, and also may materially differ from the Company’s actual future experience.
The Company’s business, operations and financial performance are subject to certain risks and uncertainties, which could result
in material differences in actual results from the Company’s current expectations. These risks and uncertainties include, but are not
limited to, general economic conditions, in particular relating to the automotive industry, consumer demand for the Company’s and its
customers’ products, competitive and technological developments, customer purchasing actions, changes in warranty provisions and
customers’ product recall policies, work stoppages at the Company or at the location of its key customers as a result of labor disputes,
foreign currency fluctuations, uncertainties stemming from U.S. trade policies, tariffs and reactions to same from foreign countries,
changes in the costs of operations, changes in the volume and scope of product returns and warranty claims, adverse business and
operational issues resulting from the semiconductor chip supply shortages and Coronavirus (COVID-19) pandemic, including matters
adversely impacting the timing and availability of material component parts and raw materials for the production of our products and
the products of our customers, or the continuation or worsening thereof 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 Formr
such forward-looking statements to reflect subsequent events or circumstances occurring after
10-K and the Company undertakes no obligation to publicly update
the date of this Form 10-K.
ff
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, passive entry passive start systems (PEPS), steering
column and instrument panel ignition lock housings, latches, power sliding side door systems, power tailgate systems, power lift gate
systems, power deck lid systems, door handles 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 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 under Vehicle Access
Systems Technology LLC herein). STRATTEC products are shipped to customer locations in the United States, Canada, Mexico,
Europe, South America, Korea, China and India, and we, along with our VAST LLC partners, provide full service and aftermarket
support for each VAST Automotive Group partners’ products.
History
The product line that became STRATTEC was part of Briggs & Stratton Corporation’s founding business in 1908. In 1995,
STRATTEC was spun off from Briggs & Stratton through a tax-free distribution to the then-existing Briggs & Stratton shareholders
and has been an independent public company for over twenty-six 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 theftff prevention. Keys with remote entry devices integrated into a single unit and bladeless electronic keys as well as
turn-key passive entry passive start systems (PEPS) 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
deterrent systems.
molded plastic and may include electronic components for theft
n
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, tailgates, 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. From 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,
d
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 components produced
by STRATTEC de Mexico. See Operations discussion included herein for further description.
dd
Direct sales to various OEMs represented approximately 79% and 77% of our total sales for fiscal 2021 and 2020, respectively.
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 venturet
Automotive. VAST is described in more detail on pages 4, 5, 44 and 45 in this Form 10-K.
we jointly own with WITTE Automotive and ADAC
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 six 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 key finishing and assembly
operations for locksets and ignition lock housings. Plant No. 2 houses our key molding and plastic injection molding operations for
door handles and components, as well as containing dedicated space for the assembly operations of ADAC-STRATTEC de Mexico.
Plant No. 3 houses both latch and power access assembly operations for STRATTEC Power Access de Mexico. Plant No. 4 is in Leon,
Mexico and houses our custom paint system for door handles and assembly for ADAC-STRATTEC de Mexico and is owned by the
ADAC-STRATTEC de Mexico joint venture.
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 $209.0 million and $152 million during fiscal 2021 and 2020, 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 Jingzhou, China. The Fuzhou, China facility closed during our fiscal 2021, and the land
and building are currently for sale. In March, 2014, VAST LLC purchased the remaining 49 percent interest of its local partner in
Brazil, which had annual net sales of approximately $1.5 million and $1.4 million during fiscal years 2021 and 2020, 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 affff iff liate 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. 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 $23.8 million and $18.0
million during fiscal years 2021 and 2020, 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 (Loss) 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, Volvo, Renault/Nissan and Hyundai/Kia.
To manage our customer relationships and coordinate global ventures
t
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.
4
.
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 2021 and 2020, ASdM was profitable and represented $126.2 million and $98.2 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.
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 year 2021, SPA was profitable and represented $95.2 million of our
consolidated net sales. For fiscal year 2020, SPA was unprofitablea
due to the COVID-19 pandemic (COVID-19) and represented
$63.8 million of our net sales.
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.
6
Vehicle List
2022 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 2022 fiscal year:
Ford Mustang
Honda Accord
Honda Civic
Maserati Ghibli *
Maserati MC *
Maserati Quattroporte *
Opel Astra *
Opel Corsa*
Open Insignia *
Volkswagen Jetta
Honda CRV
Honda RDX
Honda Odyssey
Hyundai Starex *
Jeep Cherokee
Jeep Compass
Jeep Gladiator
Jeep Grand Cherokee
Jeep Wrangler/Wrangler
Unlimited
Kia Sedona *
Lincoln Avaitor
Lincoln Corsair
Lincoln Nautilus
Lincoln Navigator
Maserati Levante *
Opel Mokka *
Ram 1500 Pickup
Ram 1500 Classic Pickup
Volkswagen Tiguan
PASSENGER CARS
Acura NSX
Aston Martin DB 11*
Aston Martin DBX *
Aston Martin Rapide *
Aston Martin Vanquish*
Aston Martin Vantage *
Buick Excelle *
Buick LaCrosse *
Buick Regal *
Cadillac ATS *
Cadillac CT6*
Cadillac Lyriq
Cadillac XT6
Chevrolet Bolt EV
Chevrolet Camaro
Chevrolet Corvette
Chevrolet Malibu
Chevrolet Onix *
Chrysler 300
Dodge Challenger
Dodge Charger
Ford Focus *
Ford GT
Ford Mondeo*
LIGHT TRUCKS, VANS AND SPORT UTILITY VEHICLES
Acura MDX
Acura RDX
Brightdrop EV600
Buick Enclave
Cadillac Escalade &
Escalade ESV
Dodge Durango
Ford Bronco Sport
Ford Edge
Ford Escape
Ford Expedition
Ford Explorer
Ford F-Series Pickup
Ford F-Series Super Duty
Cadillac XT4
Cadillac XT5
Chevrolet Blazer
Chevrolet Colorado *
Chevrolet Equinox
Chevrolet Express Van
Chevrolet Silverado &
Silverado HD Pickup
Chevrolet Suburban
Chevrolet Tahoe
Chevrolet Tracker *
Chevrolet Trail Blazer *
Chevrolet Trax *
Chevrolet Traverse
Chrysler Pacifica
Chrysler Voyager
Pickup
Ford F-150 Lightning
Ford Maverick Pickup
Ford Mustang Mach-E
Ford Ranger Pickup
Ford Transit Connect *
GMC Acadia
GMC Canyon *
GMC Hummer EV
GMC Savana
GMC Sierra & Sierra HD
Pickup
GMC Terrain
GMC Yukon and Yukon XL
* Vehicles produced outside of North America, or both in and outside North America.
7
Emerging Technologies
Automotive vehicle access systems, which are both theft deterrent and consumer friendly, are trending toward electro-mechanica
l
and connected devices. Electronic companies are developing user identification systems such as bio-systems, card holder (transmitter)
systems, etc., while mechanical locks, keys, housings, and latches are evolving to accommodate electronics. We believe we are positioning
ourselves as a vehicle 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, ignition interface systems with
passive start and phone as a key (PaaK) capabilities. In both 2018 and 2019, we were awarded the Automotive News Pace Award for
Excellence and Innovation for our Invis-A-RiseTM Power Liftgate and Invis-A-RiseTM Power Tailgate products. As the automotive industry
continues developing various levels of autonomous vehicles, we believe that we are well positioned to contnn inunn e the development and
incorporation of power sliding doors, power tailgates and other consumer convenience features into these types of vehicles.
tt
These technologies benefit us by increasing our potential customer base as a Tier 2 supplier while maintaining our Tier 1 statustt
on
some product lines and by adding additional product line availability.
a
Sources and Availability of Raw Materials
Our primary raw materials are high-grade zinc, brass, nickel silver, steel, aluminum, plastic resins and semiconductor chips and other
electronics. These materials are generally available from a numberm of suppliers, but we have chosen to concentrtt ateaa our sourcing with one
primary vendor for each commodity. We believe our sources for rawaa materials are very reliable and adequqq ateaa
not
for our needs. We haveaa
experienced any significant long term supply problems in our operations and do not anticipate any significant supply problems in the
foreseeable future.
under Item 1A of this Form 10-K.
See further discussion under “Risk Factors-Sources of and Fluctuations in Market Prices of Raw Materials” included
tt
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
when appropriate.
activities, we have a policy of seeking patents on new products, processes and improvements
aa
Although, in the aggregate, the intellectual property discussed herein are of considerable importance to the manufacturing
aa
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 confidentialitytt 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 62 percent of our net sales in both 2021 and in 2020. Further
information regarding sales to our largest customers is set forthrr under the caption
Content, Vehicle Models and Market Share” andaa
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.
“Risk Factors - Loss of Significant Customers, Vehicle
“Risk Factors – Production Slowdowns by Customers” included under Item 1A of this
aa
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.
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.
However, a significant change in the purchasing practices of, or a
uu
8
Sales and Marketing; Backlog
We provide our customers with engineered access control products including locksets, fobs, push button passive entry passive startaa
ignition systems, steering column lock housings, electromechanical latches, power sliding door systems, power tailgate systems, power
liftgate systems, power decklids, painted and non-painted door handles, door handle components and trim 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 compmm onents 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
theft deterrence and system cost.
customer access, vehicle securitytt system quality,
mm
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 competitmm
or will pursue the opportunity,tt 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
opportunities. A blanket purchase order, a
product program are included in thett
contract indicating a specified part will be supplied ataa 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
contract and are estimated in evaluating each of these
from year to year.
aa
tt
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 compmm etitors in ouruu 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
access control products because of our ability to provide optimal value, which is a beneficial combination
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 thett United States.
of price, quality, technical
for our
m
aa
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, Novares and Gecom.
For additional information related to competition, see the information set forth under “Risk Factors-Highly Competitive Automotive
Supply Industry” included under Item 1A of this Form 10-K.
Research and Development
We engage in research and development activities pertinent to automotive
uu
consumers and vehicles.
expanding role of vehicle access via electronic interlocks and modes of communicating authorization data between
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 2021
and 2020, we incurred approximately $10.8 million and $9.8 million, respectively, on research and development. We believe that,
historically, we haveaa
committed sufficient resources to research and development and we intend to continue to invest in the future
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.
as
mm
uu
access control. A major area of focus for research is the
tt
Customer Tooling
We incur costs relatedaa
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.
9
Environmental Compliance
aa
As is the case with other manufacturers,
to the generation, storage, transport, treatment
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
management system that is ISO-14001 certified. We believe thataa our existing environmental management system is adequate and we have
no current plans for substantial capital expenditures in the environmental
we are subject to Federal, state, local and foreign laws and other legal requirements relating
and disposal of materials as a result of our manufacturing and assembly operations.
and Liability Act (as amended). We have an environmental
Environmental Response, Compensationaa
These
area.
mm
nn
aa
aa
As discussed in “Commitments and Contingencies” under Notes to Financial Statement under Item 8 in this Form 10-K, a site at ouruu
Milwaukee facility is contaminated by a solvent spill from a former above-ground solvent storage tanknn locatedaa
facility, which spill occurred in 1985. We continue to monitor this situation.
on the east side of the
We do not currently anticipate any materially adverse impactmm
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 withtt maintaining compliance withtt environmental
assurance that material liabilities
laws is inherent in the nature of our business and there is no
or charges could not arise.
nn
a
Human Capital
At June 27, 2021, we had approximately 3,752 associates worldwide, of which approximately 494 were employed in the United
States and approximately 3,258 were employed outside of the United States. Approximately 204 or 5.4 percent were represented by a
collective bargaining agreement, all of whom are our production associates at our Milwaukee, Wisconsin facility. In recent years,aa we have
not experienced any significant work slowdowns, stoppages or other
labor disruptions. The current contract with the unionized associates
is effective through September 17, 2021.
tt
We are guided by our “Values and Beliefs” mission statement thataa foff cuses on Empowerment, Communication, Citizenship,
Enterprise, Change and Consensus. We remain committed to areas of work place safety, product quality and customer satisfaction.
Successful execution of our mission is dependent on attracting,
team, as well as providing competitive pay andaa
developing and retaining key associates and membm ers of our management
tt
benefits.
In response to the COVID-19 pandemic, STRATTEC has generally maintained its headcount as we accommodated our operations to
the virus environment. We have taken what we believe to be appropriate measures to ensure the health and safety of our associatesaa
permitted remote working.
and
Social Responsibility
We are committed to conducting business and making
aa
decisions honestly, fairly and withintt
the law, and are guided by our “Values
and Beliefs” mission statement. We are dedicated to earning and keeping the trust and confiff dence of our shareholders, customers and
associates as well as the communities where we do business.
Our “Code of Business Ethics” provides guidelines and a framework for conducting business in an ethical
manner. These beliefs go
beyond STRATTEC and are expected of our suppliers as detailed in our “Supplier Code of Conduct.” We have adopted policies that seek
to eliminate human trafficking, slavery, child labor etc. from our global supply chain. In addition, we annually comply and file a Form SD
with the Securities and Exchange Commission regarding “Conflict Minerals Disclosure and Report” as directed by the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010. The purpose of this report is to help prevent products used to finance or benefit armed
groups in the covered countries of this filing.
tt
Our commitment to our environment is documented in our “Environmental
nn
Management System,” which provides for continuous
improvement of our efforts toward preventing pollution, complying with relevant environmental legislation and regulations and complying
with customer-based environmental regulations. In addition, we maintain our own IATF 16949:2016 and ISO 14001 annual certifications,
ive industry.
which are globally recognized quality standards for the automot
aa
aa
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
such information by
not including all the information contained on or made avaa ailable thtt rhh ough our website as a part of, or incorprr oratingaa
reference into, this Annual Report on Form 10-K. However, this report includes (or incorporates by reference) all material information
ff
about STRATTEC that is included on our website which is otherwise required to be included in this report.
10
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:
RISK RELATED TO CORONAVIRUS AND OTHER HEALTH EPIDEMICS
The Coronavirus (COVID-19) pandemic adversely affected, and may continue to adversely affecff
t, our operations and supply
chains, in particular related to semiconductor chips, and we have experienced and may continue to experience reductions in demand
for certain of our products and services as a result of the pandemic. Because we manufacture our products in facilities around the
world, including in Mexico and through our joint venture partners in Europe, China and India, we have been and may continue to be
vulnerable to an outbreak of COVID-19 (or the resurgence of such an outbreak) or other contagious diseases in those regions as well
as in the United States. The effects of COVID-19 and other contagious diseases have included and may continue to include disruptions
or restrictions on our ability to travel, our ability to manufacture our affected products and our ability to ship these affected products to
customers as well as disruptions that have and may continue to affect our key customers and suppliers, including those in these regions
or other affected regions of the world, including in the United States, Mexico, China and neighboring countries. Current and future
disruption of our ability to manufacture or distribute our products
or of the ability of our customers to take orders of our products or
our suppliers to deliver key raw materials on a timely basis has had and could continue to have a material adverse effect on our sales
and operating results. In addition, the COVID-19 outbreak (or a worsening of this outbreak) and future outbreaks
of contagious
diseases in the human population has resulted in and could continue to result in a widespread health crisis that adversely affects
the
economies and financial markets of many countries (including those where we operate or where our products are ultimately used),
resulting in an economic downturn that has and could continue to affect demand for our products and impact our operating results.
d
u
ff
t
We have been adhering to guidelines and mandates from governmental and health organizations in the territories that we have
locations and production facilities, and have implemented various risk mitigation plans to reduce the risk of spreading COVID-19. To
that end, we have encouraged working remotely where applicable, adopted social distancing where appropriate, implemented travel
restrictions, and we are taking actions to ensure that locations and facilities are cleaned and sanitized regularly. All of these actions
may impact our operations and profitability. Further, we have complied with and may be required to comply with additional foreign,
national, state or local governmental authority recommendations, guidelines, and/or mandates, which have resulted in and may result
in additional temporary reduction in or suspension in work at certain of our locations and production facilities. All of these additional
actions have and may continue to adversely impact our operating results, financial condition and cash flows.
BUSINESS RISKS
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 62 percent of our annual net sales (based on fiscal
2021 results) and, accordingly, these customers account for a significant percentage of our outstanding accounts receivable. The
contracts with these customers provide for supplying the customer’s requirements for a particular model. The contracts do not specify
a specific quantity of parts. The contracts typically cover the life of a model, which averages approximately four to five years.
Components for certain customer models may also be “market tested” annually. Therefore, the loss of any one of these customers, the
loss of a contract for a specific vehicle model, a reduction in vehicle content, the early cancellation of a specific vehicle model,
technological changes or a significant reduction in demand for certain key models could occur, and if so, could have a material
adverse effect on our existing and future revenues, operating results, financial condition and cash flows.
Our major customers also have significant under-funded legacy liabilities related to pension and postretirement health care
obligations. The loss in our major customers’ North American automotive market share to the New Domestic automotive
manufacturers (primarily the Japanese and Korean automotive manufacturers) and/or a significant decline in the overall market
demand for new vehicles may ultimately result in severe financial difficulty for these customers, including bankruptcy. If our major
customers cannot fund their operations, we may incur significant write-offs of accounts receivable, incur impairment charges or
require restructuring actions.
Production Slowdowns by Customers – Our majora
customers and many of their suppliers were significantly impacted by the
Great Recession of 2008/2009, by the COVID-19 pandemic in 2020 and by a semiconductor chip shortage in 2021. Many of our
major customers instituted production cuts during our fiscal 2009 and 2010 due to the Great Recession and shuttered plants during
2020 and 2021 in response to the effects of the COVID-19 pandemic and the semiconductor chip shortage. While production
subsequently increased after the cuts made in 2009 and again in 2021 when plants reopened from the COVID-19 closures, the current
semiconductor chip shortage and additional economic slowdowns, pandemics or part supply shortages could bring about new
production cuts which could have a material adverse effect on our existing and future revenues, operating results, financial condition
and cash flows.
Cross-border Trade Issues or Tariffs – Our business is impacted by international or cross-border trade, including the import
and export of products and goods into and out of the United States and trade tensions among nations. The shipping of goods across
national borders is often more expensive and complicated than domestic shipping. Customs and duty procedures and reviews,
11
including duty-free thresholds in various key markets, the application of tariffs, and security related governmental processes at
international borders, may increase costs, discourage cross-border purchases, delay transit and create shipping uncertainties. Further,
uncertainties stemming from changes in U.S. trade policies in particular with European countries and China, tariffs and the reaction of
other countries thereto, could have an adverse effect on our business and may adversely impact our results of operations, financial
condition and cash flows or reduce profitability on certain of our products.
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 majora
customers could have a material adverse effect on our existing and
future revenues, results of operations, financial condition and cash flows.
In addition, our competitive position in the North American automotive component supply industry could be adversely affected
in the event that we are unsuccessful in making strategic investments, acquisitions or alliances or in establishing joint ventures
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.
that
t
Cyclicality and Seasonality in the Automotive Market – The automotive market is cyclical and is dependent on consumer
spending, on the availability of consumer credit and to a certain extent, on customer sales incentives. Economic factors adversely
affecting consumer demand for automobiles and automotive production, such as rising fuel costs, could adversely impact our net sales
and net income. We typically experience decreased sales and operating income during the first fiscal quarter of each year due to the
impact of scheduled customer plant shut-downs in July and new model changeovers during that period.
OPERATIONAL RISKS
Shortage of Raw Materials or Components Supply – In the event of catastrophic acts of nature such as fires, tsunamis,
hurricanes, earthquakes and global pandemics or a rapid increase in production demands, either we or our customers or other suppliers
u
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, financial condition and cash flows.
We consider the production capacities and financial condition of suppliers in our selection process, and expect that they will
meet our delivery requirements. However, there can be no assurance that strong demand, capacity limitations, shortages of raw
materials, labor disputes or other problems will not result in any shortages or delays in the supply of components to us.
Because of the COVID-19 pandemic, we have experienced supply chain disruptions in fiscal 2021 in particular with
semiconductor chip shortages that impact our OEM customers’ ability to finish assembly of new vehicles and which have adversely
impacted our results of operations and cash flows. These shortages will most likely continue into our fiscal 2022.
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 availablea
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 results of operations, financial condition and cash flows if the increased
raw material costs cannot be recovered from our customers. During fiscal 2021, we experienced higher raw material costs on the items
listed above including freight costs on both raw material and purchased components.
from a limited number of suppliers, but we
12
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.
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, financial results, financial condition
and cash flows of our joint venture investments, which could have an adverse impact on our financial results, financial condition and
cash flows. 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 fiff nancial 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 ventures in Brazil and India
continue to report losses due to the weak automotive build in those regions. The impact of any future
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.
planned capital expenditures
ff
t
Cyber Vulnerability – In the ordinary course business, we collect and store sensitive data, including our proprietary business
information and that of our customers, suppliers and business partners, as well as personally identifiable information of our customers
and employees, in our internal data centers, cloud services and on our networks. The secure processing, maintenance and transmission
of this information is critical to our operations and business strategy. Despite our security measures, our information technology and
infrastructure, as well as that of our partners, may be vulnerablea
to malicious attacks or breaches due to employee error, malfeasance
or other disruptions, including as a result of rollouts of new systems. Any such breach or operation failure would compromise our
networks or that of our business partners and the information
we have cyber security insurance in place, such access or other loss of information could result in legal claims or proceedings,
regulatory fines or penalties, disruption in our operations, damage to our reputation, or loss of confidence in our products and services,
any of which could have a negative impact on our business, results of operations, financial condition and cash flows.
stored could be accessed, publically disclosed, lost or stolen. Although
ff
Qualified Personnel – Our business success depends, to a significant degree, on attracting and retaining qualified personnel.
Our ability to sustain and grow our business requires us to hire, retain, develop and motivate a highly skilled and diverse management
team and workforce. These types of employees are in high demand and often have competing employment opportunities. The labor
market for skilled employees is highly competitive and we may lose key employees or be forced to increase their compensation to
retain these types of employees. Failure to ensure that we have the leadership capacity with the necessary skill set and experience
could impede our ability to deliver our growth objectives and execute our strategic plan. Organizational and reporting changes
resulting from any future leadership transition or corporate initiatives could result in increased turnover. Additionally, any unplanned
turnover or inability to attract and retain key employees could have a negative effect on our results of operations, including by
significantly increasing our recruitment, training and other related employee costs. Moreover, the loss of key personnel, or the failure
to attract qualified personnel, could have a material adverse effect
on our business, results of operations, financial condition and cash
flows.
ff
Disruptions Due to Work Stoppages and Other Labor Matters – Our major customers and many of their suppliers have
unionized work forces. Work stoppages or slow-downs experienced by our customers or their suppliers could result in slow-downs or
closures of assembly plants where our products are included in assembled vehicles. For example, strikes by a critical supplier called
by the United Auto Workers led to extended shut-downs of most of General Motors’ North American assembly plants in February
2008 and September 2019. A material work stoppage experienced by one or more of our customers could have an adverse effect on
our business and our financial results. In addition, all production associates at our Milwaukee facility are unionized. A sixteen-day
strike by these associates in June 2001 resulted in increased costs as all salaried associates worked with additional outside resources to
produce the components necessary to meet customer requirements. The current contract with our unionized associates is effective
through September 17, 2021. We may encounter further labor disruption
rr
plants or other types of labor conflicts, any of which could have an adverse effect on our business, financial results, financial condition
and cash flows. Labor contracts between General Motors Company, Ford Motor Company and Fiat Chrysler Automobiles and their
unionized associates under the United Auto Workers union expire in September 2023. In addition, their respective labor agreements
with the Canadian auto workers union expire in Fall 2023. Labor disruptions encountered by our customers during the contract period
could have an adverse effect on our business and our financial results.
and we may also encounter unionization efforts in our other
13
FINANCIAL RISKS
Financial Distress of Automotive Supply Base – During the Great Recession, which impacted calendar years 2009 and 2010,
d
conditions adversely affecff
ted STRATTEC and our supply base. Lower production levels at our
deteriorating automotive industry
major customers, volatility in certain raw material and energy costs and the global credit market crisis resulted in severe financial
distress among many companies within the automotive supply base. During the above time frame, several automotive suppliers filed
for bankruptcy protection or ceased operations. The potential continuation or renewal of financial distress within the supply base
(whether from COVID-19 or otherwise) and our suppliers’ inability to obtain credit from lending institutions could lead to commercial
disputes and possible supply chain interruptions.
COVID-19 or otherwise) may require us to provide financial assistance or other measures to ensure uninterrupted production. The
continuation or renewal of these industry conditions could have a material adverse effect on our existing and future revenues, financial
results, financial condition and cash flows.
In addition, the potential for future adverse industry conditions (including from
rr
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.
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 affecff
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.
t the comparability of our results between financial periods. Any depreciation in the value of the U.S. dollar in
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
useful life of each respective asset. Therefore, the loss of any one of our major customers, the loss of specific vehicle models or the
early cancellation of a vehicle model could result in impairment in the value of these assets which may have a material adverse effect
on our financial results and financial condition.
and depreciated over the expected
a
Credit Facilities – Historically, from time to time we have relied on our existing credit facilities to provide us with adequate
working capital to operate our business and fund our capital expenditures, including our expansion initiatives. We cannot provide
assurance that we will be able to refinance, extend the maturitytt of, or otherwise amend the terms of our existing credit facilities, or
that any refinancing, extension, or amendment will be on terms favorable to us or even on commercially reasonable terms. If our
lenders reduce or terminate our access to amounts under our credit facilities, we may not have sufficient capital to fund our working
capital needs and/or we may need to secure additional capital
outstanding debt under our credit faff cilities. Moreover, new credit facilities resulting from any refinancing of our existing facilities
could have a significantly higher rate of interest and greater borrowing costs than our existing facilities. We can make no assurance
that we will be successful in ensuring our availability of amounts under our credit facilities or in connection with raising additional
capital and that any amount, if raised, will be sufficient to meet our cash flow requirements. If we are not able to maintain our
borrowing availability under our credit facilities and/or raise additional capital when needed, we may be forced to sharply curtail our
efforts to manufacture and promote the sale of our products or to curtail our operations.
or financing to fund our working capital requirements or to repay
a
There can be no assurance that the financial terms or covenants of any new credit facility will be the same or as favorable as
those under our existing facilities. Additionally, our ability to complete a refinancing of our existing credit facilities prior to their
respective maturities is subject to a number of conditions beyond our control. For example, if a disruption in the financial markets
were to occur at the time that we intended to refinance our credit facilities, we might be restricted in our ability to access the credit
lines. The restrictive covenants in any such new credit facilitytt may limit our ability to engage in acts that may be in our best long term
interests. A breach of any of these types of restrictive covenants in our credit facilities could result in a default under these
facilities. If a default occurs, the lenders under our credit facilities may elect to declare all outstanding borrowings, together with
accrued interest, to be immediately due and payable, to terminate any commitments they have to provide further borrowings and to
exercise any other rights they have under the facilities or applicable law.
14
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 or we may need to record additional warranty
provisions, similar to as in 2015 and 2018. If our customers demand higher warranty-related cost recoveries, or if our products fail to
perform as expected, it could have a material adverse impact on our results of operations, financial condition and cash flows.
LEGAL AND REGULATORY RISKS
Environmental, Safety and Other Regulations – We are subject to Federal, state, local and foreign laws and other legal
requirements related to the generation, storage, transport, treatment and disposal of materials as a result of our manufacturing and
assembly operations. These laws include, among others, the Resource Conservation and Recovery Act (as amended), the Clean Air
Act (as amended) and the Comprehensive Environmental Response, Compensation and Liability Act (as amended). We have an
environmental management system that is ISO-14001 certified. We believe that our existing environmental management system is
adequate for current and anticipated operations and we have no current plans for substantial capital expenditures in the environmental
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.
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.
However, risk of environmental liability and changes
q
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.
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.
15
GENERAL RISK FACTOR
In addition to the specific risks above, we, our customers, and our suppliers may be adversely affected by changing economic
conditions throughout the world. These conditions may result in reduced consumer and investor confidence, instability in the credit
and financial markets, volatile corporate profits, and reduced business and consumer spending. We, our customers, and our suppliers
and the economy as a whole also may be affected by future world or local events outside of our control, such as tariffs and other trade
protection measures put in place by the United States or other countries, acts of terrorism, developments in the war on terrorism, civil
unrest, conflicts in international situations, weather events, natural disasters, outbreaks of infectious diseases, such as the COVID-19
pandemic, and government or political related developments or issues, including changes in tax laws and regulations. These factors
could have a material adverse impact on our results of operations, financial condition, and cash flows. Additionally, political and
social turmoil, international conflicts and terrorist acts may put pressure on global economic conditions that may adversely impact our
operating results. Unstable political, social or economic conditions may make it difficult for us, our customers and our suppliers to
accurately forecast and plan future business activities. If such conditions arise or persist, they could have a material adverse impact on
our results of operations, financial condition and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We have five manufacturing plants, one warehouse, and one sales office. These facilities are described as follows:
Location
Type
Milwaukee, Wisconsin .................. Headquarters and General Offices; Component Parts
Manufacturing
Juarez, Chihuahua Mexico ............ Subsidiary Offices and Assembly
Juarez, Chihuahua Mexico ............ Subsidiary Offices and Assembly
Juarez, Chihuahua Mexico ............ Subsidiary Offices, Key Finishing, Injection Molding
and Assembly Operations
Leon, Mexico................................. 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.
345,123
169,488
69,900
114,877
129,887
114,715
62,736
Owned or
Leased
Owned
Owned
Owned
Owned
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
aa
financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
None.
16
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
aa
under the symbol “STRT.”
Registered shareholders of record at June 27, 2021, were 902.
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 27, 2021, 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 27, 2021, 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 27, 2021.
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 2017 has 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 the 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 of Financial
Condition and Results of Operations,” and the Financial Statements and Notes thereto included elsewhere herein. The following data
are in thousands of dollars except per share amounts.
r
INCOME STATEMENT DATA
NNet sales ................................................................................. $
Gross profit ............................................................................
Engineering, selling and administrative expenses .................
Income (loss) from operations ...............................................
Interest income .......................................................................
Equity earnings (loss) of joint ventures .................................
Interest expense......................................................................
Pension termination settlement charge ..................................
Other (expense) income, net ..................................................
Income (loss) before taxes and non-controlling interest ........
Provision (benefit) for income taxes ......................................
NNet income (loss) ...................................................................
NNet income attributable to non-controlling interest ...............
NNet income (loss) attributable to
2021
2020
2019
2018
2017
Fiscal Years
$
$
485,295
78,658
44,743
33,915
—
2,560
(302)
—
(1,165)
35,008
5,111
29,897
7,365
385,300
35,446
44,108
(8,662)
—
(209)
(920)
—
1,668
(8,123)
(2,266)
(5,857)
1,748
$
$
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
STRATTEC SECURITY CORPORATION ...................... $
22,532
$
(7,605) $
(17,029) $
12,283
$
7,197
Earnings (loss) per share attributable to
STRATTEC SECURITY CORPORATION:
Basic ................................................................................. $
Diluted .............................................................................. $
Cash dividends declared per share..................................... $
BALANCE SHEET DATA
NNet working capital ................................................................ $
Total assets ............................................................................. $
Long-term liabilities............................................................... $
Total STRATTEC SECURITY
CORPORATION Shareholders’ equity .............................. $
181,646
17
5.95
5.85
$
$
— $
(2.04) $
(2.04) $
$
0.42
(4.63) $
(4.63) $
$
0.56
3.39
3.32
0.56
97,332
310,563
19,558
$
$
$
$
77,228
265,545
41,964
152,222
$
$
$
$
77,369
312,736
45,657
163,388
$
$
$
$
82,310
307,175
55,136
162,158
$
$
$
$
$
$
$
2.01
1.96
0.56
61,110
273,714
33,105
151,088
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 have been 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 2021 and 2020, the above domestic automotive
OEMs together represented each year 62 percent, respectively, of our total net sales.
During fiscal years 2021 and 2020, 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 customer preferences and gas prices. If gas prices continue to remain flat or slightly higher over the
next several years, we anticipate this consumer buying trend will continue, which is approximately 77 percent light trucks and sport
utility vehicles in comparison to 23 percent passenger car vehicle purchases today. During the last 3-5 years our major customers
General Motors, Ford and Fiat Chrysler eliminated passenger car production on several models in North America as a strategy to
improve their overall profitability going forward.
Fiscal 2021 net sales were $485 million compared to $385 million in 2020. The fiscal 2021 net sales were impacted by the
a
global semiconductor chip shortage that reduced net sales and profitability primarily in the fourth quarter of fiscal 2021 and we see
these shortages continuing into fiscal year 2022. The reduced sales in fiscal year 2020 was attributed to the General Motors labor
strike with the United Auto Workers in September and October 2019 which reduced net sales to General Motors by approximately $10
million and as a result of the COVID-19 pandemic. During March, April and May 2020, the North American OEM assembly plant
operations were shut down for the COVID-19 pandemic reducing our net sales to our customers by approximately $78 million during
that period. Net income attributable to STRATTEC for fiscal 2021 was $22.5 million and the Net loss attributable to STRATTEC in
fiscal 2020 was $7.6 million (which included a $3.7 million non-cash compensation expense charges net of tax), which as noted above
was primarily attributed to the lost net sales previously described above. In response to the COVID -19 pandemic in the fourth quarter
of fiscal 2020, the Company implemented temporary layoffs of production workers in our Milwaukee, WI and Mexico plant
operations, reduced the US Salaried workforce by ten percent, reduced salaried working hours by ten percent, allowed remote working
from home, significantly reduced nonessential operating costs, delayed capital expenditures and temporarily suspended the quarterly
cash dividend to preserve cash flow during the fourth quarter of fiscal year 2020. In addition, during fiscal year 2021 the Company
produced additional finished goods inventory in anticipation of our OEM customers pipeline fill to their dealers once vehicle
production began starting up in July, 2020 coming out of the temporary shutdowns from the impact of the COVID-19 pandemic. We
continued to build inventory as it relates to the global chip shortage and low inventory levels at the dealers today. Also impacting
profitability in late fiscal year 2021 were increased costs for purchased raw materials relating to zinc, steel, nickel silver, brass,
aluminum and plastic resins that in most cases we were not able to pass along all these increased costs to our customers. Another
factor impacting our profitability is our U.S. Dollar and Mexican Peso exchange rate that affects our operations in Mexico. In the case
of the Mexican Peso, the Company does have certain hedging strategies to offset the impact of the exchange rate effecff
profitability.
ts on
As we look out into the future, the July 2021 projections from our third-party forecasting service indicate that North American
light vehicle production will show a significant increase in demand in vehicle production build for the next four years from our
original 2021 forecast which was originally set lower due to the expected lingering effects of the COVID-19 pandemic and the
ongoing global semiconductor chip shortage. By model year, based on these projections we are expecting a 2021 vehicle build of 14.7
million vehicles, 17.1 million vehicles for 2022, 17.0 million vehicles for 2023, 16.6 million vehicles for 2024 and 16.8 million
vehicles for 2025. These vehicle production estimates going forward
rr
lowered vehicle production in late fiscal 2020 and the global semiconductor chip shortage in late fiscal 2021. As part of this third
party projection, the Ford Motor Company, General Motors and Fiat Chrysler are expected to experience slightly decreased vehicle
production volumes in their production levels during this time period. Of course, all of these forecasts are subject to variability
on what happens in the overall North American and global economies, especially as it relates to the world wide status of the global
semiconductor chip shortage and the lingering impacts of the COVID-19 pandemic that may shut down our customers assembly
facilities and supply chains in the foreseeable future, 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.
were significantly increased due to the impact of COVID-19 that
based
a
18
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
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, in particular electronics capabilities, 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
2021 Compared to 2020
Years Ended
NNet Sales (millions of dollars).................................................... $
485.3 $
June 27, 2021
June 28, 2020
385.3
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
General Motors Company .......................................................... $
Fiat Chrysler Automobiles (FCA)..............................................
Ford Motor Company.................................................................
Tier 1 Customers ........................................................................
Commercial and Other OEM Customers ...................................
Hyundai / Kia .............................................................................
Total ...................................................................................... $
June 27, 2021
146.5 $
85.6
67.7
66.8
77.0
41.7
485.3 $
June 28, 2020
102.5
85.0
52.7
56.0
71.9
17.2
385.3
Current year sales were adversely impacted by the global semiconductor chip shortage, and prior year sales were significantly
and negatively impacted by the decision of our OEM customers to fully close their assembly plants in April and May 2020 due to the
COVID-19 pandemic. The impact of these production schedule reductions reduced our net sales in the prior year by approximately
$78.0 million. Sales to all customer groups in the current year were higher in comparison to the prior year due to the foregoi
ng impact
of the COVID-19 virus disruption on our operations. The following items further impacted sales to the noted customer groups between
years:
ff
-
-
-
-
-
Sales to General Motors were negatively impacted by a UAW strike in the prior year, which further reduced our prior
year net sales by approximately $10 million.
Sales to FCA were negatively impacted in the current year due to their lower vehicle production volumes of the vehicles
for which we supply components, in particular related to Chrysler minivans. The Dodge Grand Caravan minivan went
out of production during July 2020.
Sales to Ford Motor Company were positively impacted in the current year due to higher product content, and in
particular for the new power tailgate program on the F-150 pickupkk
Sales to Commercial and Other OEM Customers were negatively impacted during the current year due to decreases in
sales related to door handle products and power access products sold to Honda of America Manufacturing, Inc. and
related to reductions in sales of door handle products to Volkswagon. These Commercial and Other OEM Customers,
along with Tier 1 Customers, primarily represent purchasers of vehicle access control products, such as latches, key fobs,
driver controls, steering column locks and door handles, that we have developed in recent years to complement our
historic core business of locks and keys.
Hyundai / Kia sales were positively impacted in the current year due to the introduction of the new Kia Sedona and
Hyundai Starex minivans for which we supply primarily power sliding door components.
trucks.
19
Years Ended
June 27, 2021
June 28, 2020
Millions of
Dollars
Percent of
Cost of
Goods Sold
Millions of
Dollars
Percent of
Cost of
Goods Sold
Direct Material Costs ................................................... $
Labor and Overhead Costs ...........................................
Total Cost of Goods Sold........................................ $
268.6
138.0
406.6
66.1% $
33.9%
$
218.1
131.8
349.9
62.3%
37.7%
The direct material cost increase was due to increased sales volumes between years, as discussed above, and increased
purchased costs for certain raw materials and purchased components in the current year as compared to the prior year. The impact of
increased zinc, brass, and nickel silver costs increased current year material costs by approximately $1.3 million as compared to the
prior year. The increase in our direct material costs as a percentage of our cost of goods sold was due to the increased raw material
costs as previously discussed and due to a reduction in our labor and overhead costs as a percentage of our cost of goods sold, as
discussed below..
Labor and overhead costs increased between years, yet these costs decreased as a percentage of our cost of goods sold as a
result of favorable absorption of fixed overhead costs resulting from production volume increases and cost improvement initiatives at
our Milwaukee and Mexico facilities. Labor and overhead costs were impacted by the following:
Cost Increases:
- The variable portion of our labor and overhead costs increased as a result of the increase in sales volumes.
- The current year results included losses on the disposal of property, plant and equipment of $1.4 million compared to a
loss on disposal of $369,000 during the prior year.
- Expense provisions under our incentive bonus plan impacting cost of goods sold increased $3.8 million between periods.
- Mexico wages and benefits increased $1.9 million as a result of a January 1, 2021 minimum wage increase.
Cost Decreases:
- The prior year included a $3.0 million non-cash compensation expense charge related to the transfer of excess Qualified
Pension Plan assets as described under Pension and Postretirement Benefits within Notes to Financial Statements
included elsewhere herein.
- Labor and overhead costs in the current year period were favorablya
impacted by cost improvements implemented at our
Milwaukee, WI and Mexico facilities in response to the COVID-19 pandemic.
- The U.S. dollar value of our Mexican operations was favorably impacted by approximately $1.8 million in the current
year as compared to the prior year due to a favorable Mexican peso to U.S. dollar exchange rate between these annual
periods. The average U.S. dollar / Mexican peso exchange rate increased to approximately 20.90 pesos to the dollar in
the current year from approximately 20.50 pesos to the dollar in the prior year.
Gross Profit (millions of dollars)............................................... $
Gross Profit as a percentage of net sales ...................................
June 27, 2021
78.7
16.2%
June 28, 2020
35.4
$
9.2%
Years Ended
The increase in gross profit dollars in the current year as compared
m
to the prior year was attributed to the increase in net sales
between years, partially offset by the increase in cost of goods sold as discussed above. Gross profit as a percentage of net sales
improved between years due to the increase in net sales as discussed above, which resulted in more favorable absorption of our fixed
costs and due to cost improvement initiatives at our Milwaukee and Mexico facilities.
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 27, 2021
44.7
9.2%
June 28, 2020
44.1
$
11.4%
Years Ended
Engineering, selling and administrative expenses were impacted by the following:
Cost Increases:
- Expense provisions under our incentive bonus plan impacting engineering, selling and administrative expenses increased
$2.8 million between years.
- The prior year fourth quarter included a ten percent reduction in the salaried work force, a temporary reduction in hours
worked, and reductions in various other operating costs, many of which were implemented as cost saving measures to
address the impact of the COVID-19 pandemic on our reduced sales levels.
Cost Decreases:
-
Customer reimbursement of engineering development costs incurred in prior year periods decreased costs $1.5 million
between years, which reimbursement was agreed to in the current year.
20
-
Prior year costs included a $1.9 million non-cash compensation expense charge related to the transfer of excess Qualified
Pension Plan assets as described under Pension and Postretirement Benefits within Notes to Financial Statements
included elsewhere herein.
Income from operations in the current year was $33.9 million compared to loss from operations of $8.7 million in the prior year.
This change was the result of increase sales, which were partially offset by an increase in cost of goods sold in the current year as
compared to the prior year, all as discussed above.
The equity earnings (loss) 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")....................
$
2,560 $
—
2,560 $
(565)
356
(209)
Years Ended
June 27, 2021
June 28, 2020
Higher profitability from our VAST LLC joint venture was due to higher net sales and improved profitability in our VAST
China operation between years. The improved profitability in our VAST China operation between years stemmed from the extended
OEM customer plant shutdowns associated with the COVID-19 pandemic in the prior year. VAST China’s profitability in the current
year was also partially offset by startup costs for their new plant in Jingzhou, China and by costs associated with the closure of our
VAST China plant in Fuzhou, China, which operations were consolidated into the new Jingzhou facility. We continue to believe these
actions related to the changes in facilities, will give VAST China added capacity, greater operating efficiencies and a broader
geographic footprint in the China market going forward. VAST LLC, including VAST China, is a crucial part of our global strategy
and we anticipate that it will contribute to our overall long term sales growth as the China market continues to expand. Our VAST
LLC joint ventures in India and Brazil continue to report losses due to our limited amount of business in both regions as well as the
impact of COVID-19. SAL LLC was dissolved during fiscal 2020. Our 2020 equity earnings of SAL LLC included a gain on
dissolution of $342,000.
Included in other (expense) income, net in the current year and prior year were the following items (thousands of dollars):
Years Ended
Foreign currency transaction (loss) gain.................................... $
Rabbi Trust gain (loss)...............................................................
Unrealized gain (loss) on Mexican peso forward contracts.......
Realized gain (loss) on Mexican peso forward contracts ..........
Pension and postretirement plans cost.......................................
Other ..........................................................................................
$
June 27, 2021
(2,445) $
865
723
164
(483)
11
(1,165) $
June 28, 2020
1,982
(2)
(480)
(418)
(469)
1,055
1,668
-
-
Foreign currency transaction gains and losses resulted from activity associated with foreign denominated assets held by
our Mexican subsidiaries.
The Rabbi Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in
the Trust are considered trading securities.
- We entered into the Mexican peso currency forward contracts during fiscal 2021 and 2020 to minimize earnings
volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. Unrealized
gains and losses on the peso forward contracts recognized as a result of mark-to-market adjustments as of June 27, 2021
may or may not be realized in future periods, depending on actual Mexican peso to U.S. dollar exchange rates
experienced during the balance of the contract period.
Pension and postretirement plan costs include the components of net periodic benefit cost other than the service cost
component.
During fiscal 2020, other miscellaneous income net includes $450,000 of favorable valued added tax adjustments
realized by our Mexican entities and $434,000 of experience gains from asset returns related to the termination of our
Qualified Pension Plan as discussed under Retirement Plans and Postretirement Costs within our Notes to Financial
Statements under Item 8 of this report on Form 10-K.
-
-
Our effective income tax rate for 2021 was 14.6 percent compared to 27.9 percent in 2020. Our effective tax rate for 2020 was
higher due to our pre-tax book loss and the beneficial carry-back of losses. Additionally, our income tax provision for each year 2021
and 2020 was affected by the non-controlling interest portion of our pre-tax income, GILTI provisions and R&D tax credit. The non-
controlling interest impacts the effective tax rate as our ADAC-STRATTEC LLC and STRATTEC POWER ACCESS LLC entities
are taxed as partnerships for U.S. tax purposes.
21
Liquidity and Capital Resources
Working Capital (millions of dollars)
Current Assets ........................................................................................... $
Current Liabilities......................................................................................
Working Capital ........................................................................................ $
174.9
77.6
97.3
$
$
125.4
48.1
77.3
June 27, 2021
June 28, 2020
Outstanding Receivable Balances from Major Customers
Our primary source of cash flow is from our majora
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 27, 2021 and June 28, 2020
was as follows (millions of dollars):
General Motors Company............................................ $
Fiat Chrysler Automobiles........................................... $
Ford Motor Company .................................................. $
June 27, 2021
June 28, 2020
12.6
5.9
6.1
22.9 $
11.9 $
8.2 $
Reduced accounts receivable balances as of June 28, 2020 was primarily due to reduced sales levels from the end of March 2020
through June 2020 as a result of our OEM customers reducing production schedules and closing their assembly plants, which reduced
orders for our products, due to the COVID-19 outbreak.
Cash Balances in Mexico
We earn a portion of our operating income in Mexico. As of June 27, 2021, $2.3 million of our $14.5 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............................................................................. $
35.2
$
(9.0) $
(22.9) $
25.4
(12.3)
(9.0)
Years Ended
June 27, 2021
June 28, 2020
The increase in cash provided by operating activities between 2020 and 2021 was due to an increase in operating income as
previously discussed. The increase in operating income was partially offset by a net increase in working capital requirements between
these years of $28.7 million, with the net increase in our working capital requirements being made up of the following working capital
changes (millions of dollars):
Increase (Decrease) in Working Capital
a
Requirements
2021
2020
Change
Accounts Receivable ................................................................ $
Inventories ................................................................................ $
Customer Tooling..................................................................... $
Other Assets ............................................................................. $
Accounts Payable and
27.7
16.5
1.2
1.2
$
$
$
$
(42.0) $
7.1
$
(0.5) $
$
0.5
69.7
9.4
1.7
0.7
Other Liabilities .................................................................. $
(28.5) $
24.2
$
(52.7)
- The change in the accounts receivable balances is the result of the amount and timing of sales during each year. The
increase in accounts receivable balances during the current year and the reduction in accounts receivable during the prior
year reflected reduced sales levels from the end of March 2020 through June 2020, which reduction was primarily due to
our OEM customers reducing production schedules and closing their assembly plants due to the COVID-19 outbreak.
- The change in inventory reflected an increase in inventory balances during both the current year period and the prior year
period. The current year period increase was due to an inventoryrr build-up as of June 2021 while our OEM customers
experienced assembly plant shut-downs and reduced production schedule during late March 2021 through June 2021 due to
22
certain part shortages. The prior year increase was due to an inventory build-up resulting from our OEM customers
reducing production schedules and closing their assembly plants from the end of March 2020 through June 2020 due to
COVID-19.
- The 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 change in other assets was the result of an increase in the income tax recoverable balance in 2021, 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 change in accounts payable and accrur ed liability balances was primarily the result of an increase in accounts payable
balances and accruals under our bonus plan during the current year. Bonus accruals at June 2021 totaled $6.6 million.
Bonus accruals were zero at June 2020. Accounts payable balances were significantly reduced as of June 2020 due to the
impact of COVID-19 and the lower production levels stemming from that impact. Accounts payable balances increased as
of June 2021 as our business had ramped-up throughout our fiscal 2021 along with business in the automotive industry in
general. Accounts payable balances reflect the timing of purchases and payments with our vendors based on normal,
established payment terms.
Net cash used by investing activities of $9.0 million during 2021 and $12.3 million during 2020 included capital expenditures of
$8.9 million and $12.4 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. Net cash used by investing activities during 2021 also
included an investment in our VAST LLC joint venture of $100,000. The investment was made for the purpose of funding general
operating expenses for Sistema de Acesso Veicular Ltda, our Brazilian joint venture.
Net cash used in financing activities of $22.9 million during 2021 included repayments of borrowings under credit facilities of
$23.0 million and $490,000 of dividend payments to non-controlling interests in our subsidiaries, partially offset by $604,000 received
for the exercise of stock options under our stock incentive plan and purchases under our employee stock purchase plan. Net cash used
in financing activities of $9.0 million during 2020 included repayments of borrowings under credit facilities of $15.0 million, $1.6
million of regular quarterly dividend payments to shareholders and $980,000 of dividend payments to non-controlling interests in our
subsidiaries, partially offset by $8 million in additional borrowings under credit facilities as well as $560,000 received for the exercise
of stock options under our stock incentive plan and purchases under our employee stock purchase plan.
Dividends
On May 13, 2020, our Board of Directors took action to temporarily suspend payment of our quarterly dividend for the
foreseeable future in order to conserve cash as a result of the economic downturn caused by COVID-19. During the first nine months
of fiscal 2020, prior to the suspension of dividend payments as discussed above, approximately $1.6 million of cash dividends were
paid to our shareholders. No dividends were paid to shareholders during fiscal 2021.
VAST LLC Cash Requirements
We currently anticipate that VAST China has adequate debt facilities in place over the next fiscal year to cover the future
operating and capital requirements of its business. During 2021, capital contributions totaling $300,000 were made to VAST LLC for
purposes of funding operations in Brazil. STRATTEC’s portion of the capital contribution totaled $100,000. No capital contributions
were made to VAST LLC in 2020. Due to economic conditions in Brazil, we anticipate Sistema de Acesso Veicular Ltda may require
an additional capital contribution of approximately $300,000 collectively by all VAST LLC partners to fund operations during our
fiscal year 2022. STRATTEC’s portion of these capital contributions is anticipated to be $100,000. During 2021 and 2020, VAST
LLC made no capital contributions to Minda-VAST Access Systems. Due to Minda-VAST Access System recently experiencing
losses and due to the COVID-19 outbreak, future capital
contributions may be required by the partners in this joint venture.
a
Future Capital Expenditures
We anticipate capital expenditures will be approximately $13 million in fiscal 2022 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 27, 2021. A total of 3,655,322 shares have been repurchased over
the life of the program through June 27, 2021, at a cost of approximately $136.4 million. No shares were repurchased during fiscal
2021 or 2020. 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 2022.
23
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 $25 million secured revolving credit facility (the “ADAC-STRATTEC Credit Facility”) with BMO
Harris Bank N.A., which is guaranteed by STRATTEC. The credit facilities were extended during June 2021 and both expire August
1, 2024. 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 through May 31, 2021 was at varying rates based, at
our option, on the London Interbank Offering Rate (“LIBOR”) plus 1.0 percent or the bank’s prime rate. Interest on borrowings under
the ADAC-STRATTEC Credit Facility through May 31, 2021 was at varying rates based, at our option, on LIBOR plus 1.25 percent
or the bank’s prime rate. Effective June 1, 2021 interest on borrowings under both credit facilities were 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 27, 2021, we were in compliance with all financial covenants required by these credit facilities. There were no
outstanding borrowings under the STRATTEC Credit Facility as of June 27, 2021. Outstanding borrowings under the STRATTEC
Credit Facility totaled $18 million at June 28, 2020. The average outstanding borrowings and weighted average interest rate on the
STRATTEC Credit Facility loans were approximately $8.8 million and 1.2 percent, respectively, during 2021. The average
outstanding borrowings and weighted average interest rate on the STRATTEC Credit Facility loans were approximately $13.8 million
and 2.6 percent, respectively, during 2020. Outstanding borrowings under the ADAC-STRATTEC Credit Facility totaled $12 million
at June 27, 2021 and $17 million at June 28, 2020. The average outstanding borrowings and weighted average interest rate on the
ADAC-STRATTEC Credit Facility loans were approximately $14.3 million and 1.4 percent, respectively, during 2021. The average
outstanding borrowings and weighted average interest rate on the ADAC-STRATTEC Credit Facility loans were approximately $19.1
million and 2.9 percent, respectively, during 2020. 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.
rr
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, steel, brass, nickel silver, and aluminum as well as 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. We have from
time to time entered into contracts with Bank of Montreal that provide for bi-weekly and monthly Mexican peso currency forward
contracts for a portion of our estimated peso denominated operating costs to minimize our earnings volatility resulting from changes in
exchange rates affecting the U.S. dollar cost of our Mexican operations. 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.
Joint Ventures and Majority Owned Subsidiaries
Refer to the discussion of Investment in Joint Ventures and Majority Owned Subsidiaries and discussion of Equity Earnings
(Loss) 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 fiff nancial 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.
Warranty Reserve – We have a warranty liability recorded related to our exposure to warranty claims in the event our products
The
fail to perform as expected, and we may be required to participate in the repair costs incurred by our customers for such products.
recorded warranty liability balance involves judgment and estimates. Our liability estimate is based on an analysis of historical
d
24
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.
Significant Accounting Policies included in the Notes to Financial Statements included as part of Item 8 within this Form 10-K.
Refer to the discussion of Warranty Reserve under Organization and Summary of
a
t
We believe the reserve discussed above is estimated using consistent and appropriate methods. However, changes to the
assumptions could materially affect the recorded reserve amount.
New Accounting Standards
Refer to the discussion of New Accounting Standards under Organization and Summary of Significant Accounting Policies
included in the Notes to Financial Statements included as part of Item 8 within this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS ..............................................................
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)...........................
CONSOLIDATED BALANCE SHEETS .................................................................................................................................
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ..................................................................................
CONSOLIDATED STATEMENTS OF CASH FLOWS .........................................................................................................
NOTES TO FINANCIAL STATEMENTS...............................................................................................................................
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) ........................................................................................
Page
27
30
31
32
33
34
53
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of STRATTEC SECURITY CORPORATION
Milwaukee, Wisconsin
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of STRATTEC SECURITY CORPORATION (the "Company") as of
June 27, 2021, the related consolidated statements of income (loss) and comprehensive income (loss), shareholders’ equity, and cash
flows for the year ended June 27, 2021, 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 27, 2021, and the results
of its operations and its cash flows for the year ended June 27, 2021, in conformity with accounting principles generally accepted in
the United States of America.
We also have 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 27, 2021, based on criteria established in Internal
Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
and our report dated September 2, 2021 expressed an unqualified opinion.
rr
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 audit. We are a publu ic 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 the financial statements are free of material misstatement, whether due to error or fraud.
Our audit 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 audit 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 audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the
critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Warranty Reserve
As described in the Notes to Financial Statements, the Company records a liability for known and potential exposure to warrantytt
claims in the event its products fail to perform as expected and in the event that it may be required to participate in the repair costs
incurred by its customers for such products. At June 27, 2021, the Company’s warranty reserve was $8.4 million. The warranty
reserve is estimated based on management’s analysis of historical data, current trends, known claims, and the terms of specific
customer warranty programs and supply agreements. The warranty reserve requires management to apply significant judgment to its
estimation of the liability which requires substantial auditor judgment due to the highly subjective nature and materiality of the future
estimated claims to be paid. Actual warranty costs may differ from management’s estimated costs as a result of, but not limited to,
negotiations with customers, changes to assumptions of repair and/or replacement costs, and changes to trends in product
performance. Such matters may require future adjustments to the liability which could be significant.
Our audit procedures related to testing the Company’s warranty reserve included the following:
a. Evaluating the design and testing of the operating effectiveness of the Company’s controls over the accounting for the
warranty reserve.
27
b. Obtaining and reviewing copies of select customer agreements, including provisions related to warranty policies and recall
provisions and evaluating the Company’s estimated contractual obligations in comparison to the terms of selected customer
agreements.
c. Tested the completeness and accuracy of the claims to date and payments.
d. Evaluate the reasonableness of the estimated repair costs by comparing historical repair costs to estimated future repair cost
for known product issues.
e. Evaluate the reasonableness of management’s judgement regarding negotiations with customers.
f.
Independently developing ranges of possible outcomes based on the Company’s historical claim experience and comparing
those to the warranty reserve established by the Company.
/s/ Crowe LLP
Oak Brook, Illinois
September 2, 2021
We have served as the Company's auditor since fiscal year 2021.
28
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 sheet of STRATTEC SECURITY CORPORATION and subsidiaries (the
"Company") as of June 28, 2020, the related consolidated statements of income (loss) and comprehensive income (loss), shareholders’
equity, and cash flows, for the year ended June 28, 2020, 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 28,
2020, and the results of its operations and its cash flows for the year ended June 28, 2020, in conformity with accounting principles
generally accepted in the United States of America.
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 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 the financial statements are free of material misstatement, whether due to error or fraud.
Our audit 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 audit provides a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
September 3, 2020
We began serving as the Company’s auditor in 2010. In 2020 we became the predecessor auditor.
29
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended
June 27, 2021
June 28, 2020
NET SALES........................................................................................................................... $
Cost of goods sold...................................................................................................................
GROSS PROFIT ...................................................................................................................
Engineering, selling, and administrative expenses .................................................................
INCOME (LOSS) FROM OPERATIONS .........................................................................
Equity earnings (loss) of joint ventures ..................................................................................
Interest expense.......................................................................................................................
Other (expense) income, net ...................................................................................................
INCOME (LOSS) BEFORE BENEFIT FOR INCOME TAXES AND NON-
CONTROLLING INTEREST ..........................................................................................
Provision (benefit) for income taxes.......................................................................................
NET INCOME (LOSS).........................................................................................................
NNet income attributable to non-controlling interest ................................................................
NET INCOME (LOSS) ATTRIBUTABLE TO STRATTEC SECURITY
CORPORATION ............................................................................................................... $
COMPREHENSIVE INCOME (LOSS):
NET INCOME (LOSS)......................................................................................................... $
Currency translation adjustments, net of tax...........................................................................
Pension and postretirement plans, net of tax...........................................................................
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)...............................................
COMPREHENSIVE INCOME (LOSS) .............................................................................
Comprehensive income (loss) attributable to non-controlling interest ...................................
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO
485,295
406,637
78,658
44,743
33,915
2,560
(302)
(1,165)
35,008
5,111
29,897
7,365
22,532
29,897
7,144
(135)
7,009
36,906
9,058
STRATTEC SECURITY CORPORATION ................................................................... $
27,848
INCOME (LOSS) PER SHARE ATTRIBUTABLE TO STRATTEC
SECURITY CORPORATION:
Basic .................................................................................................................................. $
Diluted............................................................................................................................... $
AVERAGE SHARES OUTSTANDING:
Basic ..................................................................................................................................
Diluted...............................................................................................................................
5.95
5.85
3,788
3,852
$
$
$
$
$
$
385,300
349,854
35,446
44,108
(8,662)
(209)
(920)
1,668
(8,123)
(2,266)
(5,857)
1,748
(7,605)
(5,857)
(5,796)
274
(5,522)
(11,379)
(229)
(11,150)
(2.04)
(2.04)
3,737
3,737
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss).
30
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE AMOUNTS)
June 27, 2021
June 28, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................................................................. $
Receivables, less allowance for doubtful accounts of $500 at June 27, 2021 and
14,465
$
11,774
June 28, 2020..................................................................................................................
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..............................................................
69,902
70,860
7,571
5,716
6,390
174,904
27,224
5,052
6,982
96,401
310,563
$
$
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................................................................... $
Accrued liabilities:
36,727
$
Payroll and benefits......................................................................................................
Environmental ..............................................................................................................
Warranty.......................................................................................................................
Other.............................................................................................................................
Total current liabilities............................................................................................
Commitments and Contingencies – see note beginning on page 46
BORROWINGS UNDER CREDIT FACILITIES ............................................................
ACCRUED PENSION OBLIGATIONS ............................................................................
ACCRUED POSTRETIREMENT OBLIGATIONS ........................................................
OTHER LONG-TERM LIABILITIES ..............................................................................
SHAREHOLDERS’ EQUITY:
Common stock, authorized 12,000,000 shares, $.01 par value, issued 7,411,717
shares at June 27, 2021 and 7,358,812 shares at June 28, 2020 .....................................
Capital in excess of par value ............................................................................................
Retained earnings ..............................................................................................................
Accumulated other comprehensive loss ............................................................................
Less: Treasury stock at cost (3,606,652 shares at June 27, 2021 and 3,609,193 shares
at June 28, 2020).............................................................................................................
Total STRATTEC SECURITY CORPORATION shareholders’ equity.....................
Non-controlling interest ...............................................................................................
Total shareholders’ equity ......................................................................................
22,483
1,390
8,425
8,547
77,572
12,000
2,334
599
4,625
74
99,512
234,472
(16,797)
(135,615)
181,646
31,787
213,433
310,563
$
$
The accompanying Notes to Financial Statements are an integral part of these Consolidated Balance Sheets.
41,955
54,400
8,768
2,912
5,559
125,368
22,068
6,490
6,471
105,148
265,545
18,549
13,498
1,259
8,500
6,334
48,140
35,000
1,255
701
5,008
74
97,977
211,940
(22,113)
(135,656)
152,222
23,219
175,441
265,545
31
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
BALANCE June 30, 2019 ................................... $187,816 $
NNet (loss) income ..................................................
Currency translation adjustments..........................
Pension and postretirement funded status
(5,857)
(5,796)
73 $ 96,491 $221,117 $
—
—
(7,605)
—
—
—
Accumulated
Other
Treasury
Comprehensive
Loss
Stock
(18,568) $(135,725) $ 24,428
1,748
(1,977)
Non-
controlling
interest
—
(3,819)
—
—
adjustment, net of tax of $85..............................
Cash dividends declared ($0.42 per share) ...........
Cash dividends paid to non-controlling interests
274
(1,572)
—
—
—
—
—
(1,572)
274
—
—
—
—
—
of subsidiaries ....................................................
Stock-based compensation ....................................
Stock option exercises...........................................
Employee stock purchases ....................................
BALANCE June 28, 2020 ................................... $175,441 $
NNet income (loss) ..................................................
Currency translation adjustments..........................
Pension and postretirement funded status
(980)
996
477
83
29,897
7,144
—
—
—
—
—
996
476
14
—
—
1
—
74 $ 97,977 $211,940 $
—
—
— 22,532
—
—
—
—
—
69
—
—
—
—
(980)
—
—
—
(22,113) $(135,656) $ 23,219
7,365
1,693
—
5,451
—
—
adjustment, net of tax of $42..............................
(135)
—
—
—
(135)
—
—
Cash dividends paid to non-controlling interests
of subsidiaries ....................................................
Stock-based compensation ....................................
Stock option exercises...........................................
Employee stock purchases ....................................
BALANCE June 27, 2021 ................................... $213,433 $
(490)
972
526
78
—
—
—
—
74 $ 99,512 $234,472 $
—
972
526
37
—
—
—
—
—
—
—
—
(490)
—
—
—
(16,797) $(135,615) $ 31,787
—
—
—
41
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Shareholders’ Equity.
32
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................................................................................... $
Adjustments to reconcile net income (loss) to net cash provided by operating
29,897
$
(5,857)
Years Ended
June 27, 2021
June 28, 2020
activities:
Equity (earnings) loss of joint ventures .......................................................................
Depreciation .................................................................................................................
Foreign currency transaction loss (gain) ......................................................................
Unrealized (gain) loss on peso forward contracts ........................................................
Loss on disposition of property, plant and equipment .................................................
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 ..............................................................................................
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 financing activities .................................................................................
FOREIGN CURRENCY IMPACT ON CASH..................................................................
NET INCREASE IN CASH AND CASH
EQUIVALENTS.................................................................................................................
CASH AND CASH EQUIVALENTS
Beginning of year ..............................................................................................................
End of year......................................................................................................................... $
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period For:
Income taxes ...................................................................................................................... $
Interest ............................................................................................................................... $
Non-Cash Investing Activities:
Change in capital expenditures in accounts payable ......................................................... $
(2,560)
19,786
2,445
(723)
1,421
—
1,473
972
(27,744)
(16,460)
(2,435)
28,540
538
35,150
(100)
(8,929)
8
(9,021)
—
(23,000)
604
(490)
—
(22,886)
(552)
2,691
11,774
14,465
5,431
320
225
$
$
$
$
209
19,329
(1,982)
480
369
4,824
(3,589)
996
41,990
(7,138)
(29)
(24,207)
29
25,424
—
(12,381)
32
(12,349)
8,000
(15,000)
560
(980)
(1,572)
(8,992)
(118)
3,965
7,809
11,774
2,113
976
(951)
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Cash Flows.
33
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STRATTEC SECURITY CORPORATION designs, develops, manufactures and markets automotive access control products
including mechanical locks and keys, electronically enhanced locks and keys, passive entry passive start systems (PEPS), steering
column and instrument panel ignition lock housings, latches, power sliding side door systems, power tailgate systems, power lift gate
systems, power deck lid systems, door handles 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, along with our VAST LLC partners, provide full service and aftermarket support for each VAST
Automotive Group partner’s products. We also previously maintained 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 owner of the remaining ownership interest. SAL LLC was
dissolved during our fiscal 2020.
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 variable interest entities of
STRATTEC, 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 was located in El Paso, Texas. We have only one reporting segment.
Risks and Uncertainties: In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China. The
coronavirus has since spread, and infections have been found in multiple countries around the world, including the United States. In
March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic based on the global spread of the
disease, the severity of illnesses it causes and its effects on society. In response to the COVID-19 outbreak, the governments of many
countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on
travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes. Accordingly,
the COVID-19 outbreak has severely restricted the level of economic activity in many countries, and continues to adversely impact
global economic activity, including with respect to customer purchasing actions and supply chain continuity and disruption, and in
particular the supply of semiconductor chips, transponders and related components to the automotive industry.
STRATTEC’s operating performance is subject to global economic conditions and levels of consumer spending specifically
within the automotive industry. During the period from late March 2020 through mid-June 2020, the majority of our OEM customer
assembly plant operations were completely closed including most of the supply chain. Additionally, during most of this same period,
STRATTEC’s Mexico facilities were closed as a result of the Mexican government’s shutdown of non-essential businesses. Re-
opening of our OEM customer facilities and our Mexico facilities began in June 2020, and the automotive industry continued to ramp-
up throughout our fiscal year ended June 27, 2021 resulting in an increase in our net sales for this current fiscal year period compared
to our prior year period.
The extent of the impact of the COVID-19 outbreak on our future operating results will depend on the duration, intensity and
continued spread of the outbreak, regulatory and private sector responses, which may be precautionary and may include potential
restrictive operating measures imposed by governmental authorities, and the impact to our customers, workforce and suppliers, in
particular related to the sourcing of semiconductor chips, transponders and other critical supply chain components by us and our
customers to meet expected production schedules, all of which are uncertain and cannot be predicted. These changing conditions may
also affect the estimates and assumptions made by our management. Such estimates and assumptions affect, among other things, our
long-lived asset valuations, equity investment valuation, assessment of our annual effective tax rate, valuation of deferred income
taxes, assessment of excess and obsolete inventory reserves, and assessment of collectability of trade receivables.
Significant Accounting Policies: The significant accounting policies followed in the preparation of these financial statements,
ff
as summarized in the following
America (U.S. GAAP).
paragraphs, are in conformity with accounting principles generally accepted in the United States of
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 are not variable interest entities of
STRATTEC are accounted for using the equity method. All significant inter-company transactions and balances have been eliminated.
34
New Accounting Standards: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The update
revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded.
Originally, the update was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15,
2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, Financial Instruments Credit Losses,
Derivatives and Hedging, and Leases. This ASU defers the effective date of ASU 2016-13 for public companies that are considered
smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods
within those fiscal years. We are planning to adopt this standard in the first quarter of our fiscal 2024. We are currently evaluating the
potential effecff
ts of adopting the new guidance on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes, which enhances and simplifies various aspects of income
tax accounting including hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination,
separate financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach,
investment ownership changes from a subsidiary to an equity method investment and vice versa, interim-period accounting for enacted
changes in tax law, and the year-to-date loss limitation in interim-period tax accounting. This accounting update is effective for annual
and interim periods beginning after December 15, 2020, with early adoption permitted. We do not expect that the adoption of this
pronouncement 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 27, 2021 and June 28, 2020 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. We have contracts with Bank of Montreal that provide for monthly Mexican peso currency forward contracts for a
portion of our estimated peso denominated operating costs. Our objective in entering into currency forward contracts is to minimize
our earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. The Mexican
peso forward contracts are not used for speculative purposes and are not designated as hedges. As a result, all currency forward
contracts are recognized in our accompanying consolidated financial statements at fair value and changes in the fair value are reported
in current earnings as part of Other (Expense) Income, net.
The following table quantifies the outstanding Mexican peso forward
rr
contracts as of June 27, 2021 (thousands of dollars, except
with respect to the average forward contractual exchange rate):
Buy MXP/Sell USD ...
Effective Dates
July 13, 2021 - June 14, 2022
Notional Amount
15,000
$
Average Forward
Contractual
Exchange Rate
Fair Value
20.71
$
243
The fair market value of all outstanding Mexican peso forward contracts in the accompanying Consolidated Balance Sheets was
as follows (thousands of dollars):
NNot designated as hedging instruments:
Other current assets:
Mexican peso forward contracts....................................... $
243 $
Other current liabilities:
Mexican peso forward contracts....................................... $
— $
—
480
June 27, 2021
June 28, 2020
35
The pre-tax effects of the Mexican peso forward contracts on the accompanying Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss) Income consisted of the following (thousands of dollars):
NNot Designated as Hedging Instruments:
Realized gain (loss) ............................................................... $
Unrealized gain (loss) ........................................................... $
164 $
723 $
(418)
(480)
Other (Expense) Income, net
Years Ended
June 27, 2021
June 28, 2020
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 27, 2021 and June 28, 2020. 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 27, 2021 and June 28, 2020 (thousands of dollars):
June 27, 2021
June 28, 2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets:
Rabbi Trust assets:
Stock index funds:
Small cap ................................ $
Mid cap...................................
Large cap ................................
International............................
Fixed income funds .....................
Cash and cash equivalents ...........
Mexican peso forward contracts......
384
377
756
1,104
960
—
—
Total assets at fair value ..... $ 3,581
Liabilities:
$ — $ — $
$ — $ — $
—
—
—
—
2
243
245
$
384
377
756
1,104
960
2
243
$ — $ 3,826
—
—
—
—
—
—
$
251
284
563
820
793
—
—
$ 2,711
—
—
—
—
224
—
224
$
251
284
563
820
793
224
—
$ — $ 2,935
—
—
—
—
—
—
Mexican peso forward contracts..... $ — $ — $ — $ — $ — $
480
$ — $
480
The Rabbi Trust assets fund our supplemental executive retirement plan and are primarily 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.
36
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 (including with respect to the impact of COVID-19 on our
customers) and the industry as a whole. The allowance for doubtful accounts totaled $500,000 at June 27, 2021 and June 28, 2020.
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 ........................................................................... $
June 27, 2021
20,633
14,707
40,900
76,240
(5,380)
70,860
June 28, 2020
13,142
$
11,815
34,333
59,290
(4,890)
54,400
$
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 27, 2021........................................................ $
Year ended June 28, 2020........................................................ $
4,890
4,225
$
$
973
2,178
$
$
483
1,513
$
$
5,380
4,890
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. We capitalize
and amortize these other tooling costs over the life of the related product based on the fact that the related tool will be used over the
life of the supply arrangement. To the extent that estimated costs exceed expected reimbursement from the customer we recognize a
loss.
a
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):
June 27, 2021
5,963
36,325
228,141
270,429
(174,028)
96,401
$
June 28, 2020
5,002
$
33,179
228,035
266,216
(161,068)
105,148
$
Land and improvements ............................................................. $
Buildings and improvements ......................................................
Machinery and equipment ..........................................................
Less: accumulated depreciation..................................................
37
Depreciation expense was as follows for the periods indicated (thousands of dollars):
Fiscal Year
2021 ............................................................................................... $
2020 ............................................................................................... $
Depreciation
Expense
19,786
19,329
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 ........................................................................ $
NNet book value............................................................................ $
154,371 $
67,348 $
June 27, 2021
June 28, 2020
146,690
71,369
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. If such indicators are present, the recoverability of assets to be held and used is assessed by a
comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If an asset
is determined to not be recoverable, the impairment recognized is calculated as the excess of the carrying
amount of the asset over the
fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less estimated costs to
sell. There were no impairments recorded in the years ended June 27, 2021 or June 28, 2020.
rr
Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments,
which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated. Upon retirement or
disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in income.
Leases: Our right-of-use operating lease assets are recorded at the present value of future minimum lease payments, net of
amortization. We have an operating lease for our El Paso, Texas finished goods and service parts distribution warehouse that has a
current lease term through October 2023. This lease includes renewal terms that can extend the lease term for five additional years.
For purposes of calculating operating lease obligations, we included the option to extend the lease as it is reasonably certain that we
will exercise such option. The lease does not contain material residual value guarantees or restrictive covenants. Operating lease
expense is recognized on a straight-line basis over the lease term.
As the lease does not provide an implicit rate, we used our incremental borrowing rate at lease commencement to determine the
present value of our lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest we
would pay to borrow over a similar term with similar payments.
The operating lease asset and obligation related to our El Paso warehouse lease included in the accompanying Consolidated
Balance Sheets are presented below (thousands of dollars):
Right-of-Use Asset Under Operating Lease:
Other Long-Term Assets ..................................................................................... $
Lease Obligation Under Operating Lease:
Current Liabilities: Accrued Liabilities:
Other Long-Term Liabilities ...............................................................................
Other ................................................... $
a
$
June 27, 2021
June 28, 2020
3,399
378
3,021
3,399
$
$
$
3,753
354
3,399
3,753
Future minimum lease payments, by our fiscal year, including options to extend that are reasonably certain to be exercised,
under the non-cancelable lease are as follows as of June 27, 2021 (thousands of dollars):
2022.................................................................................................................................................... $
2023....................................................................................................................................................
2024....................................................................................................................................................
2025....................................................................................................................................................
Thereafter ...........................................................................................................................................
Total Future Minimum Lease Payments ............................................................................................
Less: Imputed Interest...................................................................................................................
Total Lease Obligations ..................................................................................................................... $
484
497
509
522
1,834
3,846
(447)
3,399
38
Cash flow information related to the operating lease is shown below (thousands of dollars):
Years Ended
June 27, 2021
June 28, 2020
Operating Cash Flows:
Cash Paid Related to Operating Lease Obligation .............................................. $
473
$
461
The weighted average lease term and discount rate for the El Paso, Texas operating lease are shown below:
Weighted Average Remaining Lease Term, (in years)............................................
Weighted Average Discount Rate............................................................................
7.3
3.3%
8.3
3.3%
June 27, 2021
June 28, 2020
Operating lease expense for the year ended June 27, 2021 and June 28, 2020 totaled $473,000 and $461,000, respectively.
Supplier Concentrations: The following inventory purchases were made from majora
suppliers during each fiscal year noted:
Fiscal Year
2021 ............................................................................................
2020 ............................................................................................
Percentage of
Inventory
Purchases
Number of
Suppliers
44%
39%
8
7
We have long-term contracts or arrangements with most of our suppliers
u
to guarantee the availability of raw materials and
component parts.
Labor Concentrations: We had approximately 3,752 full-time associates of which approximately 204 or 5.4 percent were
represented by a labor union at June 27, 2021. 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.
r
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 Income (Loss) and Comprehensive Income (Loss). Shipping and handling costs are accounted for as
fulfillment costs and are included in Cost of Goods Sold in the accompanying Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss).
39
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 had no material contract assets or contract liabilities as of June 27, 2021 or June 28, 2020.
Product Sales and Sales and Receivable Concentration:
Refer to Product Sales and Sales and Receivable Concentration included herein for revenue by product group and revenue by
customer.
Research and Development Costs: Expenditures relating to the development of new products and processes, including
significant improvements and refinements to existing products, are expensed as incurred. Research and development expenditures
were approximately $10.8 million in 2021 and $9.8 million in 2020.
Other (Expense) Income, Net: Net other (expense) income included in the accompanying Consolidated Statements of Income
(Loss) and Comprehensive Income (Loss) primarily included foreign currency transaction gains and losses, realized and unrealized
gains and losses on our Mexican peso currency forward contracts, the components of net periodic benefit cost other than the service
cost component related to our pension and postretirement plans and Rabbi Trust gains and losses. Foreign currency transaction gains
and losses resulted from activity associated with foreign denominated assets held by our Mexican subsidiaries. The Rabbi Trust assets
fund our amended and restated supplemental executive retirement plan. The investments held in the Trust are considered trading
securities. We entered into the Mexican peso currency forward contracts during fiscal 2021 and 2020 to minimize earnings volatility
resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. Unrealized gains and losses on the
peso forward contracts recognized as a result of mark-to-market adjustments as of June 27, 2021 may or may not be realized in future
periods, depending on actual Mexican peso to U.S. dollar exchange rates experienced during the balance of the contract period.
Pension and postretirement plan costs include the components of net periodic benefit cost other than the service cost component.
Additionally, during fiscal 2020, other miscellaneous income, net includes $450,000 of favorable valued-added tax adjustments
realized by our Mexican entities and $434,000 of experience gains from asset returns related to the termination of our Qualified
Pension Plan as discussed below under Retirement Plans and Postretirement Costs. The impact of these items for the periods presented
was as follows (thousands of dollars):
Foreign currency transaction (loss) gain ................................................... $
Rabbi Trust gain (loss) ..............................................................................
Unrealized gain (loss) on Mexican peso forward contracts ......................
Realized gain (loss) on Mexican peso forward contracts ..........................
Pension and postretirement plans cost.......................................................
Other miscellaneous income, net...............................................................
$
Years Ended
June 27, 2021
June 28, 2020
(2,445) $
865
723
164
(483)
11
(1,165) $
1,982
(2)
(480)
(418)
(469)
1,055
1,668
40
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
trends and information, including our customers’ recent extension
based on an analysis of historical warranty data as well as current
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. 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):
r
Year ended June 27, 2021........................................................ $
Year ended June 28, 2020........................................................ $
8,500
7,900
$
$
373
823
$
$
448
223
$
$
8,425
8,500
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 Income (Loss) and Comprehensive Income (Loss).
Accumulated Other Comprehensive Loss (“AOCL”): The following tables summarize the changes in AOCL for the years
ended June 27, 2021 and June 28, 2020 (thousands of dollars):
Balance June 28, 2020
Other comprehensive loss before reclassifications ..............
Income Tax................................................................
Net other comprehensive loss before
Foreign
Currency
Translation
Adjustments
Year Ended June 27, 2021
Retirement
and
Postretirement
Plans
$
$
20,136
(6,924)
(220)
$
1,977
540
(128)
Total
22,113
(6,384)
(348)
reclassifications ...........................................................
(7,144)
412
(6,732)
Reclassifications:
Prior service credits (A)..................................................
Actuarial losses (A) ........................................................
Total reclassifications before tax....................................
Income Tax................................................................
Net reclassifications........................................................
Other comprehensive loss ....................................................
Other comprehensive loss attributable
to non-controlling interest .........................................
Balance June 27, 2021 ............................................................... $
—
—
—
—
—
(7,144)
8
(369)
(361)
84
(277)
135
8
(369)
(361)
84
(277)
(7,009)
(1,693)
14,685
$
—
2,112
$
(1,693)
16,797
41
Balance June 30, 2019 ............................................................... $
Other comprehensive loss before reclassifications ..............
Income Tax................................................................
$
16,317
6,153
(357)
$
2,251
25
(6)
Foreign
Currency
Translation
Adjustments
Year Ended June 28, 2020
Retirement
and
Postretirement
Plans
Total
18,568
6,178
(363)
Net other comprehensive loss before
reclassifications ...........................................................
Reclassifications:
Prior service credits (A)..................................................
Actuarial losses (A) ........................................................
Total reclassifications before tax....................................
Income Tax................................................................
Net reclassifications........................................................
Other comprehensive loss ....................................................
Other comprehensive loss attributable
to non-controlling interest .........................................
Balance June 28, 2020 ............................................................... $
5,796
—
—
—
—
—
5,796
19
5,815
29
(412)
(383)
90
(293)
(274)
29
(412)
(383)
90
(293)
5,522
1,977
20,136
$
—
1,977
$
1,977
22,113
(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 Income (Loss) and Comprehensive Income (Loss). See Retirement Plans
and Postretirement Costs note to these Notes to Financial Statements below.
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 2 million 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 27, 2021
were 219,084. 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 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.
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.
The expected volatility is determined based on our historical stock
d
42
All compensation cost related to stock options granted under the plan has been recognized as of June 27, 2021. Unrecognized
compensation cost as of June 27, 2021 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 ............................................................. $
822
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
2021 ............................................................................................ $
2020 ............................................................................................ $
Cash Received
from
Stock Option
Exercises
Income Tax
Benefit
526 $
477 $
130
28
The intrinsic value of stock options exercised and the fair value of options vested were as follows (thousands of dollars):
Years Ended
Intrinsic value of options exercised ............................................ $
Fair value of stock options vested .............................................. $
No options were granted during the fiscal years ended June 27, 2021 or June 28, 2020.
The range of options outstanding as of June 27, 2021 was as follows:
June 27, 2021
June 28, 2020
120
—
555 $
— $
$26.53-$25.64 .....................................................................
$38.71..................................................................................
$79.73..................................................................................
Number of
Options
Outstanding
and Exercisable
Weighted
Average
Exercise Price
Outstanding
and Exercisable
35,703
27,911
9,010
72,624
$26.20
$38.71
$79.73
$37.65
Weighted
Average
Remaining
Contractual
Life Outstanding
(In Years)
0.51
2.15
3.14
Income Taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
ff
between the financial statement carrying amounts of assets and
recognized for the future tax consequences attributable to differences
liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered,
settled or utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax
benefit will not be realized. We recognize the benefit of an income tax position only if it is more likely than not (greater than 50
percent) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position.
Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50
percent likelihood of being realized upon ultimate settlement. Additionally, we accrue interest and related penalties, if applicable, on
all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest and penalties on uncertain
tax positions are classified in the (Benefit) Provision for Income Taxes in the accompanying Consolidated Statements of Income
(Loss) and Comprehensive Income (Loss).
43
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 forff
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. As a result of these relationships, the entities
involved purchase products from each other on an as needed basis to use as components in end products assembled and sold in their
respective home markets. STRATTEC currently purchases such component parts from WITTE. These purchases totaled $874,000 in
2021 and $1.0 million in 2020. STRATTEC also pays WITTE a royalty related to certain latch product sales. Such royalties incurredrr
totaled $1.1 million in 2021. The outstanding payable balance to WITTE was $427,000 and $21,000 as of June 27, 2021 and June 28,
2020, respectively.
VAST LLC has investments in Sistema de Acesso Veicular Ltda, VAST China (Taicang), VAST Jingzhou Co. Ltd., VAST
Shanghai Co., VAST Fuzhou and Minda-VAST Access Systems. The operations under VAST Fuzhou closed during our fiscal 2021,
and the land and building owned by VAST Fuzhou are currently for sale. Sistema de Acesso Veicular Ltda is located in Brazil and
services customers in South America. VAST China (Taicang), VAST Jingzhou Co. Ltd, and VAST Shanghai Co. (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 between VAST LLC and 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 majora
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.
VAST LLC investments are accounted for using the equity method of accounting. Results of the VAST LLC foreign
subsidiaries and joint venture are reported on a one-month lag basis. The activities of the VAST LLC foreign subsidiaries and joint
of joint ventures to STRATTEC of approximately $2.6 million during 2021 and equity loss of
ventures resulted in equity earnings
joint ventures of $565,000 during 2020. This 2020 equity loss of joint ventures included a $2 million impairment charge related to its
Minda-VAST Access Systems joint venture in India. STRATTEC’s portion of this impairment charge totaled $667,000. During 2021,
capital contributions totaling $300,000 were made to VAST LLC for purposes of funding operations in Brazil. STRATTEC’s portion
of the capital contributions totaled $100,000. During 2020, no capital contributions were made to VAST LLC.
r
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 $4.1 million in 2021 and $1.5 million in 2020.
ADAC Charges ADAC-STRATTEC LLC an engineering, research and design fee as well as a sales fee. Such fees are calculated as a
percentage of ADAC-STRATTEC LLC net sales, are included in the consolidated results of STRATTEC, and totaled $8.8 million in
2021 and $6.9 million in 2020. The related outstanding payable balance to ADAC was $1.9 million and $658,000 as of June 27, 2021
and June 28, 2020, respectively. Additionally, ADAC-STRATTEC LLC sells production parts to ADAC. Sales to ADAC are included
in the consolidated results of STRATTEC and totaled $11.6 million in 2021 and $10.2 million in 2020. The related outstanding
receivable balance from ADAC was $1.5 million and $1.0 million as of June 27, 2021 and June 28, 2020, respectively.
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
RR
income to STRATTEC of approximately $1.3 million in 2020.
of approximately $6.4 million in 2021 and reduced net
See further discussion under Equity Earnings (Loss) of Joint Ventures included in Notes to Financial Statements herein.
44
EQUITY EARNINGS (LOSS) 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 VAST LLC is not a variable
interest entity of STRATTEC. 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
NNet sales ...................................................................................... $
Cost of goods sold .......................................................................
Gross profit ............................................................................
Engineering, selling and administrative expense ........................
Impairment charge.......................................................................
Income (loss) from operations ...............................................
Other income, net ........................................................................
Income (loss) before provision for income taxes ..................
Provision for income taxes..........................................................
Net income (loss) ................................................................... $
STRATTEC’s share of VAST LLC net
June 27, 2021
210,149 $
171,930
38,219
30,605
—
7,614
1,681
9,295
1,554
7,741 $
June 28, 2020
153,006
125,012
27,994
28,812
2,000
(2,818)
1,556
(1,262)
466
(1,728)
income (loss).......................................................................... $
Intercompany profit eliminations ................................................
STRATTEC’s equity earnings (loss) of VAST LLC .................. $
2,580 $
(20)
2,560 $
(576)
11
(565)
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 ....................................................................... $
NNet assets..................................................................................... $
STRATTEC’s share of VAST LLC net assets............................ $
June 27, 2021
7,623 $
48,717
27,697
28,592
112,629
69,352
17,432
199,413 $
4,605 $
91,373
18,993
2,418
117,389 $
82,024 $
27,341 $
June 28, 2020
8,549
40,983
22,285
17,674
89,491
63,574
14,387
167,452
13,072
72,878
12,778
2,228
100,956
66,496
22,165
SAL LLC was dissolved during 2020. STRATTEC’s equity earnr ings of SAL LLC totaled $356,000 in 2020.
We have sales of component parts to VAST LLC, purchases of component parts from VAST LLC, expenses charged to VAST
LLC for engineering and accounting services and expenses charged from VAST LLC to STRATTEC for general headquarter
expenses. The following tables summarize the related party transactions with VAST LLC for the periods indicated (thousands of
dollars):
Years Ended
Sales to VAST LLC .................................................................... $
Purchases from VAST LLC ........................................................ $
Expenses charged to VAST LLC ................................................ $
Expenses charged from VAST LLC ........................................... $
June 27, 2021
3,900 $
527 $
1,507 $
1,167 $
June 28, 2020
4,041
469
2,299
935
Accounts receivable from VAST LLC........................................ $
Accounts payable to VAST LLC ................................................ $
45
June 27, 2021
June 28, 2020
1,115
239
84 $
25 $
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 $25 million secured revolving credit facility (the “ADAC-STRATTEC Credit Facility”) with BMO
Harris Bank N.A., which is guaranteed by STRATTEC. The credit facilities were extended during June 2021 and both expire on
August 1, 2024. 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 through May 31, 2021 was at varying
rates based, at our option, on the London Interbank Offering Rate (“LIBOR”) plus 1.0 percent or the bank’s prime rate. Interest on
borrowings under the ADAC-STRATTEC Credit Facility through May 31, 2021 was at varying rates based, at our option, on LIBOR
plus 1.25 percent or the bank’s prime rate. Effective June 1, 2021, interest on borrowings under both credit facilities were 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 27, 2021, 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 2021 and 2020 were as
follows (thousands of dollars):
STRATTEC Credit Facility ........................................................ $
ADAC-STRATTEC Credit Facility............................................
$
June 27, 2021
— $
12,000
12,000 $
June 28, 2020
18,000
17,000
35,000
Average outstanding borrowings and the weighted average interest rate under each such credit faff cility during 2021 and 2020
were as follows (thousands of dollars):
Average Outstanding
g
Borrowings
Years Ended
Weighted Average
Interest Rate
Years Ended
STRATTEC Credit Facility..................................................... $
ADAC-STRATTEC Credit Facility ........................................ $
June 27, 2021
8,775 $
14,346 $
June 28, 2020
13,827
19,121
June 27, 2021
June 28, 2020
1.2%
1.4%
2.6%
2.9%
We believe that the credit facilities referenced above are adequate,
q
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
rr
operations or cash flows of STRATTEC. With respect to warranty matters, although we cannot ensure that the future costs of warrant
claims by customers will not be material, we believe our established reserves are adequate to cover potential warranty settlements.
y
In 1995, we recorded a provision for estimated costs to remediate an environmental contamination site at our Milwaukee
facility. The faff cility was contaminated by a solvent spill, which occurred in 1985, from a former above ground solvent storage tank
located on the east side of the facility. The reserve was originally established based on third party estimates to adequately cover the
cost for active remediation of the contamination. Due to changing technology and related costs associated with active remediation of
the contamination, in fiscal years 2010, 2016, and 2021, we obtained updated third party estimates of projected costs to adequately
cover the cost for active remediation of this contamination and adjusted the reserve as needed. We monitor and evaluate the site with
the use of these groundwater monitoring wells. An environmental consultant samples these wells one or two times a year to determine
the status of the contamination and the potential for remediation of the contamination by natural attenuation, the dissipation of the
contamination over time to concentrations below applicable standards. If such sampling evidences a sufficient degree of and trend
toward natural attenuation of the contamination at the site, we may be able to obtain a closure letter from the regulatory authorities
resolving the issue without the need for active remediation. If a sufficient degree and trend toward natural attenuation is not evidenced
by sampling, a more active form of remediation beyond natural attenuation may be required. The sampling has not yet satisfied all of
the requirements for closure by natural attenuation. As a result, sampling continues and the reserve remains at an amount to reflect our
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 $1.4 million at June 27, 2021 is adequate.
46
At June 27, 2021, we had purchase commitments related to zinc and other purchased parts. We also had minimum rental
commitments under non-cancelablea
commitments are payable as follows (thousands of dollars):
operating leases with a term in excess of one year. The purchase and minimum rental
Fiscal Year
2022 ............................................................................................ $
2023 ............................................................................................ $
2024 ............................................................................................ $
2025 ............................................................................................ $
2026-2027 ................................................................................... $
Purchase
Commitments
Minimum Rental
Commitments
4,865 $
— $
— $
— $
— $
484
497
509
522
1,834
INCOME TAXES
The provision for income taxes consisted of the following (thousands of dollars):
Years Ended
June 27, 2021
June 28, 2020
Currently (recoverable) payable:
Federal................................................................................... $
State.......................................................................................
Foreign ..................................................................................
Deferred tax provision ................................................................
$
557 $
420
2,661
3,638
1,473
5,111 $
(1,869)
(176)
3,368
1,323
(3,589)
(2,266)
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:
U.S. statutory rate .......................................................................
State taxes, net of Federal tax benefit .........................................
Foreign subsidiaries ....................................................................
Federal net operating loss carry-back statutory rate
differential................................................................................
Global intangible low-taxed income ...........................................
Research and development tax credit .........................................
NNon-controlling interest ..............................................................
Uncertain tax positions ...............................................................
Stock based compensation ..........................................................
Other ...........................................................................................
Years Ended
June 27, 2021
June 28, 2020
21.0%
1.1
1.0
—
0.5
(2.3)
(5.9)
—
0.1
(0.9)
14.6%
21.0%
2.1
(5.8)
11.7
(4.4)
9.9
(2.3)
(4.0)
(1.8)
1.5
27.9%
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act") was enacted. The CARES Act
contains several income tax provisions, as well as other measures, that are intended to assist businesses impacted by the economic
effects of the COVID-19 pandemic. The CARES Act includes a five-year carryback allowance for taxable net operating losses
generated in tax years 2018 through 2020, our fiscal years 2019 through 2021. We recorded an expected benefit for the carryback of
our fiscal year 2020 federal net operating loss. As we carried the losses back to years beginning before January 1, 2018, the tax benefit
was a result of the rate differential between the previous 35% federal tax rate and current statutory rate of 21%.
47
The components of deferred tax (liabilities) assets were as follows (thousands of dollars):
June 27, 2021
June 28, 2020
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 ................................................
Lease Liability.............................................................................
Right of Use Assets .....................................................................
Credit carry-forwards ..................................................................
Postretirement obligations...........................................................
Accumulated depreciation...........................................................
Accrued pension obligations .......................................................
Joint ventures...............................................................................
Other............................................................................................
$
659 $
499
3,044
306
964
327
284
118
799
(799)
1,544
(294)
(4,663)
459
1,187
618
5,052 $
617
517
2,259
389
964
296
510
118
882
(882)
3,860
(357)
(5,063)
472
1,167
741
6,490
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 27, 2021 resulted in future benefits of approximately $1.4 million and expire between 2030
and 2031. We currently anticipate having sufficient Federal taxable income to offset these credit carry-forwards.
forwards at June 27, 2021 resulted in future benefits of approximately $194,000 and expire at varying times between 2025 and 2035.
A valuation allowance of $153,000 has been recorded as of June 27, 2021, due to our assessment of the future realization of certain
credit carry-forward benefits. We do not currently anticipate having sufficient state taxablea
forwards. Foreign income before the provision for income taxes was $5.1 million in 2021 and $7.7 million in 2020.
income to offset these credit carry-
State credit carry-
rr
The total liability
a
for unrecognized tax benefits was $1.6 million as of each of June 27, 2021 and June 28, 2020 and was
included in Other Long-term Liabilities in the accompanying Consolidated Balance Sheets. This liability includes approximately $1.5
million of unrecognized tax benefits at each of June 27, 2021 and June 28, 2020 and approximately $146,000 of accrued interest at
June 27, 2021 and $147,000 at June 28, 2020. 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 $1.1 million at June 27, 2021 and
at June 28, 2020. 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 27,
2021 and June 28, 2020 (thousands of dollars):
Years Ended
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 ....................................... $
June 27, 2021
1,462 $
76
207
(287)
1,458 $
June 28, 2020
1,138
140
245
(61)
1,462
We or one of our subsidiaries files income tax returns in the United States (Federal), Wisconsin (state), Michigan (state) and
various other states, Mexico and other foreign jurisdictions. Tax years open to examination by tax authorities under the statute of
limitations include fiscal 2018 through 2021 for Federal, fiscal 2017 through 2021 for most states and calendar 2016 through 2020 for
foreign jurisdictions.
48
RETIREMENT PLANS AND POSTRETIREMENT COSTS
We had 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 subsequently approved 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.
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
transfer of the excess assets in the Qualified Pension Plan to a STRATTEC defined
recorded during fiscal 2019 related to the future
contribution plan for subsequent pay-out to eligible STRATTEC employees based on a plan approved by the Board of Directors in
June 2019. An additional $4.8 million non-cash compensation expense charge related to the final transfer and pay-out of the excess
Qualified Pension Plan assets was recorded during our fiscal 2020. During fiscal 2020, the excess Qualified Pension Plan assets were
transferred to our defined contribution plan and distributed to eligible STRATTEC employees, which completed the full termination
of the Qualified Pension Plan.
No
rr
ff
We have a noncontributory Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified defined benefit plan.
lump-sum benefit as of December 31, 2013 which was credited to each participant’s account. Subsequent to
The SERP is funded through a Rabbi Trust with TMI Trust Company. Under the SERP, as amended December 31, 2013, participants
received an accruedrr
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 nonqualified 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 $3.6 million at June 27, 2021 and $2.9 million at June 28,
2020, respectively. At June 27, 2021, the Rabbi Trust asset balance was included in Other Long-Term Assets in the accompanying
Consolidated Balance Sheets. At June 28, 2020, $217,000 of the Rabbi Trust asset balance was included in Other Current Assets and
$2.7 million of the Rabbi Trust asset balance was included in Other Long-Term Assets in the accompanying Consolidated Balance
Sheets. The Rabbi Trust assets are excluded from the pension and SERP tables below as they do not qualify as plan assets. The
projected benefit obligation under the SERP, which is included in the pension and SERP tables below, was $2.8 million at June 27,
2021 and $2.3 million at June 28, 2020. The SERP has a separately determined accumulated benefit obligation, which is the actuat
rial
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 accumulated benefit obligation under the SERP
was $2.6 million at June 27, 2021 and $2.2 million at June 28, 2020.
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 27, 2021, which have not yet been recognized in
net periodic benefit cost were as follows (thousands of dollars):
NNet actuarial loss .........................................................................
SERP
639
Postretirement
1,473
Unrecognized net actuarial
losses included in accumulated other comprehensive loss at June 27, 2021 which are expected to be
recognized in net periodic benefit cost (credit) in fiscal 2022, net of tax, for the pension, SERP and postretirement plans are as follows
(thousands of dollars):
t
NNet actuarial loss .........................................................................
SERP
Postretirement
257
66
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.
49
Pension and SERP Benefits
Years Ended
Postretirement Benefits
Years Ended
June 27, 2021
June 28, 2020
June 27, 2021
June 28, 2020
COMPONENTS OF NET PERIODIC BENEFIT
COST (CREDIT):
cost .............................................................................. $
Interest cost ..............................................................................
Plan settlements........................................................................
Amortization of prior service cost (credit)...............................
Amortization of unrecognized net loss ....................................
NNet periodic benefit cost (credit).............................................. $
WEIGHTED-AVERAGE ASSUMPTIONS:
Obligations:
rate.........................................................................
Rate of compensation increases - SERP...............................
NNet Periodic Benefit Cost:
rate.........................................................................
Rate of compensation increases – SERP ..............................
CHANGE IN PROJECTED BENEFIT
OBLIGATION:
obligation at beginning of year................................... $
Service cost...........................................................................
Interest cost...........................................................................
Actuarial loss (gain) .............................................................
Benefits paid.........................................................................
Benefit obligation at end of year ............................................. $
CHANGE IN PLAN ASSETS:
value of plan assets at beginning of year ......................... $
Actual return on plan assets..................................................
Employer contribution..........................................................
Excess Asset Transfer...........................................................
Plan settlements ....................................................................
Benefits paid.........................................................................
Fair value of plan assets at end of year ................................... $
Funded status – accrued benefit obligations ........................... $
AMOUNTS RECOGNIZED IN CONSOLIDATED
BALANCE SHEETS:
payroll and benefits (current liabilities)....................
Accrued benefit obligations (long-term liabilities) .................
NNet amount recognized............................................................ $
CHANGES IN PLAN ASSETS AND BENEFIT
OBLIGATIONS RECOGNIZED IN OTHER
COMPREHENSIVE INCOME:
NNet periodic benefit cost ......................................................... $
NNet actuarial loss (gain)...........................................................
Settlement loss.........................................................................
Amortization of prior service 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 loss,
before tax.............................................................................. $
63
41
65
—
10
179
$
$
74
61
—
—
15
150
$
$
13
16
—
(8)
359
380
$
$
2.06%
3.0%
2.33%
3.0%
2.33%
3.0%
3.17%
3.0%
2,293
63
41
631
(231)
2,797
$
$
— $
—
231
—
—
(231)
— $
(2,797) $
2,229
74
61
3
(74)
2,293
$
$
$
8,645
84
14
(9,019)
350
(74)
— $
(2,293) $
2.01%
n/a
2.07%
n/a
821
13
16
(26)
(115)
709
$
$
— $
—
115
—
—
(115)
— $
(709) $
(463)
(2,334)
(2,797) $
(1,039)
(1,254)
(2,293) $
(110)
(599)
(709) $
$
179
631
(65)
—
(10)
556
$
150
3
—
—
(15)
(12)
$
380
(26)
—
8
(359)
(377)
12
26
—
(29)
397
406
2.07%
n/a
3.01%
n/a
914
12
26
22
(153)
821
—
—
153
—
—
(153)
—
(821)
(120)
(701)
(821)
406
22
—
29
(397)
(346)
735
$
138
$
3
$
60
50
For measurement purposes as it pertains to the estimated obligation associated with retirees prior to January 1, 2010, a 6.47
percent annual rate increase in the per capita cost of covered health care benefits was assumed for fiscal 2022; the rate was assumed to
decrease gradually to 3.0 percent by the year 2029 and remain at that level thereafter. The health care cost trend assumption has a
minimal effecff
t on our postretirement benefit amounts reported.
We expect to contribute $463,000 to our SERP and $110,000 to our postretirement health care plan in fiscal 2022. 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
Benefitsff
Postretirement
Benefits
2022............................................................................................ $
2023............................................................................................ $
2024............................................................................................ $
2025............................................................................................ $
2026............................................................................................ $
2027-2031................................................................................... $
468 $
446 $
444 $
14 $
14 $
585 $
110
98
95
65
40
222
All U.S. associates may participate in our 401(k) Plan. We contribute 100 percent up to the fiff rst 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):
Years Ended
Company contributions............................................................... $
1,706 $
June 27, 2021
June 28, 2020
1,709
SHAREHOLDERS’ EQUITY
We have 12,000,000 shares of authorized common stock, par value $.01 per share, with 3,805,065 and 3,749,619 shares
outstanding at June 27, 2021 and June 28, 2020, 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 previously authorized a stock repurchase program to buy back up to 3,839,395 outstanding shares of our
common stock as of June 27, 2021. As of June 27, 2021, 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 2021 or 2020.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed on the basis of the weighted average number of shares of common stock outstanding
during the applicable period. Diluted earnings (loss) per share is computed on the basis of the weighted average number of shares of
common stock plus the potential dilutive common shares outstanding during the applicable period using the treasury stock method.
Potential dilutive common shares include outstanding stock options and unvested restricted stock awards. A reconciliation of the
components of the basic and diluted per share computations follows (in thousands, except per share amounts):
Years Ended
June 27, 2021
June 28, 2020
NNet income (loss) attributable to STRATTEC............................ $
22,532 $
(7,605)
Weighted average shares of common stock outstanding ............
Incremental shares – stock based compensation .........................
Diluted weighted average shares of common stock
outstanding
Basic earnings (loss) per share .................................................... $
Diluted earnings (loss) per share................................................. $
3,788
64
3,852
5.95 $
5.85 $
3,737
—
3,737
(2.04)
(2.04)
Potentially dilutive common shares that were excluded from the calculation of diluted earnings (loss) per share because their
inclusion would have been antidilutive were as follows:
Years Ended
June 27, 2021................................................................................
June 28, 2020................................................................................
NNumber of Options
Excluded
9,010
160,254
51
STOCK OPTION AND PURCHASE PLANS
A summary of stock option activity under our stock incentive plan was as follows:
Balance at June 30, 2019 .........................................................
Exercised .................................................................................
Balance at June 28, 2020 .........................................................
Exercised .................................................................................
Balance at June 27, 2021 .........................................................
Exercisable as of:
27, 2021...........................................................................
June 28, 2020...........................................................................
72,624 $
90,860 $
No options were granted during fiscal 2021 or 2020.
Weighted Average
Exercise Price
Shares
117,360 $
(26,500) $
90,860 $
(18,236) $
72,624 $
Weighted Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic
Value
(in thousands)
1.5 $
1.5 $
2.4 $
790
790
-
31.85
18.00
35.88
28.85
37.65
37.65
35.88
A summary of restricted stock activity under our stock incentive plan was as follows:
Weighted Average
Grant Date
Fair Value
Shares
NNonvested Balance at June 30, 2019..........................................
Granted .......................................................................................
Vested.........................................................................................
Forfeited .....................................................................................
NNonvested Balance at June 28, 2020..........................................
Granted .......................................................................................
Vested.........................................................................................
Forfeited .....................................................................................
NNonvested Balance at June 27, 2021..........................................
63,757 $
39,150 $
(27,318) $
(6,195) $
69,394 $
48,300 $
(34,669) $
(1,050) $
81,975 $
39.47
21.80
37.86
34.38
30.59
21.20
34.95
22.84
23.31
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
plan. Shares issued from treasury stock under the plan totaled 2,541 at an average price of $31.03 during 2021 and 4,246 at an average
price of $19.42 during 2020. A total of 51,330 shares remain available for purchase under the plan as of June 27, 2021.
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):
Export sales .............................................................................. $
130,260
Net Sales
%
27%
Net Sales
$
114,381
%
30%
June 27, 2021
June 28, 2020
Years Ended
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.......................................................... $
34,927
Net Sales
%
7%
Net Sales
$
46,191
%
12%
52
June 27, 2021
June 28, 2020
Years Ended
PRODUCT SALES
Sales by product group were as follows (thousands of dollars and percent of total net sales):
Years Ended
June 27, 2021
June 28, 2020
Net Sales
%
Net Sales
%
Door handles & exterior trim .................................................. $
Keys & locksets.......................................................................
Power access............................................................................
Latches.....................................................................................
Aftermarket & OE service.......................................................
Driver controls.........................................................................
Other ........................................................................................
$
126,218
116,572
95,245
51,211
47,138
40,031
8,880
485,295
26% $
24
20
10
10
8
2
100% $
98,168
101,666
63,829
45,295
40,742
29,649
5,951
385,300
SALES AND RECEIVABLE CONCENTRATION
Sales to our largest customers were as follows (thousands of dollars and percent of total net sales):
General Motors Company ....................................................... $
Fiat Chrysler Automobiles ......................................................
Ford Motor Company ..............................................................
$
Years Ended
June 27, 2021
June 28, 2020
Net Sales
%
Net Sales
%
146,547
85,629
67,670
299,846
30% $
18
14
62% $
102,487
85,010
52,666
240,163
Receivables from our largest customers were as follows (thousands of dollars and percent of gross receivables):
General Motors Company ....................................................... $
Fiat Chrysler Automobiles ......................................................
Ford Motor Company ..............................................................
$
June 27, 2021
June 28, 2020
Receivables
%
Receivables
%
22,934
11,938
8,204
43,076
32% $
17
12
61% $
12,630
5,881
6,101
24,612
25%
26
17
12
11
8
1
100%
27%
22
13
62%
30%
14
15
59%
Selected Quarterly Financial Data (unaudited)
The following data are in thousands of dollars except per share amounts.
Quarter
Net Sales
Gross Profit
Net Income (Loss)
Attributable to
STRATTEC
Earnings (Loss)
per Share
Basic
Diluted
2021
2020
First ..................... $
Second.................
Third ...................
Fourth..................
TOTAL ............... $
First ..................... $
Second.................
Third ...................
Fourth..................
TOTAL ............... $
126,234
127,360
121,644
110,057
485,295
119,962
106,283
116,938
42,117
385,300
$
$
$
$
8,008
7,113
4,485
2,926
22,532
1,244
(1,341)
2,994
(10,502)
(7,605)
$
$
$
$
2.13
1.88
1.18
0.77
5.95
0.34
(0.36)
0.80
(2.80)
(2.04)
$
$
$
$
2.11
1.85
1.15
0.75
5.85
0.33
(0.36)
0.79
(2.80)
(2.04)
$
$
$
$
22,511
22,241
18,654
15,252
78,658
15,886
10,333
17,010
(7,783)
35,446
53
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
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.
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.
It should be noted that in designing and evaluating the disclosure controls and procedures,
of the design and operation of
ff
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 27, 2021 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
54
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,
actions taken in discharging responsibilities for accounting, financial reporting, and internal control. Crowe LLP, independent
registered public accounting firm, has direct and confidential access to the Audit Committee at all times to discuss the results of their
audits.
and reviews audit plans and results, as well as management’s
r
Management assessed the Corporation’s system of internal control over financial reporting as of June 27, 2021, 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 27, 2021, its system of internal control over financial reporting was effective and met the criteria of the
Internal Control Integrated Framework. Crowe 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
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of STRATTEC SECURITY CORPORATION
Milwaukee, Wisconsin
Opinion on Internal Control over Financial Reporting
We have audited STRATTEC SECURITY CORPORATION’s (the “Company”) internal control over financial reporting as of June
27, 2021, 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 27, 2021, based on criteria established in Internal Control – Integrated Framework:
(2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheet of the Company as of June 27, 2021, the related consolidated statements of income (loss)
and comprehensive income (loss), shareholders’ equity, and cash flows for the year ended June 27, 2021, and the related notes
(collectively referred to as the "financial statements") and our report dated September 2, 2021 expressed an unqualified opinion.
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 of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
r
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/ Crowe LLP
Oak Brook, Illinois
September 2, 2021
56
ITEM 9B. OTHER INFORMATION
Not applicable.
57
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information included in our Proxy Statement, dated on or aboutuu September 2, 2021, under “Proposal 1: Election of Directors,”
PART III
“Corporate Governance Matters-Code of Business Ethics,” “Audit Committee Matters-Audit Committee Financial
Offiff cers,” “Delinquent Section 16(a) Reports,” “Director’s Meetings and Committees – Nominating and Corporate Governance
Committee,” and “Corporate Governance Matters-Director Nominatiaa ons” is incorporated herein by reference.
aa
Expert,” “Executuu ive
The Audit Committee of our Board of Directors is an “audit commim ttee” for purposes of Section 3(a)(58)(A) of the Securities
Exchange Act of 1934. The membm ers 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 2, 2021, under “Director Compensation” and
“Executive Compmm ensation” 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 2, 2021, under “Security Ownership” is incorporated
herein by reference.
Equity Compensation Plan Information
The following table summarizes share information, as of June 27, 2021, for our Amended and Restated Stock Incentive Plan.
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
Plan Category
Equity compensation plans
approved by shareholders .................................
72,624
$
Equity compensation plans not
approved by shareholders .................................
Total.....................................................................
—
72,624
$
37.65
—
37.65
219,084
—
219,084
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information included in our Proxy Statement, dated on or aboutuu September 2, 2021, under “Transactions With Related Persons”
and “Corporate Governance Matters-Director Independence” is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
RR
The information included in our Proxy Statement, dated on or about September 2, 2021, under “Audit Committee Matters-Fees
tt
of
Independent Registered Public Accounting Firm” is incorporated herein by reference.
58
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
10 (a) Financial Statements
See Item 8 for the Consolidated Financial Statements included in this Form 10-K
PART IV
(b) Exhibits
See the following List of Exhibits:
Exhibit
3.1 (13)
3.2 (20)
3.3 (1)
4.1 (21)
4.2 (2)
4.3 (12)
4.4 (13)
4.5 (5)
4.6 (6)
4.7 (10)
4.8 (12)
4.9 (15)
4.10 (19)
4.11 (25)
4.12 (6)
4.13 (6)
4.14 (6)
4.15 (9)
4.16 (12)
4.17 (14)
4.18 (16)
4.19 (19)
4.20 (25)
10.1 (22)**
10.2 (23)**
10.3 (18)**
10.4 (18)**
10.5 (18)**
10.6 (7) **
10.7 (3)**
10.8 (3)**
Amended and Restated Articles of Incorporation of the Company
Amendment to Amended and Restated Articles of Incorporation of the Company
Amended By-laws of the Company
Description of Registrants’ Securities
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
Amendment No. 6 to Credit Agreement, dated as of October 28, 2019, between STRATTEC SECURITY
CORPORATION and BMO Harris Bank N.A., as lender
Amendment No. 7 to Credit Agreement, dated as of June 1, 2021, 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
Amendment No. 7 to Credit Agreement, dated as of October 28, 2019, between ADAC-STRATTEC LLC and BMO
Harris Bank N.A., as lender
Amendment No. 8 to Credit Agreement, dated as of June 1, 2021, between ADAC-STRATTEC LLC and BMO Harris
Bank N.A., as lender
Amended and Restated STRATTEC SECURITY CORPORATION Stock Incentive Plan (Incorporated by reference from
Appendix B to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on
September 3,
Form of Restricted Stock Grant Agreement with Employees to be used under the Amended and Restated STRATTEC
SECURITY CORPORATION Stock Incentive Plan
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
2020
.)
59
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
10.9 (3)**
10.10 (3)**
10.11 (13) **
10.12 (11) **
10.13 (11) **
10.14 (11) **
10.15 (11) **
10.16 (13)**
10.17 (8)**
10.18 (24)**
10.19 (4)**
16.1 (26)
21 (17)
23.1
23.2
31.1
31.2
32 (27)
101
104
and Richard P. Messina made as of July 1, 2016
Employment Agreement between the Company and Rolando J. Guillot 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, 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 Companymm
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
STRATTEC SECURITY CORPORATION EMPLOYEE STOCK PURCHASE PLAN (Amended effective as of
February 22, 2021)
Letter Agreement between the Company and Harold M. Stratton II made as of September 1, 2012
Letter regarding Change in Auditors
Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm dated September 2, 2021
Consent of Independent Registered Public Accounting Firm dated September 2, 2021
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 27, 2021 has been formatted
in Inline XBRL.
*
*
*
*
*
*
*
*
*
*
*
*
*
Previously filed
*
** Management contract or compensatory plan or arrangement
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
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 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 8-K filed on October 10, 2013.
Incorporated by reference from the exhibit to the Form 10-K filed on September 5, 2014.
Incorporated by reference from the exhibit to the Form 8-K filed on April 29, 2016.
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.
Incorporated by reference from the exhibit to the Form 10-K filed on September 5, 2019.
Incorporated by reference from the exhibit to the Form 8-K filed on October 28, 2019.
Incorporated by reference from the exhibit to the Form 10-Q filed on November 7, 2019.
Incorporated by reference from the exhibit to the Form 10-K filed on September 3, 2020.
Incorporated by reference from Appendix B to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange
Commission on September 3, 2020.
Incorporated by reference from the exhibit to the Form 10-Q filed on November 5, 2020.
Incorporated by reference from the exhibit to the Form 10-Q filed on May 6, 2021.
Incorporated by reference from the exhibit to the Form 8-K filed on June 2, 2021.
Incorporated by reference from the exhibit to the Form 8-K filed on October 9, 2020.
(26)
(27) 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
60
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 2, 2021
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
g
Title
President, Chief Executive Officer,
and Director
(Principal Executive Officer)
Date
September 2, 2021
/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 18, 2021
Director
Director
Director
Senior Vice President, Chief
Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
August 18, 2021
August 18, 2021
August 18, 2021
September 2, 2021
61
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