UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended July 3, 2022. FORM 10-K Commission File Number 0-25150 STRATTEC SECURITY CORPORATION (Exact name of registrant as specified in its charter) Wisconsin (State of Incorporation) 39-1804239 (I.R.S. Employer Identification No.) p 3333 West Good Hope Road, Milwaukee, WI 53209 (Address of principal executive offices) (414) 247-3333 ( one number, including area code) telell phe rr (Registrant’s ) , , Title of each class Common Stock, $.01 par value Securities registered pursuant to Section 12(b) of the Act: 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. ☐Yes ☒No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐Yes ☒No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.: Large accelerated filer Non-accelerated filer Emerging growth company Accelerated filer Smaller Reporting Company ☐ ☐ ☐ ☒ ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant 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.☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒No The aggregate market value of the voting Common Stock held by non-affiliates of the registrant as of December 23, 2021 (the last business day of the Registrant’s most recently completed second quarter), was approximately $139,321,000 (based upon the last reported sale price of the Common Stock at December 23, 2021 on the NASDAQ Global Market). Shares of common stock held by any executive officer or director of the registrant have been excluded from this computation because such persons may be deemed to be affiliates. This determination of affiliate status is not a conclusive determination for other purposes. On August 5, 2022, there were outstanding 3,961,999 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 p Portions of the Proxy Statement dated September 8, 2022, for the Annual Meeting of Shareholders to be held on October 11, 2022. III STRATTEC SECURITY CORPORATION ANNUAL REPORT IN FORM 10-K July 3, 2022 PART I................................................................................................................................................................................................. BUSINESS .............................................................................................................................................................. ITEM 1. RISK FACTORS..................................................................................................................................................... ITEM 1A. UNRESOLVED STAFF COMMENTS.................................................................................................................. ITEM 1B. PROPERTIES ......................................................................................................................................................... ITEM 2. LEGAL PROCEEDINGS ....................................................................................................................................... ITEM 3. MINE SAFETY DISCLOSURES........................................................................................................................... ITEM 4. PART II ............................................................................................................................................................................................... ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.................................................................................... [RESERVED].......................................................................................................................................................... MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........................................................................................................................................................ QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ....................................... FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ....................................................................... CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ........................................................................................................................................................ CONTROLS AND PROCEDURES ....................................................................................................................... OTHER INFORMATION....................................................................................................................................... DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS...................... ITEM 6. ITEM 7. ITEM 7A. ITEM 8. ITEM 9. ITEM 9A. ITEM 9B. ITEM 9C. PART III .............................................................................................................................................................................................. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE................................................ ITEM 10. EXECUTIVE COMPENSATION .......................................................................................................................... ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND ITEM 12. RELATED SHAREHOLDER MATTERS............................................................................................................. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE .... ITEM 13. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES......................................................................................... PART IV.............................................................................................................................................................................................. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.............................................................................. ITEM 15. ITEM 16. FORM 10-K SUMMARY....................................................................................................................................... SIGNATURES ................................................................................................................................................................................. Pageg 2 2 11 16 17 17 17 18 18 18 19 26 27 53 53 56 56 57 57 57 57 57 57 58 58 59 60 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 8, 2022, which is incorporated herein by reference, contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “would,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will” and “could,” or the negative of these terms or words of similar meaning. These statements include expected future financial results, product offerings, global expansion, liquidity needs, financing ability, planned capital expenditures, management’s or the Company’s expectations and beliefs, and similar matters discussed, or otherwise incorporated herein by reference, in this Form 10-K. The discussions of such matters and subject areas are qualifieff d by the inherent risks and uncertainties surrounding futff ure expectations generally, and also may materially differ from the Company’s actual future experience. The Company’s business, operations and financial perforff mance 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 customer 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 frff om U.S. trade policies, tariffs and reactions to same from foreign countries, the volume and scope of product returns or customer cost reimbursement actions, changes in the costs of operations, warranty claims, adverse business and operational issues resulting from the global supply chain and logistics disruption, the semiconductor chip supply shortages and the Coronavirus (COVID-19) pandemic, matters adversely impacting the timing, availability and cost of material component parts and raw materials for the production of our products and the products of our customers, or the continuation or worsening thereof 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 faff ctors carefully in evaluating the forward- looking statements and are cautioned not to place undue reliance on such forward-l statements made herein are only made as of the date of this Form 10-K and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this Form 10-K. ooking statements. The forff ward-looking 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 liftff 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. ff 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 forff over twenty-seven 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 forff products. these Products Our traditional products are lock sets (locks and keys) forff cars and light trucks. Typically, two keys are provided with each vehicle lockset. Most of the vehicles we currently supply are using keys with sophisticated radio frequency identification technology for additional theft prevention. Keys with remote entry devices integrated into a single unit and bladeless electronic keys as well as turn-key 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 forff our ignition locks and typically are part of the steering column structure, although there are instrument panel-mounted versions forff certain vehicle applications. These housings are either die cast from zinc or injection molded plastic and may include electronic components forff deterrent systems. theft We have developed and are continuing to develop access control products, including trunk latches, lift gate latches, tailgate latches, hood latches, side door latches and related hardware. With our acquisition of Delphi Corporation’s Power Products Group in fiscal 2009, we have been supplying and continue to supply various power access devices for sliding side doors, tailgates, liftff gates and trunk lids to our automotive industry customers. Through a joint venture formed with ADAC Automotive during fiscal also supply painted and non-painted door handles and components and related vehicle access hardware. 2007, we ff 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 forefrff ont of this new technology, working with Original Equipment Manufacturers’ (OEMs) product development and purchasing groups to provide cost-effff ect customers. ive, innovative solutions to the challenges faci ng our ff ff STRATTEC’s customer-focused structure and formff alized 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 Inforff mation” below forff information). additional To maintain a strong focus on each of these access control products, we have Product Business Managers who oversee the product’s entire life cycle, including product concept, application, manufacturing, warranty analysis, service/aftermarket, and financial/commercial issues. The Product Business Managers work closely with our sales organization, our engineering group, and our manufacturing operations to ensure their products are receiving the right amount of quality attention so that their value to STRATTEC and the market place is enhanced. 2 Markets We are a direct supplier to OEM automotive and light truck manufacturers as well as other transportation-related manufacturers. Our largest customers are Stellantis (formerly 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 door handles and trim components produced by ADAC-STRATTEC de Mexico, followed by lock and key, including aftermarket produced by STRATTEC de Mexico, power access products produced by STRATTEC Power Access de Mexico, and latch mechanisms and ignition lock housing components produced by STRATTEC de Mexico. See Operations discussion included herein for furff ther description. Direct sales to various OEMs represented approximately 79% of our total sales for both fiscal 2022 and 2021. 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. a The majority of our OEM products are sold in North America. While some exporting is done to Tier 1 and automotive assembly plants in Europe, Asia and South America, we are in the process of expanding our presence in these markets and elsewhere through the Vehicle Access Systems Technology LLC (VAST LLC) joint venture we jointly own with WITTE Automotive and ADAC Automotive. VAST is described in more detail on pages 4, 5, 43, 44 and 45 in this Form 10-K. OEM service and replacement parts are sold to the OEM’s own service operations. In addition, we distribute our components and security products to the automotive aftermarket through approximately 50 authorized wholesale distributors, as well as other marketers and users of component parts, including export customers. Increasingly, our products fiff nd 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 forff Toyota, Honda and other popular domestic and import vehicles. This extended line of keys enables automotive repair specialists to satisfy consumer needs forff a warehousing operation in El Paso, Texas. repair or replacement parts. Our aftermarket activities are serviced through 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 forff General Motors, Ford and Stellantis (formerly Fiat Chrysler), we currently have teams for New Domestic Vehicle Manufacturers (primarily the Japanese and Korean automotive manufactures), User Interface Control/Ignition Lock Housing) customers, Tier 1 customers, and Service and Aftermarket customers. Sales and engineering forff ADAC-STRATTEC LLC (described in greater detail below) are supported by our partner in this joint venture, ADAC Automotive. Controls (formerly Driver ff Each Sales Director is responsible forff the overall relationship between STRATTEC and a specific customer group. Program Managers are responsible for coordinating cross functional activities while managing new product programs forff 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, User Interface Controls (formerly Driver Control/Ignition Lock Housings) and Wireless Systems (formerly 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 manufacff tured 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 finishi operations forff 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 forff ADAC-STRATTEC de Mexico and is owned by the ADAC-STRATTEC de Mexico joint venture. ng and assembly ff 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 ff 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 $190.4 million and $209.0 million during fiscal 2022 and 2021, respectively. This gave STRATTEC a one-third interest in VAST China’s activities in the Chinese/Asian market for manufacturi ng 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 $1.3 million and $1.5 million during fiscal years 2022 and 2021, respectively. ff ff On April 30, 2015 VAST LLC executed a purchase agreement to become a 50:50 Joint Venture partner with Minda Management Services Limited, an affiliate of both Minda Corporation Limited and Spark Minda, Ashok Minda Group of New Delhi, India (collectively, “Minda”). As part of this transaction, VAST acquired a fifty percent equity interest in the former Minda-Valeo Security Systems joint venture entity, based in Pune, India. 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 $29.4 million and $23.8 million during fiscal years 2022 and 2021, respectively. Minda is a leading manufacturer of security & access products and handles, for both OEMs and the aftermarket in India. Minda-VAST financia l results are accounted for on the equity method of accounting by VAST LLC. ff For further VAST LLC financial information, see “Equity Earnings of Joint Ventures” included in Notes to Financial Statements under Item 8 in this Form 10-K. VAST is the embodiment of STRATTEC’s, WITTE’s and ADAC’s globalization strategy. Collectively as a group, we are developing VAST as a global brand with which we are jointly pursuing business with identified global customers. Those identifiedff customers are General Motors, Ford, Stellantis (formerly Fiat Chrysler), Volkswagen, BMW, Daimler, Honda, Volvo, Renault/Niss and Hyundai/Kia. tt an To manage our customer relationships and coordinate global ventures and activities, we have established a VAST Management Group led by a President. The Management Group includes three Vice Presidents, one each from WITTE, STRATTEC and ADAC. With the focus provided by this Management Group, VAST is able to manage global programs, in accordance with STRATTEC and our partners’ globalization strategy, 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 frff om 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 finff ancial results are consolidated into STRATTEC’s financi statements. In our fiscal year ending 2022, ASdM was near break-even due to rising material costs that could not be passed on to ASdM represented $111.8 million and customers through higher customer purchase prices. In our fisff cal 2021, ASdM was profitable. $126.2 million of our consolidated net sales in our fiscal 2022 and 2021, respectively. STRATTEC de Mexico Plant No. 4 is in Leon, Mexico and houses our custom paint system for door handles and assembly forff ADAC-STRATTEC de Mexico. al ff ff 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, tailgates, lift gates, trunk lids and other related products. STRATTEC POWER ACCESS de Mexico currently operates out of defined space in STRATTEC de Mexico Plant No. 3 located in Juarez, Mexico. Financial results for SPA are consolidated in STRATTEC’s finaff profitable and represented $95.7 million and $95.2 million, respectively, of our consolidated net sales. ncial statements. In our fisff cal years ending 2022 and 2021, SPA was 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. As described elsewhere herein under Management's Discussion and Analysis of Financial Condition and Results of Operation – Executive Overview, adverse business and operational issues resulting from the semiconductor chip supply shortages, the Coronavirus (COVID-19) pandemic and the conflict in the Ukraine have adversely impacted the timing, availability and cost of certain material component parts and raw materials for the production of our products and the products of our customers. These events have temporarily disrupted our normal seasonal sales patterns during fisff cal 2022 and 2021. 6 Vehicle List 2023 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 2023 fiscal year: Ford GT Ford Mustang Honda Accord Maserati Ghibli * Maserati MC20 * Maserati Quattroporte * Opel Astra * Opel Insignia * Volkswagen Jetta GMC Yukon and Yukon XL Honda CRV Honda RDX Honda Odyssey Hyundai Staria * Jeep Cherokee Jeep Commander * Jeep Compass Jeep Gladiator Jeep Grand Cherokee Jeep Wrangler/Wrangler Unlimited (PH option) Kia Sedona * Kia Carnival * Lincoln Aviator (PH option) Lincoln Corsair (PH option) Lincoln Nautilus Lincoln Navigator Maserati Levante * Ram 1500 Pickup Ram 1500 Classic Pickup Volkswagen Tiguan (PH option) Volvo Polestar 3 (EV) Volvo XC90 (PH option) PASSENGER CARS Acura NSX Aston Martin DB 11* Aston Martin DBS * Aston Martin DBX * Aston Martin Vanquish* Aston Martin Vantage * Buick Excelle * Buick LaCrosse * Buick Regal * Cadillac ATS * Cadillac CT5 * Cadillac CT6* Cadillac Lyriq (EV) Chevrolet Bolt (EV) Chevrolet Camaro Chevrolet Corvette Chevrolet Malibu Chrysler 300 Cruise Origin (EV) Dodge Challenger Dodge Charger Ford Focus * (PH option) LIGHT TRUCKS, VANS AND SPORT UTILITY VEHICLES Acura MDX Acura RDX Audi Q5 Brightdrop EV600 (EV) Buick Enclave Buick Encore GX * Buick Envision * BMW X7 Cadillac Escalade & Escalade ESV Chevrolet Traverse Chrysler Pacificaff Chrysler Voyager Dodge Durango Dodge Hornet (PH option) Ford Bronco Sport Ford Edge Ford Escape (PH option) Ford Expedition Ford Explorer Ford F-Series Pickup Ford F-Series Super Duty Cadillac XT4 Cadillac XT5 Cadillac XT6 Chevrolet Blazer Chevrolet Colorado * Chevrolet Equinox Chevrolet Express Van Chevrolet S-10 * Chevrolet Silverado & Silverado HD Pickup Chevrolet Suburban Chevrolet Tahoe Chevrolet Tracker * Chevrolet Trail Blazer * Chevrolet Trax * Pickup Ford F-150 Lightning (EV) Ford Maverick Pickup Ford Mustang Mach-E (EV) Ford Ranger Pickup Ford Transit Connect * GMC Acadia GMC Canyon * GMC Hummer (EV) GMC Savana GMC Sierra & Sierra HD Pickup GMC Terrain * Vehicles produced outside of North America, or both in and outside North America. EV – Electric Vehicle PH – Plug-In Hybrid 7 Emerging Technologies Automotitt ve vehicle access systems, which araa e bothtt thtt eftff deterrrr ent and consumer frff irr endly, araa e trtt ending towaraa d electrtt o-mechanical and connected devices. Electrtt onic compmm anies araa e developing user identitt fiff catitt on systems such as bio-systems, caraa d holder (trtt ansmitttt er) systems, etc., while mechanical locks, keys, housings, and lataa ches araa e evolving to accommodate electrtt onics. We believe we araa e posititt oning ourselves as a vehicle access contrtt ol supplier by building our product, engineerirr ng and manufaff ctutt rirr ng expertrr itt se in thtt e required electrtt o- mechanical products, which include vehicle access latches, keys withtt remote entrtt yrr electrtt onic systems, ignititt on interfaff ce systems withtt passive staraa trr and Phone as a Key (PaaK) capaa aba ilititt es. In bothtt 2018 and 2019, we were awaraa ded thtt e Automotitt ve News Pace Awaraa d foff r Excellence and Innovataa itt on foff r our Invis-A-RiseTM Power Liftff gate and Invis-A-RiseTM Power Tailgataa e products. As thtt e auaa tomotitt ve industrtt yrr contitt nues developing varaa irr ous levels of auaa tonomous vehicles, we believe thtt at we araa e well posititt oned to contitt nue thtt e development and incorprr oratitt on of power sliding doors, power tailgates and othtt er consumer convenience feff atutt res into thtt ese tytt pes of vehicles. These technologies benefiff t us by increasing our potentitt al customer base as a Tier 2 supplier while maintaining our Tier 1 statutt s on some product lines and by adding addititt onal product line availaba ilitytt . Sources and Availability of Raw Materials Our prirr maraa yrr raw mataa erirr als araa e high-grade zinc, brass, nickel silver, steel, aluminum, plastitt c resins and semiconductor chips and othtt er electrtt onics. These mataa erirr als araa e generally availaba le frff om a numbm er of suppliers, but we have chosen to concentrtt ate our sourcing withtt one prirr maraa yrr vendor foff r each commoditytt . We believe our sources foff r raw materirr als araa e veryrr reliaba le and adequate foff r our needs. We have not experirr enced any signififf cant long termrr instaba ilitytt have adversely impmm acted thtt e supply of certrr ain semiconductor chips and relataa ed electrtt onics compmm onents which has adversely impmm acted our, and our customers’, aba ilitytt Othtt er Healthtt Epidemics,” “Risk Related to Geopolititt cal Instaba ilitytt ,” and “Risk Factors-Sources of and Fluctutt atitt ons in Maraa krr et Prirr ces of Raw Materirr als” included under Item 1A of thtt is Formrr 10-K. supply problems in our operatitt ons. However, thtt e impmm acts of thtt e Coronavirurr s and geopolititt cal to build product and fuff lfiff ll orders. See fuff rtrr htt er discussion under “Risk Related to Coronavirurr s and Patents, Trademarks and Other Intellectual Property We believe thtt at thtt e success of our business will not only result frff om thtt e technical compmm etence, creatitt vitytt and maraa krr etitt ng aba ilititt es of thtt rough pataa ents, trtt ademaraa krr s and copyrirr ghts. As paraa trr of our ongoing our empmm loyees but also frff om thtt e protectitt on of our intellectutt al propertrr ytt researaa ch, development and manufaff ctutt rirr ng actitt vititt es, we have a policy of seekikk ng patents on new products, processes and impmm rovements when apaa proprirr ate. Althtt ough, in thtt e aggregate, thtt e intellectutt al propertrr ytt discussed herein araa e of consideraba le impmm ortrr ance to thtt e manufaff ctutt rirr ng and maraa krr etitt ng of many of our access contrtt ol products, we do not consider any single patent or trtt ademaraa krr or group of related patents or trtt ademaraa krr s to be materirr al to our business as a whole, except foff r thtt e STRATTEC and STRATTEC withtt logo trtt ademaraa krr s. We also rely upon trtt ade secret protectitt on foff r our confiff dentitt al and proprirr etaraa yrr infoff rmrr atitt on. We maintain confiff dentitt alitytt agreements withtt our key executitt ves. In addititt on, we enter into confiff dentitt alitytt agreements withtt selected suppliers, consultants and empmm loyees as apaa proprirr ate to evaluataa e new products or business relatitt onships pertrr itt nent to our success. However, thtt ere can be no assurance thtt at othtt ers will not independently obtain similaraa infoff rmrr atitt on and techniques or othtt erwise gain access to our trtt ade secrets or thtt at we can effff eff ctitt vely protect our trtt ade secrets. Dependence Upon Signififf cant Customers A veryrr signififf cant portrr itt on of our annual sales araa e to General Motors Compmm any, Ford Motor Compmm any, and Stellantitt s (foff rmrr erly Fiataa Chryrr sler Automobiles). These thtt ree customers accounted foff r apaa proximately 65 percent and 62 percent of our net sales in 2022 and in 2021, respectitt vely. Furtrr htt er infoff rmrr ataa itt on regaraa ding sales to our laraa gest customers is set foff rtrr htt under thtt e capaa titt on “Risk Factors - Loss of Signififf cant Customers, Vehicle Content, Vehicle Models and Maraa krr et Sharaa e” and “Risk Factors – Productitt on Slowdowns by Customers” included under Item 1A of thtt is Formrr 10-K and “Notes to Financial Statements-Sales and Receivaba le Concentrtt atitt on” included in Notes to Financial Statements under Item 8 in thtt is Formrr 10-K. The products sold to thtt ese customers araa e model specififf c, fiff tttt itt ng only certrr ain defiff ned apaa plicatitt ons. Consequently, we araa e highly dependent on our maja or customers foff r thtt eir business, and on thtt ese customers' aba ilitytt We have enjn oyed good relataa itt onships withtt General Motors Compmm any, Stellantitt s, Ford Motor Compmm any and othtt er customers in thtt e past, and expect to contitt nue to do so in thtt e fuff tutt re. However, a signififf cant change in thtt e purchasing practitt ces of,ff or a signififf cant loss of volume frff om, one or more of thtt ese customers could have a detrtt irr mental effff eff ct on our fiff nancial perfoff rmrr ance. We cannot provide any assurance thtt ataa any lost sales volume could be replaced despite our historirr cal relatitt onships withtt our customers. to produce and sell vehicles which utitt lize our products. 8 Sales and Marketing; Backlog We provide our customers withtt engineered access contrtt ol products including locksets, foff bs, push butttt on passive entrtt yrr passive staraa trr ignititt on systems, steerirr ng column lock housings, electrtt omechanical latches, power sliding door systems, power tailgataa e systems, power liftff gataa e systems, power decklkk ids, painted and non-painted door handles, door handle compmm onents and trtt irr m and othtt er access products which araa e unique to specififf c vehicles. Any given vehicle will tytt pically takaa e 1 to 3 yearaa s of development and engineerirr ng design titt me prirr or to being offff eff red to thtt e public. The access contrtt ol products araa e designed concurrrr ently withtt thtt e vehicle. Therefoff re, commitmtt ent to STRATTEC as thtt e productitt on source foff r such products and compmm onents occurs 1 to 3 yearaa s prirr or to thtt e staraa trr of productitt on foff r such compmm onents. We empmm loy an engineerirr ng staffff thtt at assists in providing design and technical solutitt ons to our customers. We believe thtt ataa our engineerirr ng expertrr itt se is a compmm etitt titt ve advantage and contrtt irr butes towaraa d our strtt ong maraa krr et posititt on in our industrtt yrr . For exampmm le, we regularaa ly provide innovatitt ve design proposals foff r our product offff eff rirr ngs to our customers thtt at we believe will impmm rove customer access, vehicle securirr tytt system qualitytt , thtt eftff deterrrr ence and system cost. The tytt pical process used by auaa tomotitt ve manufaff ctutt rers in selectitt ng a supplier foff r access contrtt ol products is to offff eff r thtt e business opportrr utt nitytt to us and several of our compmm etitt tors. Each compmm etitt tor will pursue thtt e opportrr utt nitytt , doing its best to provide thtt e customer withtt thtt e most atttt rtt actitt ve proposal. Prirr ce pressure is strtt ong durirr ng thtt is process but once an agreement is reached, a commitmtt ent is made foff r each yearaa of thtt e product program. Typically, prirr ce reductitt ons resultitt ng frff om productitt vitytt impmm rovement by STRATTEC over thtt e lifeff of thtt e product program araa e included in thtt e contrtt act and araa e estitt mated in evaluatitt ng each of thtt ese opportrr utt nititt es. A blanket purchase order, a contrtt act indicatitt ng a specififf ed paraa trr will be supplied at a specififf ed prirr ce durirr ng a defiff ned titt me perirr od, is issued by customers foff r each model yearaa . Productitt on quantitt tytt consequence and becauaa se we araa e a "Just-in-Time" supplier to thtt e auaa tomotitt ve industrtt yrr , we do not maintain a backlkk og of orders in thtt e classic sense foff r fuff tutt re productitt on and shipment and, accordingly, we araa e unaba le to provide a meaningfuff l backlkk og compmm araa irr son frff om yearaa to yearaa . releases or quantitt tytt commitmtt ents araa e made to thtt at purchase order foff r weeklkk y deliverirr es to thtt e customer. As a Competition We compmm ete withtt domestitt c and foff reign-based compmm etitt tors on thtt e basis of custom product design, engineerirr ng supportrr , qualitytt , deliveryrr and prirr ce. While thtt e numbm er of direct compmm etitt tors in our product maraa krr ets is currrr ently relatitt vely small, thtt e auaa tomotitt ve manufaff ctutt rers actitt vely encourage compmm etitt titt on between potentitt al suppliers. We have a laraa ge sharaa e of thtt e Nortrr htt Amerirr can maraa krr et foff r our access contrtt ol products becauaa se of our aba ilitytt supportrr , program management, innovatitt on and aftff ermrr araa krr et supportrr . In order to reduce access contrtt ol product productitt on costs while stitt ll offff eff rirr ng a wide range of technical supportrr , we utitt lize assembm ly operatitt ons and certrr ain light manufaff ctutt rirr ng operataa itt ons in Mexico, which results in lower laba or costs as compmm araa ed to thtt e United States. to provide optitt mal value, which is a benefiff cial combm inatitt on of prirr ce, qualitytt , technical As locks and keys become more sophistitt cated and involve addititt onal electrtt onics, compmm etitt tors withtt specififf c electrtt onic expertrr itt se may emerge to challenge us. To addrdd ess thtt is, we have in recent yearaa s strtt engthtt ened our electrtt irr cal engineerirr ng knkk owledge and service. We araa e also workrr ikk ng withtt several electrtt onics suppliers to jointly develop and supply thtt ese advanced products. Our lockset, steerirr ng column lock housing, latches and power access compmm etitt tors include Huf Nortrr htt Amerirr ca, Ushin, Valeo, Tokai- Rika, Alpha-Tech, Honda Lock, Shin Chang, Magna, Edscha, Staba ilus, Aisin, Brose, Mitsuba, Ohi, Kiekertrr , Inteva, Novaraa es and Gecom. For addititt onal infoff rmrr atitt on related to compmm etitt titt on, see thtt e infoff rmrr ataa itt on set foff rtrr htt under “Risk Factors-Highly Compmm etitt titt ve Automotitt ve Supply Industrtt yrr ” included under Item 1A of thtt is Formrr 10-K. Research and Development We engage in researaa ch and development actitt vititt es pertrr itt nent to auaa tomotitt ve access contrtt ol. A maja or araa ea of foff cus foff r researaa ch is thtt e expanding role of vehicle access via electrtt onic interlocks and modes of commumm nicatitt ng auaa thtt orirr zatitt on data between consumers and vehicles. Development actitt vititt es include new products, apaa plicatitt ons and product perfoff rmrr ance impmm rovements. In addititt on, specialized data collectitt on equipment is developed to faff cilitate increased product development effff iff ciency and contitt nuous qualitytt impmm rovements. For fiff scal yearaa s 2022 and 2021, we incurrrr ed apaa proximately $12.2 million and $10.8 million, respectitt vely, on researaa ch and development. We believe thtt ataa , historirr cally, we have committtt ed suffff iff cient resources to researaa ch and development and we intend to contitt nue to invest in thtt e fuff tutt re as required to supportrr addititt onal product programs associated withtt bothtt existitt ng and new customers. Patents araa e pursued and will contitt nue to be pursued as apaa proprirr ate to protect our interests resultitt ng frff om thtt ese actitt vititt es. Customer Tooling We incur costs related to tooling used in compmm onent productitt on and assembm ly. Some of thtt ese costs araa e reimbm ursed by customers who thtt en own thtt e tools involved. See thtt e infoff rmrr atitt on set foff rtrr htt under “Organizatitt on and Summaraa yrr of Signififf cant Accountitt ng Policies- Customer Tooling in Progress” included in Notes to Financial Statements under Item 8 in thtt is Formrr 10-K. 9 Environmental Compliance As is thtt e case withtt othtt er manufaff ctutt rers, we araa e subjb ect to Federal, state, local and foff reign laws and othtt er legal requirements relatitt ng to thtt e generatitt on, storage, trtt ansportrr , trtt eatmtt ent and disposal of materirr als as a result of our manufaff ctutt rirr ng and assembm ly operataa itt ons. These laws include thtt e Resource Conservatitt on and Recoveryrr Act (as amended), thtt e Clean Air Act (as amended), thtt e Clean Water Act of 1990 (as amended) and thtt e Compmm rehensive Environmental Response, Compmm ensatitt on and Liaba ilitytt Act (as amended). We have an environmental management system thtt ataa is ISO-14001 certrr itt fiff ed. We believe thtt ataa our existitt ng environmental management system is adequate and we have no currrr ent plans foff r substantitt al capaa ital expenditutt res in thtt e environmental araa ea. As discussed in “Commitmtt ents and Contitt ngencies” under Notes to Financial Stataa ement under Item 8 in thtt is Formrr 10-K, a site ataa our Milwauaa kee faff cilitytt faff cilitytt , which spill occurrrr ed in 1985. We contitt nue to monitor thtt is situtt atitt on. is contaminata ed by a solvent spill frff om a foff rmrr er aba ove-ground solvent storage tank located on thtt e east side of thtt e We do not currrr ently antitt cipate any materirr ally adverse impmm act on our fiff nancial statements or compmm etitt titt ve posititt on as a result of compmm liance withtt Federal, state, local and foff reign environmental laws or othtt er legal requirements. However, rirr sk of environmental liaba ilitytt and charaa ges associated withtt maintaining compmm liance withtt environmental laws is inherent in thtt e natutt re of our business and thtt ere is no assurance thtt ataa materirr al liaba ilititt es or charaa ges could not araa irr se. Human Capital At July 3, 2022, we had apaa proximately 3,373 associataa es worldwide, of which apaa proximately 488 were empmm loyed in thtt e United States and apaa proximately 2,885 were empmm loyed outside of thtt e United States. Approximataa ely 180 or 5.3 percent were represented by a collectitt ve baraa gaining agreement ataa our Milwauaa kee, Wisconsin faff cilitytt , all of whom araa e our productitt on associates. Approximately 104 or 3.1 percent were represented by a collectitt ve baraa gaining agreement at our Leon, Mexico faff cilitytt . In recent yearaa s, we have not experirr enced any signififf cant workrr slowdowns, stoppages or othtt er laba or disrurr ptitt ons. The current contract with our Milwaukee unionized associates is effective through November 1, 2025. The current contract with our Leon unionized associates is effective through April 12, 2023. We araa e guided by our “Values and Beliefsff ” mission statement thtt ataa foff cuses on Empmm owermrr ent, Commumm nicatitt on, Cititt zenship, Enterprr rirr se, Change and Consensus. We remain committtt ed to araa eas of workrr place safeff tytt , product qualitytt and customer satitt sfaff ctitt on. Successfuff l executitt on of our mission is dependent on atttt rtt actitt ng, developing and retaining key associates and membm ers of our management team, as well as providing compmm etitt titt ve pay and benefiff ts. In response to thtt e COVID-19 pandemic, STRATTEC has generally maintained its headcount as we accommodated our operatitt ons to thtt e virurr s environment. We have takaa en what we believe to be apaa proprirr ate measures to ensure thtt e healthtt and safeff tytt of our associates and permrr itttt ed remote workrr ikk ng. Social Responsibility We araa e committtt ed to conductitt ng business and makaa ikk ng decisions honestly, faff irly and withtt in thtt e law, and araa e guided by our “Values and Beliefsff ” mission statement. We araa e dedicated to earaa nrr ing and keeping thtt e trtt urr st and confiff dence of our sharaa eholders, customers and associates as well as thtt e commumm nititt es where we do business. Our “Code of Business Ethtt ics” provides guidelines and a frff ameworkrr foff r conductitt ng business in an ethtt ical manner. These beliefsff go beyond STRATTEC and araa e expected of our suppliers as detailed in our “Supplier Code of Conduct.” We have adopted policies thtt at seek to eliminate human trtt affff iff ckikk ng, slaveryrr , child laba or etc. frff om our global supply chain. In addititt on, we annually compmm ly and fiff le a Formrr SD withtt thtt e Securirr titt es and Exchange Commission regaraa ding “Conflff ict Minerals Disclosure and Reportrr ” as directed by thtt e Dodd-Frank Wall Strtt eet Refoff rmrr groups in thtt e covered countrtt irr es of thtt is fiff ling. and Consumer Protectitt on Act of 2010. The purprr ose of thtt is reportrr is to help prevent products used to fiff nance or benefiff t araa mrr ed Our commitmtt ent to our environment is documented in our “Environmental Management System,” which provides foff r contitt nuous impmm rovement of our effff off rtrr s towaraa d preventitt ng pollutitt on, compmm lying withtt relevant environmental legislatitt on and regulatitt ons and compmm lying withtt customer-based environmental regulatitt ons. In addititt on, we maintain our own IATF 16949:2016 and ISO 14001 annual certrr itt fiff cataa itt ons, which araa e globally recognized qualitytt standaraa ds foff r thtt e auaa tomotitt ve industrtt yrr . STRATTEC’s maja or inititt atitt ves in thtt is araa ea consist of energy impmm rovement inititt atitt ves, prirr maraa irr ly related to solaraa in Milwauaa kee, WI, Auburnrr Hills, MI, and Juaraa ez, Mexico, and moves to more energy effff iff cient productitt on capaa ital equipment in Milwauaa kee, WI to reduce caraa br on emissions. Available Infoff rmation We maintain our corprr orataa e website at www.strtt atttt ec.com and makaa e availaba le, frff ee of charaa ge, thtt rough thtt is website our code of business ethtt ics, annual reportrr on Formrr 10-K, quaraa trr erly reportrr s on Formrr 10-Q, currrr ent reportrr s on Formrr 8-K, proxy statements foff r annual sharaa eholder meetitt ngs and amendments to thtt ose reportrr s thtt at we fiff le withtt , or fuff rnrr ish to, thtt e Securirr titt es and Exchange Commission (thtt e "Commission") as soon as reasonaba ly practitt caba le aftff er we electrtt onically fiff le such materirr al withtt , or fuff rnrr ish it to, thtt e Commission. We araa e not including all thtt e infoff rmrr atitt on contained on or made availaba le thtt rough our website as a paraa trr of,ff or incorprr oratitt ng such infoff rmrr atitt on by 10 refeff rence into, thtt is Annual Reportrr on Formrr 10-K. However, thtt is reportrr includes (or incorprr orates by refeff rence) all materirr al infoff rmrr atitt on aba out STRATTEC thtt at is included on our website which is othtt erwise required to be included in thtt is reportrr . ITEM 1A. RISK FACTORS We recognize we are subject to the following risk factors ff 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 affeff cted, and may continue to adversely affect ff , our operations and supply chains, in particular related to the sourcing of 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 and this supply chain disruption. 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 affecff ted our products and our ability to ship these affected products to customers as well as disruptions that have and may continue to affect 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 ture 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 levels, pricing for raw materials and components and our 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 affff ect demand for our products and impact our operating results. disruption of our ability to manufacff ff ff ff ff We have been adhering to guidelines and mandates frff om 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 forff eign, 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. ff RISK RELATED TO GEOPOLITICAL INSTABILITY We are currently operating in a period of geopolitical instability resulting from the ongoing military conflict between Russia and the Ukraine, which has significantly contributed to economic uncertainty, capital market disruption and supply chain interruptions in the U.S. and global markets. On February 24, 2022, a fulff l-scale military invasion of the Ukraine by Russian troops began. While the length and impact of the ongoing conflict is unpredictable, the Ukraine conflict could lead to market disruptions, including supply chain interruptions and significant volatility in commodity prices, and in credit and capital markets. The conflict in the Ukraine has led to sanctions and other penalties being levied against Russia by the U.S., the EU, and other countries. Additional potential sanctions and penalties have also been proposed. Russian military actions and the resulting sanctions, as well as future geopolitical conflicff ts, could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially further disrupting the supply chain forff product. Any of the foregoing factors could have a material adverse effff ecff cash flows. necessary components and raw materials used by us or our customers in producing t on our business, operating results, financial condition and BUSINESS RISKS Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share – Sales to General Motors Company, Ford Motor Company and Stellantis (formerly Fiat Chrysler Automobiles) represented approximately 65 percent of our annual net sales (based on fiscal 2022 results) and, accordingly, these customers account forff receivable. The contracts with these customers provide forff contracts do not specify a specificff 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, financ supplying the customer’s requirements for a particular model. The a significant percentage of our outstanding accounts ial condition and cash flows ff ff . 11 Our major customers also have significant under-funded ff 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 demand forff customers cannot fund their operations, we may incur significant require restructuring actions. new vehicles may ultimately result in severe fiff nancial difficulty for these customers, including bankruptcy. If our major write-offsff of accounts receivable, incur impairment charges or decline in the overall market ff ff Production Slowdowns by Customers – Our major customers and many of their suppliers were significaff ntly impacted by the Great Recession of 2008/2009, by the COVID-19 pandemic in 2020, by supply chain issues resulting from the recent conflict in the Ukraine, and by a semiconductor chip shortage in 2021 and 2022. Many of our major customers instituted production cuts during our fiscal 2009 and 2010 due to the Great Recession and shuttered plants. Similarly during 2020, 2021 and 2022 in response to the effects of the COVID-19 pandemic, the Ukraine conflict and the semiconductor chip shortage many of our majora production cuts and shuttered plants. While production subsequently increased after the cuts made in 2009 and again in 2021 when plants reopened following the COVID-19 closures, the current Ukraine conflict, semiconductor chip shortage and additional economic slowdowns, pandemics or part supply shortages could bring about new production cuts which could have a material adverse effff eff ct on our existing and future revenues, operating results, financial condition and cash flows. customers again instituted ff Cross-border Trade Issues or Tariffs – Our business is impacted by international or cross-border trade, including the import and export of products and goods into and out of the United States and trade tensions among nations. The shipping of goods across national borders is often more expensive and complicated than domestic shipping. Customs and duty procedures and reviews, including duty-free thresholds in various key markets, the application of tariffs, and security related governmental processes at international borders, may increase costs, discourage cross-border purchases, delay transit and create shipping uncertainties. Further, uncertainties stemming from changes in U.S. trade policies in particular with European countries and China, tariffs and the reaction of other countries thereto, could have an adverse effect on our business and may adversely impact our results of operations, financial condition and cash flows or reduce profitability on certain of our products. 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 profiff tability. Some of our major customers have previously announced that they will be reducing their supply base. This could potentially result in the loss of these customers and consolidation within the supply base. The loss of any of our major customers could have a material adverse effff ect on our existing and future revenues, results of operations, financial condition and cash flows. ff ff In addition, our competitive position in the North American automotive component supply industry could be adversely affecff in the event that we are unsuccessful in making strategic investments, acquisitions or alliances or in establishing joint ventures that would enable us to expand globally, in particular, with the VAST Automotive Group and their ability to fund and service global vehicle platforms. We principally compete for new business at the beginning of the development of new models and upon the redesign of existing models by our major customers. New model development generally begins two to five years prior to the marketing of such new models to the public. The failure to obtain new business on new models or to retain or increase business on redesigned existing models could adversely affect our business and financial results. In addition, as a result of relatively long lead times for many of our components, it may be difficult in the short-term for us to obtain new sales to replace any unexpected decline in the sale of existing products. Finally, we may incur significant product development expense in preparing to meet anticipated customer requirements which may not be recovered. ted 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, ff tsunamis, hurricanes, earthquakes and global pandemics and wars or a rapid increase in production demands, either we or our customers or other suppliers may experience supply shortages of raw materials or components. This could be caused by a number of faff ctors, 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, financi al condition and cash flows. ff ff 12 We consider the production capacities and financial condition of suppliers in our selection process, and expect that they will meet our delivery requirements. However, there can be no assurance that strong demand, capacity limitations, shortages of raw materials, labor disputes or other problems will not result in any shortages or delays in the supply of components to us. Because of the COVID-19 pandemic and the recent Ukraine conflict, we have experienced supply chain disruptions in fiff scal 2021 and fiscal 2022 in particular with semiconductor chip shortages that impact our OEM customers’ ability to finish assembly of new vehicles and which have adversely impacted orders forff our products and, accordingly, our results of operations and cash flows. These shortages will most likely continue into our fiff scal 2023. Sources of and Fluctuations in Market Prices of Raw Materials – Our primary raw materials are high-grade zinc, brass, nickel silver, aluminum, steel and plastic resins. These materials are generally available fromff have chosen to concentrate our sourcing with one primary vendor forff 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 significaff prices of these materials may have an adverse effect on our results of operations, financial condition and cash flows raw material costs cannot be recovered from our customers. During fiscal 2021 and 2022, we experienced higher raw material costs on the items listed above including freight costs on both raw material and purchased components. each commodity or purchased component. We believe our a limited number of suppliers, but we nt fluctuations in the market if the increased ff Given the significant financial impact on us relating to changes in the cost of our primary raw materials, commencing with fiscal ff 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 manufacturi ff ng 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 inflff uence 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, financi ff ial condition and and cash flows of our joint venture investments, which could have an adverse impact on our financi al results, financ 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 finaff ncial 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 or breakeven results due to the weak automotive build in those regions. The impact of any future planned capital expenditures or future expansion by VAST LLC in China, Brazil and India, may result in the need for additional futur contributions to fund the operations of these joint venture investments. e capital al condition ff ff ff Cyber Vulnerability – In the ordinary course of business, we collect and store sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information of our customers and employees, in our internal data centers, cloud services and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Cybersecurity attacks are becoming more sophisticated and include, but are not limited to, malicious software attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, corruption or destruction of data and other manipulation or improper use of systems or networks. Despite our security measures, our inforff mation technology and infrastructure, as well as that of our partners, customers and suppliers, may be vulnerable to malicious attacks, breaches or system failures due to employee error, malfeasance or other disruptions, including as a result of rollouts of new systems. Any such breach or operation failure would compromise our networks or that of our business partners, customers or suppliers, and the information stored could be accessed, publicly disclosed, lost or stolen, cause transaction processing errors, processing ineffici encies, delays or cancellation of customer orders, the loss of customers, impediments to the manufaff cturing or shipment of products, or other business disruptions. Although we have cybersecurity insurance in place, such access or other loss of information could result in legal claims or proceedings, regulatory fines or penalties, disruption in our operations, damage to our reputation, loss of confideff products and services, increased costs, or the loss of assets, any of which could have a negative impact on our business, results of operations, fiff nancial condition and cash flows. In addition, as security threats and cybersecurity and data privacy and protection laws and regulations continue to evolve and increase in terms of sophistication, we may be required to or choose to invest additional resources in the security of our systems. Any such increased level of investment could adversely affect our finaff ncial condition or nce in our ff 13 results of operations. We have programs in place to address and mitigate cybersecurity risks. These programs include regular monitoring of outside threats, continuous update of softwar and simplification of infrastructure to minimize servers. Although we believe the foregoing programs are reasonable actions to mitigate cybersecurity risks, the failure of these programs to adequately protect against these risks could have a negative impact on our business, results of operations, fiff nancial condition and cash flff ows. e to mitigate risk, education of employees to the risks of external threats, ff Qualified Personnel – Our business success depends, to a significaff nt 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 oftff en 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 fromff 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. any future leadership transition or corporate initiatives could result in increased turnover. Additionally, any unplanned 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 effff ect on our business and our financial results. In addition, all production associates at our Milwaukee facility are unionized. A sixteen-day strike by these associates in June 2001 resulted in increased costs as all salaried associates worked with additional outside resources to produce the components necessary to meet customer requirements. The current contract with our Milwaukee unionized associates is effective through November 1, 2025. We also have unionized associates at our Leon, Mexico facility. The current contract with our Leon unionized associates is effective through April 12, 2023. We may encounter further labor disruption and we may also encounter unionization efforts in our other plants or other types of labor conflict s, any of which could have an adverse effect on our business, ff financial results, financial condition and cash flows. Labor contracts between General Motors Company, Ford Motor Company and Stellantis (formerly 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. ff ff FINANCIAL RISKS Financial Distress of Automotive Supply Base – During the Great Recession, which impacted calendar years 2009 and 2010, deteriorating automotive industry conditions adversely affff eff cted STRATTEC and our supply base. Lower production levels at our major customers, volatility in certain raw material and energy costs and the global credit market crisis resulted in severe financial distress among many companies within the automotive supply base. During the above time frame, several automotive suppliers fiff led for bankruptcy protection or ceased operations. The potential continuation or renewal of financial distress within the supply base (whether from COVID-19, the Ukraine conflict, the ongoing supply chain and logistics disruptions or otherwise) and our suppliers’ inability to obtain credit from lending institutions could lead to commercial disputes and possible supply chain interruptions. In addition, the potential for future adverse industry conditions (including from COVID-19, the Ukraine conflict or otherwise) may require us to provide financial assistance or other measures to ensure uninterrupted production. The continuation or renewal of these industry conditions could have a material adverse effect al condition and cash flows. on our existing and future revenues, financial results, financi ff ff Cost Reduction – There is continuing pressure from our major customers to reduce the prices we charge forff our products. This requires us to generate cost reductions, including reductions in the cost of components purchased fromff unable to generate sufficient production cost savings in the future to offset pre-programmed price reductions or additional price reduction demands, our gross margin and profitability will be adversely affected. outside suppliers. If we are Currency Exchange Rate Fluctuations – Our sales are denominated in U.S. dollars. We have manufacturing ff Mexico, and as a result, a portion of our manufacturing costs are incurred in Mexican pesos. Therefore, flucff tuations in the U.S. dollar/Mexican peso exchange rate may have a material effff ecff ff financial ncial periods. Any depreciation in the value of the U.S. dollar in significantly affect the comparability of our results between finaff relation to the value of the Mexican peso will adversely affff ect 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. position, and may t on our profitabil ity, cash flows, operations in ff ff ff 14 Program Volume and Pricing Fluctuations – We incur costs and make capital expenditures forff 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 significaff ntly less than planned, our net sales and net income may be adversely affecff supply either in the aggregate or for particular reporting periods. ted. We cannot predict our customers’ demands for the products we Investments in Customer Program Specific Assets – We make investments in machinery and equipment used exclusively to manufacture products for specific customer programs. This machinery and equipment is capitalized and depreciated over the expected useful life of each respective asset. Therefore, the loss of any one of our majora 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. customers, the loss of specific vehicle models or the 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 maturity of, or otherwise amend the terms of our existing credit facil ities, 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 suffff ici capital needs and/or we may need to secure additional capital or fiff nancing to fund our working capital requirements or to repay outstanding debt under our credit faff cilities. Moreover, new credit facilities resulting from any refiff nancing of our existing facilit ies 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. ent capital to fund our working ff ff ff There can be no assurance that the financial terms or covenants of any new credit facility will be the same or as favorabl ff e as those under our existing facilities. Additionally, our ability to complete a refinancing of our existing credit facilities prior to their respective maturities is subject to a number of conditions beyond our control. For example, if a disruption in the financial markets were to occur at the time that we intended to refinance our credit facilities, we might be restricted in our ability to access the credit lines. The restrictive covenants in any such new credit facility may limit our ability to engage in acts that may be in our best long term interests. A breach of any of these types of restrictive covenants in our credit facilities could result in a default under these facilities. If a default occurs, the lenders under our credit facff 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. ilities may elect to declare all outstanding borrowings, together with Warranty Claims – We are exposed to warranty claims in the event that our products fail to perforff m 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 inforff mation 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 frff om 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 futur 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 differff frff om recorded estimates or we may need to record additional warranty provisions, similar to as in 2015 and 2018. Although we have product recall insurance in place, if our customers demand higher warranty-related cost recoveries, or if our products fail to perforff m as expected, it could have a material adverse impact on our results of operations, financial condition and cash flows. e warranty ff ff 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 certifieff d. We believe that our existing environmental management system is adequate for current and anticipated operations and we have no current plans forff area. An environmental reserve was established in 1995 forff substantial capital expenditures in the environmental estimated costs to remediate a site at our Milwaukee facility. The site was 15 contaminated from a former above-ground solvent storage tank, located on the east side of the facility. The contamination occurred in 1985 and is being monitored in accordance with Federal, state and local requirements. We do not currently anticipate any material adverse impact on our results of operations, financial condition or competitive position as a result of compliance with Federal, state, local and foreign environmental laws or other related legal requirements. However, risk of environmental liability and changes associated with maintaining compliance with environmental laws is inherent in the nature of our business and there is no assurance that material liabilities or changes could not arise. Compliance Related to 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 confliff ct 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 frff ee, 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 suffff ici customers. ent quantities and/or at competitive prices to sell to our ff 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. ff 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 that may adversely impact our operating results. Unstable political, social or economic conditions may make it diffiff cult forff customers and our suppliers to accurately forecast and plan future ff have a material adverse impact on our results of operations, fiff nancial condition and cash flows. us, our business activities. If such conditions arise or persist, they could ) and terrorist acts may put pressure on global economic conditions (such as the Ukraine conflict ff ff ff ff ff ITEM 1B. UNRESOLVED STAFF COMMENTS None. 16 ITEM 2. PROPERTIES We have fiff ve manufaff ctutt rirr ng plants, one waraa ehouse, and one sales offff iff ce. These faff cilititt es araa e descrirr bed as foff llows: Location Type Milwaukee, Wisconsin .................. Headquarters and General Offff ices ff ; Component Parts Manufacturing Subsidiary Offices and Assemblyy Juarez, Chihuahua Mexico ............ Juarez, Chihuahua Mexico ............ Subsidiary Offices and Assembly Juarez, Chihuahua Mexico ............ Subsidiary Offices, Key Finishing, Injection Molding y 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, gMichigan................. Sales and E gngineer ging Offff iceff forff 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 withtt in a compmm lex. ITEM 3. LEGAL PROCEEDINGS In thtt e normrr al course of business we may be involved in varaa irr ous legal proceedings frff om titt me to titt me. We do not believe we araa e currrr ently involved in any claim, actitt on or proceeding thtt e ultitt mataa e disposititt on of which would have a materirr al adverse effff eff ct on our fiff nancial statements. ITEM 4. MINE SAFETY DISCLOSURES None. 17 ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES PART II Our common stock is trtt aded on thtt e NASDAQ Global Maraa krr et under thtt e symbm ol “STRT.” Registered shareholders of record at July 3, 2022, were 850. 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 July 3, 2022, 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 lifeff of the repurchase program through July 3, 2022, 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 July 3, 2022. ITEM 6. [RESERVED] 18 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Discussion and Analysis should be read in conjunction with STRATTEC SECURITY CORPORATION’s accompanying Financial Statements and Notes thereto included in this Form 10-K. Unless otherwise indicated, all references to years or quarters refer to fiscal years or fiscal quarters of STRATTEC. Executive Overview Historically, a significant portion of our total net sales have been to domestic automotive OEMs (General Motors, Ford and Stellantis (formerly 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 2022 and 2021, the above domestic automotive OEMs together represented each year 65 percent and 62 percent, respectively, of our total net sales. During fiscal years 2022 and 2021, we experienced stronger sales demand forff our components from our majora 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 rise over the next several years, this consumer buying trend may not continue, which is approximately 80 percent light trucks and sport utility vehicles in comparison to 20 percent passenger car vehicle purchases today. During the last 3-5 years our major customers General Motors, Ford and Stellantis eliminated passenger car production on several models in North America as a strategy to improve their overall profitability going forward. Additionally, several of our significant customers have announced plans to increase production volumes for their models of Electric Vehicles. As these customers start migrating over to Electric Vehicles we believe a significaff future product content will continue to be purchased by our key customers and will be adopted in this changeover (referff included at page 7 in this Form 10-K). nt amount of our current and to vehicle list Fiscal 2022 net sales were $452 million compared to $485 million in 2021. Both the fisff cal 2022 and 2021 net sales were negatively impacted by the global semiconductor chip shortage which caused our OEM customers to temporarily shut down their assembly plants and which ultimately reduced our net sales and profitability during each of these years. In addition, we see these supply chain shortages continuing into fiscal year 2023. Net income attributable to STRATTEC for fisff cal 2022 was $7.0 million and the Net income attributable to STRATTEC in fiscal 2021 was $22.5 million. In addition, during fiscal years 2022 and 2021 the Company produced additional finished goods inventory in anticipation of our OEM customers coming out of the temporary shutdowns from the impact of the COVID-19 pandemic and other supply chain shortages to fill their dealer pipelines which are at historic low levels. Also impacting profitability in fiscal year 2022 were increased costs forff silver, brass, aluminum and plastic resins. In most cases we were not able to pass along all these increased costs to our customers ity is our U.S. Dollar and Mexican Peso exchange rate that affeff cts through pricing increases. Another factor impacting our profitabil 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 effects on profitability. Finally, on each of January 1, 2022 and 2021, the Mexican Government mandated minimum wage increases of 22% and 15%, respectively which also negatively impacted our overall profitability. purchased raw materials relating to zinc, steel, nickel ff As we look out into the future, the July 2022 projections frff om 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 frff om our original 2022 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 2022 vehicle build of 13.4 million vehicles, 15.8 million vehicles for 2023, 16.8 million vehicles forff vehicles for 2026. These vehicle production estimates going forward were significantly increased due to the impact of COVID-19 that lowered vehicle production in late fiscal 2020 and the global semiconductor chip shortage in late fiscal 2021 and 2022 which also continues to negatively impact vehicle production levels. As part of this third party projection, the Ford Motor Company, General Motors and Stellantis are expected to experience increased vehicle production volumes in their production levels during this time period. Of course, all of these forecasts are subject to variability based on what happens in the overall North American and global economies, especially as it relates to the world wide status of the global semiconductor chip and other supply chain shortages and the lingering impacts of the COVID-19 pandemic that may shut down our customers' assembly facilities and furff ther disrupt 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, flff uctuating 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. 2024, 16.8 million vehicles for 2025 and 16.5 million ff 19 Focus and Strategy Going Forward STRATTEC’s long-term strategy is focused on maximizing long-term shareholder value by driving profitff able 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 forff STRATTEC 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 flff ow fromff operations. Results of Operations 2022 Compared to 2021 Years Ended Net Sales (millions of dollars).................................................... $ 452.3 $ July 3, 2022 y June 27, 2021 485.3 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 .......................................................... $ Stellantis (Formerly Fiat Chrysler Automobiles)....................... Ford Motor Company................................................................. Tier 1 Customers ........................................................................ Commercial and Other OEM Customers ................................... Hyundai / Kia ............................................................................. Total ...................................................................................... $ July 3, 2022 y 130.2 $ 83.3 79.7 59.3 65.0 34.8 452.3 $ June 27, 2021 146.5 85.6 67.7 66.8 77.0 41.7 485.3 Current year sales were adversely impacted by the global semiconductor chip shortage that temporarily closed several of our our customers’ assembly plants, caused production schedule reductions for all of our customers and, as a result, reduced orders forff products and our net sales to all customer groups (other than Ford Motor Company as noted below) in the current year period as compared to the prior year period. Our 2022 fiscal year was 53 weeks while our 2021 fiscal year was 52 weeks. The impact of the additional week of sales during the current year partially offff set the reduction in net sales resulting from the semiconductor chip shortage and increased current year sales by approximately $7.4 million. The foll customer groups between periods: ther impacted sales to the noted owing items furff ff - - - - 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 pickup trucks. The faff vorable impact of this higher product content more than offset the volume reduction in the current year resulting fromff Sales to Stellantis were positively impacted in the current year due to increased sales of the Chrysler Pacificff a. Commercial and Other OEM Customers, along with Tier 1 Customers, primarily represent purchasers of vehicle access control products, such as latches, key fobs, developed in recent years to complement our historic core business of locks and keys. Sales to Commercial and Other OEM Customers were negatively impacted in the current year by a reduction in sales related to door handle and power access products sold to Volkswagen and Honda of America Manufacturing. Sales to Tier 1 Customers in the current year period were negatively impacted by lower sales volumes on our driver control steering column lock products. Hyundai / Kia sales were negatively impacted in the current year due to lower levels of production on their Kia Carnival, formerly the Kia Sedona and Hyundai Starex minivans, for which we supply primarily power sliding door components. driver controls, steering column locks and door handles, that we have the global semiconductor chip shortage. ff 20 Years Ended July 3, 2022 y June 27, 2021 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........................................ $ 260.8 135.4 396.2 65.8% $ 34.2% $ 268.6 138.0 406.6 66.1% 33.9% The direct material cost decrease was due to reduced sales volumes between years, as discussed above, which more than offff set an increase in direct material costs in the current year as compared to the prior resulting from higher raw material and purchased component costs. In the current year period as compared to the prior year period, our direct material costs decreased as a percent of cost of goods sold while our labor and overhead costs increased as a percent of cost of goods sold. This shift was due to our material costs varying with the sales volume reduction between years while our labor and overhead cost reduction, as discussed below, did not keep pace with the sales reduction between years. Labor and overhead costs decreased between years. The variable portion of our labor and overhead costs decreased due to lower levels of production at our facilities in the current year as compared to the prior year and production efficff Milwaukee and Mexico facilities, which reduced labor and overhead costs in the current year as compared to the prior year. This impact was partially offset by less favorable absorption of our fiff xed overhead costs in the current year as compared to the prior year resulting from the production volume reduction between years and an additional week of expense in the current year as compared to the prior year as our fiscal 2022 was a 53 week year and our fisff cal 2021 was a 52 week year. Labor and overhead costs were further impacted by the following: iencies at our -Cost Increases: - Mexico wages and benefits increased $5.2 million in the current year as compared to the prior year period as a result of January 1, 2021 and January 1, 2022 government mandated minimum wage increases. - The U.S. dollar value of our Mexican operations was negatively impacted by approximately $1.8 million in the current year as compared to the prior year due to an unfaff vorable Mexican peso to U.S. dollar exchange rate between years. The average U.S. dollar / Mexican peso exchange rate decreased to approximately 20.33 pesos to the dollar in the current year period from approximately 20.90 pesos to the dollar in the prior year period. - Current year period costs included lump sum bonuses totaling $100,000 paid to our Milwaukee represented hourly workers upon the ratification of a new four-year labor contract, which contract is effective through November 1, 2025. Cost Decreases: - Expense provisions under our incentive bonus plans impacting cost of goods sold decreased $3.8 million between periods. - The prior year period included a loss on disposal of fixed ff assets of $1.4 million compared to a current year quarter loss of $192,000. Gross Profit (millions of dollars)............................................... $ Gross Profit as a ppercent gage of net sales ................................... 56.0 12.4% July 3, 2022 yy June 27, 2021 78.7 $ 16.2% Years Ended The decrease in gross profit dollars in the current year as compared to the prior year was attributed to the decrease in net sales between years, partially offset by the decrease in cost of goods sold as discussed above. Gross profitff as a percentage of net sales decreased between years due to reduced sales, which resulted in less favorabl costs, and due to increased direct material costs between periods, which negatively impacted the gross profit margin percentage by 210 basis points between years, as discussed above. e absorption of our fixed ff ff Engineering, Selling and Administrative Expenses in the current year and prior year were as follows: Expenses (millions of dollars) ................................................... $ pExpenses as a pperc entage of net sales........................................ g Years Ended July 3, 2022 y 47.1 10.4% June 27, 2021 44.7 $ 9.2% Engineering, selling and administrative expenses were impacted by the following: Cost Increases: - - Prior year customer reimbursement of engineering development costs, which costs were incurred in periods prior to 2021, decreased costs $1.5 million between years, which reimbursement was agreed to in the prior year. Customer reimbursement of engineering development costs, in addition to the $1.5 million noted above, decreased $900,000 between years and resulted from the timing of customer reimbursement for development spending on new product programs. 21 - - The prior year included temporary wage reductions forff impacts of the COVID-19 pandemic on our operations. The current year includes an additional week of expense as our fisff cal 2022 was a 53 week year and our fiscal 2021 was a 52 week year. our salaried work force, which we implemented to address the Cost Decrease: - Expense provisions under our incentive bonus plans impacting engineering, selling and administrative expenses decreased $2.8 million between years. Income from operations in the current year was $8.9 million compared to income from operations of $33.9 million in the prior year. This change between years was the result of decreased sales and increased engineering, selling and administrative expenses, which were partially offset by a decrease in cost of goods sold in the current year as compared to the prior year, all as discussed above. Equity earnings of joint ventures during the fiscal years ending July 3, 2022 and June 27, 2021 were $181,000 and $2.6 million respectively. Lower profitability during fiscal 2022 frff om our VAST LLC joint venture resulted from reduced net sales and reduced profitability in our VAST China operation between years. The reduced profitff ability in our VAST China operation stemmed from the current global semiconductor chip shortage described above and Chinese Government mandated temporary facility shutdowns due to COVID-19. VAST China’s profitability in the current year was also partially offset with continued startup losses related to their new plant in Jingzhou, China. Additionally, during the current year, VAST China experienced a fire at their Taicang plant. As a result, certain door handle and painting operations were subsequently transferred to their new Jingzhou facility and another supplier. The transfer of production negatively impacted VAST China’s profitabil ity during the second half of our fisff cal 2022. We currently believe a presence in the Asian market is a key component of our global strategy. We anticipate that it will contribute to our overall long-term market and financial strength as the Asian market continues to expand and as it seeks to rebound from the ongoing impacts of the COVID-19 pandemic and resulting supply chain shortages of critical electronic component parts. Due to our limited amount of business in both India and Brazil as well as the impact of COVID-19 and the global semiconductor chip shortage described above, our VAST LLC joint venture in India continues to have break-even operating results and our VAST LLC joint venture in Brazil continues to report losses. ff Included in other income (expense), net in the current year and prior year were the following items (thousands of dollars): Years Ended g Foreign currencyy transaction ggain (loss).................................... $ Rabbi Trust Assets (loss) gain ................................................... Unrealized gain on Mexican peso forff ward contracts ................ Realized gain on Mexican peso forward contracts, net ............. Pension and postretirement plans cost....................................... Other .......................................................................................... $ July 3, 2022 y 237 (304) 384 361 (488) 233 423 $ June 27, 2021 $ (2,445) 865 723 164 (483) 11 (1,165) - - Foreign currency transaction gains and losses resulted frff om activity associated with forff eign 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 forff ward contracts during fiscal 2022 and 2021 to minimize earnings volatility resulting from changes in exchange rates affff eff cting 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 July 3, 2022 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 net periodic benefit cost other than the service cost component. ff - Our effective income tax rate for 2022 was 4.5 percent compared to 14.6 percent in 2021. The reduction in our effecff tive tax rate in 2022 as compared to 2021 was due to adjustments made to the amount of our 2021 estimated forff eign tax credits and estimated tax impacts associated with our investment in VAST LLC. These true-up adjustments resulted from the filing of our 2021 U.S. income tax returns during 2022 and were attributable to actual results included in non-U.S. income tax returns, which are filed on a calendar year basis, and which differ from estimates included in our 2021 tax provision. The adjustment amounts recorded during 2022 totaled $1.0 million. Our effective tax rate for 2022 excluding these adjustments was 15.6 percent. These adjustments were not material to our previously issued financial statements. Additionally, effff ect ive July 20, 2020, the U.S. Treasury Department finalized and enacted previously proposed regulations regarding Global Intangible Low Taxed Income (GILTI) tax provisions of the Tax Cuts and Jobs Act of 2017 (TCJA). Prior to this enactment, GILTI represented a significant U.S. income tax on our forff eign earnings during 2020. With the enactment of these final regulations, we became eligible for an exclusion from GILTI since we met provisions for the GILTI High- Tax exception included in the final regulations. The enactment of these new regulations and our eligibility for the GILTI High-Tax exception was retroactive to the original enactment of the GILTI tax provision, which included our fiscal 2020. As a result, we ff 22 recorded an income tax benefit of $675,000 during 2021. Our income tax provision for each year 2022 and 2021 was affff ect 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 forff U.S. tax purposes. ed by the ff Liquidity and Capital Resources Working Capital (millions of dollars) Current Assets ........................................................................................... $ Current Liabilities...................................................................................... Working g pCapital ........................................................................................ $ 188.2 81.5 106.7 $ $ 174.9 77.6 97.3 July 3, 2022 y June 27, 2021 Outstanding Receivable Balances from Major Customers Our primary source of cash flff ow is fromff our major customers, which include Stellantis (formerly Fiat Chrysler Automobiles), 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 majora 2022 and June 27, 2021 was as follows (millions of dollars): customers as of July 3, General Motors Company ............................................ $ Stellantis ....................................................................... $ Ford Motor Company................................................... $ $ July 3, 2022 y June 27, 2021 22.9 11.9 8.2 43.0 24.6 $ 12.8 $ 10.6 $ 48.0 $ Cash Balances in Mexico We earn a portion of our operating income in Mexico. As of July 3, 2022, $2.2 million of our $8.8 million cash and cash equivalents balance was held in Mexico. These funds ff are available for repatriation as deemed necessary. Cash Flow Analysis Cash Flows from (millions of dollars): Operating Activities............................................................................. $ Investing Activities.............................................................................. $ Financing Activities............................................................................. $ $ g 10.4 $ (14.3) $ (1.9) $ (5.8) $ 35.2 (9.0) (22.9) 3.3 Years Ended July 3, 2022 y June 27, 2021 The decrease in cash provided by operating activities between 2021 and 2022 was due to a reduction in operating income as previously discussed. The decrease in operating income was slightly offset by a net decrease in working capital requirements between these years of $1.3 million, with the net decrease in our working capital requirements being made up of the following working capital changes (millions of dollars): Increase (Decrease) in Working Capital Requirements q p g Accounts Receivable ................................................................ $ Inventories ................................................................................ $ Customer Tooling ..................................................................... $ Other Assets.............................................................................. $ Accounts Payable and Other Liabilities ................................... $ $ 2022 2021 $ 5.9 $ 9.6 3.3 $ (0.2) $ (1.8) $ $ 16.8 27.7 $ 16.5 $ 1.2 $ $ 1.2 (28.5) $ $ 18.1 g Change (21.8) (6.9) 2.1 (1.4) 26.7 (1.3) 23 - The increase in accounts receivable balances during the current year was mostly due to payments from a specificff customer being made in advance of the payment term due dates in the prior year while current year payments frff om that customer were made according to payment term due. The increase in the accounts receivable balances in 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. As sales ramped up during our fiscal 2021, the accounts receivable balance increased accordingly. - The change in inventory reflected an increase in inventory balances during both the current year period and the prior year period. The current year increase was due to increased raw material and purchased part costs and an intentional build-up of inventory in order to meet future customer demand associated with potential order volume increases. The prior year period increase was due to an inventory 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 certain part shortages. - 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 fromff development spending required to meet customer production requirements and related billings for customer reimbursements. the tool, was the result of the timing of tooling - The prior year change in other assets was the result of an increase in the income tax recoverable, 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 prior year change in accounts payable and accrued liability balances was primarily the result of an increase in accounts payable balances and accruals under our bonus plans. Bonus accruals at June 2021 totaled $6.6 million. Bonus accruals were zero at June 2020. Accounts payable balances were significff antly reduced as of June 2020 due to the impact of COVID-19 and the lower production levels stemming frff om that impact. Accounts payable balances increased as of June 2021 as our business had ramped-up throughout our fisff cal 2021 along with business in the automotive industry in general. The current year change in accounts payable and accrued liability balances includes an increase in accounts payable balances partially offset by a reduction in accruals under our bonus plans. Accounts payable balances continued to increase during our fiscal 2022 due to increase raw material and purchased part costs and increased inventory balances. The reduction in accruals under our bonus plans resulted from a payout of the $6.6 million accrued bonus as of June 2021 during 2022. Bonus accruals were zero at June 2022. 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 $14.3 million during 2022 and $9.0 million during 2021 included capital expenditures of $14.2 million and $8.9 million, respectively. Capital expenditures during each year were made in support of requirements forff product programs and the upgrade and replacement of existing equipment. Net cash used by investing activities during 2022 and 2021 also included an investment in our VAST LLC joint venture of $150,000 and $100,000, respectively. The investments were made for the purpose of funding general operating expenses for Sistema de Acesso Veicular Ltda, our Brazilian joint venture. new ities of Net cash used in financing activities of $1.9 million during 2022 included repayments of borrowings under credit facil $14.0 million and $1.8 million of dividend payments to non-controlling interests in our subsidiaries, partially offset by borrowings under credit facilities of $13 million and $908,000 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 $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 the exercise of stock options under our stock incentive plan and purchases our subsidiaries, partially offset by $604,000 received forff under our employee stock purchase plan. ff Cash Requirements Dividends On May 13, 2020, our Board of Directors took action to temporarily suspend payment of our quarterly dividend for the foreseeable future in order to conserve cash as a result of the economic downturn caused by COVID-19. No dividends were paid to shareholders during fiff scal 2022 and 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 2022, capital contributions totaling $450,000 were made to VAST LLC for purposes of funding operations in Brazil. STRATTEC’s portion of the capital contribution totaled $150,000. During 2021, capital contributions totaling $300,000 were made to VAST LLC forff capital contribution totaled $100,000. 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 2023. STRATTEC’s portion of these capital contributions is anticipated to be $100,000. During 2022 and 2021, VAST LLC made no capital contributions to Minda-VAST Access Systems. We currently anticipate no required future capital contributions to Minda-VAST Access Systems for fiscal year 2023. purposes of funding operations in Brazil. STRATTEC’s portion of the 24 Future Capital Expenditures We anticipate capital expenditures will be approximately $13.0 million in fiscal 2023 in support of requirements forff 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 July 3, 2022. A total of 3,655,322 shares have been repurchased over the life of the program through July 3, 2022, at a cost of approximately $136.4 million. No shares were repurchased during fiscal 2022 or 2021. Additional repurchases may occur from time to time and are expected to continue to be funded by cash flowff from operations and current cash balances. At this time, we anticipate minimal or no stock repurchase activity in fiff scal year 2023. Other Cash Requirements We have an operating lease for our El Paso, Texas fini shed goods and service parts distribution warehouse, which has a term in excess of one year. We also have purchase commitments related to zinc and other purchased parts. Refer to required future payments under the lease and purchase commitments in the discussion of Leases under Organization and Summary of Significant Accounting Policies and in the discussion of Commitments and Contingencies included in the Notes to Financial Statements included as part of Item 8 within this Form 10-K. ff Credit Facilities STRATTEC has a $40 million secured revolving credit facili ff ty (the “STRATTEC Credit Facility”) with BMO Harris Bank N.A. d assets located in the U.S. Interest on ADAC-STRATTEC LLC has a $25 million secured revolving credit faff cility (the “ADAC-STRATTEC Credit Facility”) with BMO Harris Bank N.A., which is guaranteed by STRATTEC. The credit facilities expire August 1, 2024. Borrowings under either credit facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixeff 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 faci lities were at varying rates based, at our option, on the London ff 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 July 3, 2022, 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 July 3, 2022 or June 27, 2021. The average outstanding borrowings and weighted average interest rate on the STRATTEC Credit Facility loans were approximately $332,000 and 2.0 percent, respectively, during 2022. 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. Outstanding borrowings under the ADAC-STRATTEC Credit Facility totaled $11 million at July 3, 2022 and $12 million at June 27, 2021. The average outstanding borrowings and weighted average interest rate on the ADAC-STRATTEC Credit Facility loans were approximately $14.2 million and 1.5 percent, respectively, during 2022. 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. We believe that the credit facilities are adequate, along with existing cash flows from operations, to meet our anticipated capital expenditure, working capital, dividend, and operating expenditure requirements. Joint Ventures and Majority Owned Subsidiaries Refer to the discussion of Investment in Joint Ventures and Majority Owned Subsidiaries and discussion of Equity Earnings of Joint Ventures included in the Notes to Financial Statements included within this Form 10-K. 25 Critical Accounting Policies We believe the following represents our critical accounting policies: Liability forff Uncertain Tax Positions – We are subject to income taxation in many jurisdictions around the world. Significaff nt management judgment is required in the accounting for income tax contingencies because the outcomes are often difficult to determine. We are required to measure and recognize uncertain tax positions that we have taken or expect to take in our income tax returns. The benefit of an uncertain tax position can only be recognized in the financial statements if management concludes that it is more likely than not that the position will be sustained with the tax authorities. For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest amount that is greater than 50 percent likely of being realized. A reserve is established for the difference between a position taken in an income tax return and the amount recognized in the financial statements. The amount of unrecognized benefits, that if recognized, would affect the effeff ctive tax rate was $1.0 million at July 3, 2022 and $1.1 million at June 27, 2021. An increase or decrease in our assessment of the recorded amount of unrecognized benefits by 10 percent would result in an increase or decrease in the reported tax provision, before the impact of interest and penalties, of $100,000 at July 3, 2022 and $110,000 at June 27, 2021. Referff Statements included as part of Item 8 within this Form 10-K. to the discussion of Income Taxes included in the Notes to Financial Warranty Reserve – We have a warranty liability recorded related to our exposure to warranty claims in the event our products such products. The fail to perform as expected, and we may be required to participate in the repair costs incurred by our customers forff recorded warranty liability balance involves judgment and estimates. Our liability estimate is based on an analysis of historical warranty data as well as current trends and information, including our customers’ recent extension or expansion of their warranty programs. Actual warranty costs might differ from estimates due to the level of actual claims varying from our claims experience and estimates and final negotiations and settlements reached with our customers. Therefore, future actual claims experience could result in changes in our estimates of the required liability. Sensitivity of potential warranty or product recall claims is dependent on the respective customer platform, volumes, production years and product content. We have product recall insurance once a recall claim exceeds $5 million with a limit of $35 million. Refer to the discussion of Warranty Reserve under Organization and Summary of Significant Accounting Policies included in the Notes to Financial Statements included as part of Item 8 within this Form 10-K. We believe the reserve discussed above is estimated using consistent and appropriate methods. However, changes to the assumptions could materially affect the recorded reserve amount. New Accounting Standards Refer to the discussion of New Accounting Standards under Organization and Summary of Significant Accounting Policies included in the Notes to Financial Statements included as part of Item 8 within this Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not apaa plicaba le. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................................................................... CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME ...................................................... CONSOLIDATED BALANCE SHEETS.................................................................................................................................. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ................................................................................... CONSOLIDATED STATEMENTS OF CASH FLOWS .......................................................................................................... NOTES TO FINANCIAL STATEMENTS ............................................................................................................................... Page 28 30 31 32 33 34 27 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 sheets of STRATTEC SECURITY CORPORATION (the "Company") as of July 3, 2022 and June 27, 2021, the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended July 3, 2022, and the related notes (collectively referred to as the "fiff nancial in all material respects, the financial position of the Company as statements"). In our opinion, the financial statements present fairly, of July 3, 2022 and June 27, 2021, and the results of its operations and its cash flows forff each of the two years in the period ended July 3, 2022, in conformity with accounting principles generally accepted in the United States of America. ff 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 July 3, 2022, 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 8, 2022 expressed an unqualififf ed opinion. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perforff m the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of 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 warranty 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 July 3, 2022, the Company’s warranty reserve was $8.1 million. The warranty reserve is estimated based on management’s analysis of historical data, current trends, known and projected claims for products sold, 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 futff ure adjustments to the liability which could be significaff nt. Our audit procedures related to testing the Company’s warranty reserve included the following: a. Evaluating the design and testing of the operating effff eff ctiveness of the Company’s controls over the accounting for the warranty reserve. 28 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. Testing the completeness and accuracy of the claims to date and payments. d. Evaluating the reasonableness of the estimated repair costs by comparing historical repair costs to estimated futur ff e repair cost for known product issues. e. Evaluating 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 We have served as the Company's auditor since fiscal year 2021. Oak Brook, Illinois September 8, 2022 Firm ID: 173 29 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Years Ended yJuly 3, 2022 y June 27, 2021 NET SALES........................................................................................................................... $ Cost of goods sold................................................................................................................... GROSS PROFIT ................................................................................................................... Engineering, selling, and administrative expenses ................................................................. INCOME FROM OPERATIONS ....................................................................................... Equity earnings of joint ventures ............................................................................................ Interest expense....................................................................................................................... Other income (expense), net ................................................................................................... INCOME BEFORE BENEFIT FOR INCOME TAXES AND NON- CONTROLLING INTEREST .......................................................................................... Provision for income taxes...................................................................................................... NET INCOME....................................................................................................................... Net income attributable to non-controlling interest ................................................................ NET INCOME ATTRIBUTABLE TO STRATTEC SECURITY CORPORATION ............................................................................................................... $ COMPREHENSIVE INCOME: NET INCOME....................................................................................................................... $ Currency translation adjustments, net of tax........................................................................... Pension and postretirement plans, net of tax........................................................................... TOTAL OTHER COMPREHENSIVE (LOSS) INCOME............................................... COMPREHENSIVE INCOME ........................................................................................... Comprehensive income attributable to non-controlling interest............................................. COMPREHENSIVE INCOME ATTRIBUTABLE TO 452,265 396,249 56,016 47,119 8,897 181 (221) 423 9,280 420 8,860 1,828 7,032 8,860 (2,306) 178 (2,128) 6,732 1,560 STRATTEC SECURITY CORPORATION ................................................................... $ 5,172 INCOME PER SHARE ATTRIBUTABLE TO STRATTEC SECURITY CORPORATION: Basic .................................................................................................................................. $ Diluted............................................................................................................................... $ AVERAGE SHARES OUTSTANDING: Basic .................................................................................................................................. Diluted............................................................................................................................... 1.82 1.80 3,861 3,910 $ $ $ $ $ $ 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 27,848 5.95 5.85 3,788 3,852 The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Income and Comprehensive Income. 30 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE AMOUNTS) yJuly 3, 2022 y June 27, 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents ................................................................................................. $ Receivables, less allowance for doubtful accounts of $500 at July 3, 2022 and 8,774 $ 14,465 June 27, 2021.................................................................................................................. 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.............................................................. $ LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable............................................................................................................... $ Accrued liabilities: 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 18,000,000 shares at July 3, 2022 and 12,000,000 shares at June 27, 2021, $.01 par value, issued 7,481,169 shares at July 3, 2022 and 7,411,717 shares at June 27, 2021 .................................................................................. Capital in excess of par value ............................................................................................ Retained earnings .............................................................................................................. Accumulated other comprehensive loss ............................................................................ Less: Treasury stock at cost (3,604,466 shares at July 3, 2022 and 3,606,652 shares at June 27, 2021)............................................................................................................. Total STRATTEC SECURITY CORPORATION shareholders’ equity..................... Non-controlling interest ............................................................................................... Total shareholders’ equity ...................................................................................... $ 75,827 80,482 10,828 2,492 9,829 188,232 26,344 6,937 5,438 91,729 318,680 43,950 17,905 1,390 8,100 10,130 81,475 11,000 1,259 463 4,070 75 101,524 241,504 (18,657) (135,580) 188,866 31,547 220,413 318,680 $ $ $ The accompanying Notes to Financial Statements are an integral part of these Consolidated Balance Sheets. 69,902 70,860 7,571 5,716 6,390 174,904 27,224 5,052 6,982 96,401 310,563 36,727 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 31 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total Common Stock Capital in Excess of Par Value Retained g Earnings g BALANCE June 28, 2020 ................................... $175,441 $ Net income ............................................................ Currency translation adjustments.......................... Pension and postretirement funded status 29,897 7,144 74 $ 97,977 $211,940 $ — — — 22,532 — — Accumulated Other Treasury Comprehensive Loss Stock (22,113) $(135,656) $ 23,219 7,365 1,693 Non- controlling interest — 5,451 — — adjustment, net of tax of $42.............................. (135) — — — (135) — — Cash dividends paid to non-controlling interests p y of subsidiaries .................................................... Stock-based compensation .................................... Stock option exercises........................................... Employee stock ppurchases .................................... BALANCE June 27, 2021 ................................... $213,433 $ Net income ............................................................ Currency translation adjustments.......................... Pension and postretirement funded status (490) 972 526 78 8,860 (2,306) — — — — — 972 526 37 — — — — 74 $ 99,512 $234,472 $ — — 7,032 — — — — — — 41 — — — — (490) — — — (16,797) $(135,615) $ 31,787 1,828 (268) — (2,038) — — adjustment, net of tax of $55.............................. 178 — — — 178 — — Cash dividends paid to non-controlling interests of subsidiaries .................................................... Stock-based compensation .................................... Stock option exercises........................................... Employee stock purchases .................................... BALANCE July 3, 2022...................................... $220,413 $ (1,800) 1,140 827 81 — 1,140 826 46 — — 1 — 75 $101,524 $241,504 $ — — — — — — — — (1,800) — — — (18,657) $(135,580) $ 31,547 — — — 35 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......................................................................................................................... $ Adjustments to reconcile net income to net cash provided by operating 8,860 $ 29,897 Years Ended yJuly 3, 2022 y June 27, 2021 g activities: Equity earnings of jjoint ventures ................................................................................. q y Depreciation ................................................................................................................. Foreign currency transaction (gain) loss ...................................................................... Unrealized gain on peso forward contracts.................................................................. Loss on disposition of property, plant and equipment ................................................. 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 faff cilities ..................................................................................... Repayments under credit facilities .................................................................................... Exercise of stock options and employee stock purchases ................................................. Dividends ppaid to non-controlli gng interests of subsidiaries .............................................. Net cash used in financing activities ................................................................................. FOREIGN CURRENCY IMPACT ON CASH.................................................................. NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................................................................................................................. CASH AND CASH EQUIVALENTS Beginning of year .............................................................................................................. End of year......................................................................................................................... $ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash (Recovered) Paid During the Period For: (181) 19,379 (237) (384) 192 (1,981) 1,140 (5,935) (9,622) (3,074) 1,794 485 10,436 (150) (14,188) 5 (14,333) 13,000 (14,000) 908 (1,800) (1,892) 98 (5,691) 14,465 8,774 Income taxes ...................................................................................................................... $ Interest ............................................................................................................................... $ (842) 230 Non-Cash Investing Activities: Change in g pcapital e pxpenditures in accounts p ypayable ......................................................... $ 1,297 $ $ $ $ The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Cash Flows. (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 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 liftff gate systems, power deck lid systems, door handles and related products for primarily North American automotive customers. We also through a unique strategic relationship with WITTE Automotive (“WITTE”) of Velbert, supply global automotive manufacturers 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. ff ff The accompanying consolidated financial statements reflect ff 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”) 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 forff eign subsidiaries and joint venture are reported on a one-month lag basis. 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 subsequently spread, and infections occurred 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 in certain cases, advising or requiring individuals to limit or forego their time outside of their homes or from participating in large group gatherings. Accordingly, the COVID-19 outbreak, as well as the recent conflicff t in the Ukraine, 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, inflationary pressures 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. Nonetheless, during the fourth quarter of our fiscal 2021, our net sales were negatively impacted by a global semiconductor chip shortage (especially as it relates to the automotive industry), which shortage continued into our fiscal 2022 resulting in a decrease in our net sales for 2022 as compared to 2021. Additionally, inflationary pressures resulted in increased raw material and purchased part costs as well as increased wage rates in Mexico beginning in calendar 2021. Such increases negatively impacted our operating results in 2022 as compared to 2021. ff Each of the COVID-19 outbreak, the Ukraine conflict and the resulting inflationary pressures in the U.S. and global economy continue to adversely impact our operating results due mostly to the supply chain continuity and disruption issues noted above, and in particular related to the supply of semiconductor chips, transponders and related components to our customers in the automotive industry. The extent of such impacts, including related to their duration and intensity, depends upon any continued spread of the COVID-19 outbreak, the length of the Ukraine conflff ict and related regulatory or operating restraints, which may be precautionary, imposed by local governments and the private sector. All of these events may continue to impact the supply chain and our operations, including impacting our customers, workforce and suppliers, any of which may continue to disrupt and limit sourcing of semiconductor chips, transponders and other critical supply chain components needed by us and our customers to meet expected production schedules. Moreover, these events may continue to create added inflationary pressures on our operations, including related to wages and the prices of raw materials and purchased parts. All of these foregoing matters, including their scope and duration are uncertain and cannot be predicted as to timing and cost impacts. These changing conditions may also affect the estimates and assumptions made by our management in our financial statements. Such estimates and assumptions affect, among other things, our long-lived asset valuations, 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. 34 Significant Accounting Policies: The significant accounting policies foll ff owed in the preparation of these financial statements, as summarized in the following paragraphs, are in conforff mity with accounting principles generally accepted in the United States of America (U.S. GAAP). Principles of Consolidation and Presentation: The accompanying consolidated financial statements include the accounts of STRATTEC SECURITY CORPORATION, its wholly owned Mexican subsidiary and its majority owned subsidiaries. Equity investments for which STRATTEC exercises significant influence but does not control and are not variable interest entities of STRATTEC are accounted for using the equity method. All significant inter-company transactions and balances have been eliminated. ff 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 forff 2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, Financial Instr Derivatives and HeHH dging, and Leases. This ASU defers the effff ective smaller reporting companies as defined by the SEC to fisff cal 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 fiff scal 2024. We do not expect that the adoption of this pronouncement will have a material impact on our consolidated financial statements. interim periods within those fiff scal years, beginning after December 15, II uments – Credit Losses, public companies that are considered date of ASU 2016-13 forff ff In December 2019, the FASB issued ASU 2019-12, Income Taxes, which enhances and simplifieff s 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 have a material impact on our consolidated financial statements. ff December 15, 2020, with early adoption permitted. The adoption of this pronouncement did not Fiscal Year: Our fiscal year ends on the Sunday nearest June 30. The year ended July 3, 2022 is comprised of 53 weeks. The year ended June 27, 2021 is 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 diffff erff frff om 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 manufactur ing 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 forff ward 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 in current earnings as part of Other Income (Expense), net. statements at fair value and changes in the faff ir value are reported ff rr ff The following table quantifies the outstanding Mexican peso forward ff contracts as of July 3, 2022 (thousands of dollars, except with respect to the average forward contractual exchange rate): yBuy MXP/Sell USD ... Effective Dates yJuly 19, 2022 - June 13, 2023 Notional Amount 9,000 $ Average Forward Contractual g Exchange Rate Fair Value 22.42 $ 627 The fair market value of all outstanding Mexican peso forff ward contracts in the accompanying Consolidated Balance Sheets was as follows (thousands of dollars): Not designated as hedging instruments: Other current assets: Mexican ppeso forward ff contracts....................................... $ 627 $ 243 July 3, 2022 y June 27, 2021 35 The pre-tax effects of the Mexican peso forward contracts on the accompanying Consolidated Statements of Income and Comprehensive Income consisted of the following (thousands of dollars): Not Designated as Hedging Instruments: Realized gain.......................................................................... $ Realized (loss)........................................................................ $ Unrealized ggain ...................................................................... $ $ 434 (73) $ $ 384 164 — 723 Other Income (Expense), net Years Ended p yJuly 3, 2022 y June 27, 2021 Fair Value of Financial Instruments: The fair value of our cash and cash equivalents, accounts receivable, accounts payable a liability (an exit price) in the principal or most advantageous and borrowings under our credit facilities approximated their book value as of July 3, 2022 and June 27, 2021. Fair value is defined as the exchange price that would be received for an asset or paid forff 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 forff 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 fiff nancial assets and liabilities measured at fair value on a recurring basis as of July 3, 2022 and June 27, 2021 (thousands of dollars): identical assets or liabilities. These are typically obtained frff om real-time July 3, 2022 yy June 27, 2021 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...... 142 $ — $ — $ — 291 — 416 — 447 — 1,023 961 — 627 — — — — — — — 142 $ 291 416 447 1,023 961 627 Total assets at fair value ..... $ 2,319 $ 1,588 $ — $ 3,907 $ 3,581 $ 384 384 $ — $ — $ 377 — — 377 756 — — 756 1,104 — — 1,104 960 — — 960 2 — — 2 243 243 — — 245 $ — $ 3,826 The Rabbi Trust assets fund our supplemental executive retirement plan. Of the July 3, 2022 $3.3 million Rabbi Trust asset balance, $863,000 was included in Other Current Assets and $2.4 million was included in Other Long-Term Assets in the accompanying Consolidated Balance Sheets. The June 27, 2021 $3.6 million Rabbi Trust asset balance was included in Other Long- Term Assets in the accompanying Balance Sheets. Refer to discussion of Mexican peso forward contracts under Derivative Instruments above. The fair value of the Mexican peso forff ward contracts considers the remaining term, current exchange rate and interest rate differentials between the two currencies. Receivables: Receivables consist primarily of trade receivables due frff om Original Equipment Manufaff cturers 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 faff ctors. An allowance forff 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, the Ukraine conflict and the supply chain disruptions on our customers) and the industry as a whole. The allowance for doubtful accounts totaled $500,000 at July 3, 2022 and June 27, 2021. 36 Inventories: Inventories are comprised of material, direct labor and manufacturing overhead, and are stated at net realizable (thousands of dollars): value using the first-in, first-out (“FIFO”) cost method of accounting. Inventories consisted of the following ff Finished products........................................................................ $ Work in pprocess .......................................................................... Purchased materials .................................................................... Excess and obsolete reserve........................................................ Inventories, net ........................................................................... $ July 3, 2022 y 19,499 18,263 48,209 85,971 (5,489) 80,482 June 27, 2021 20,633 $ 14,707 40,900 76,240 (5,380) 70,860 $ We record a reserve for excess and obsolete inventory based on historical and estimated futff ure 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 July 3, 2022........................................................... $ Year ended June 27, 2021........................................................ $ 5,380 4,890 $ $ 962 973 $ $ 853 483 $ $ 5,489 5,380 Balance, Beginning of Year Provision Charged to p 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 forff 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. 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 usefulff lives of the assets as foff llows: Classification Land improvements ................................................................... Buildings and improvements..................................................... equipment ......................................................... Machinery and q p y Expected Useful Lives 20 years 15 to 35 years 3 to 15 yyears Property, plant and equipment consisted of the foll ff owing (thousands of dollars): Land and improvements ............................................................. $ Buildings and improvements ...................................................... Machinery and equipment .......................................................... Less: accumulated deppreciation.................................................. $ July 3, 2022 y 6,041 37,158 235,050 278,249 (186,520) 91,729 June 27, 2021 5,963 $ 36,325 228,141 270,429 (174,028) 96,401 $ Depreciation expense was as follows for the periods indicated (thousands of dollars): Fiscal Year 2022 ............................................................................................... $ 2021 ............................................................................................... $ Depreciation p Expense 19,379 19,786 37 The gross and net book value of property, plant and equipment located outside of the United States, primarily in Mexico, were as follows (thousands of dollars): Gross book value ........................................................................ $ Net book value............................................................................ $ 159,909 $ 64,645 $ July 3, 2022 y June 27, 2021 154,371 67,348 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 faiff sell. There were no impairments recorded in the years ended July 3, 2022 or June 27, 2021. r value, less estimated costs to 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. ff 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 ................................................... $ Other Long-Term Liabilities ............................................................................... $ July 3, 2022 y June 27, 2021 3,021 403 2,618 3,021 $ $ $ 3,399 378 3,021 3,399 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 July 3, 2022 (thousands of dollars): 2023.................................................................................................................................................... $ 2024.................................................................................................................................................... 2025.................................................................................................................................................... 2026.................................................................................................................................................... Thereafter ........................................................................................................................................... Total Future Minimum Lease Payments ............................................................................................ Less: Imputed Interest................................................................................................................... Total Lease gObligations ..................................................................................................................... $ 497 509 522 535 1,299 3,362 (341) 3,021 Cash flow information related to the operating lease is shown below (thousands of dollars): Operating Cash Flows: Cash Paid Related to pOperati gng Lease gObligation .............................................. $ 484 $ 473 Years Ended July 3, 2022 y June 27, 2021 38 The weighted average remaining lease term and discount rate for the El Paso, Texas operating lease are shown below: Weighted Average Remaining Lease Term, (in years)............................................ Average Discount Rate............................................................................ gWeighted g 6.3 3.3% 7.3 3.3% July 3, 2022 y June 27, 2021 Operating lease expense for the year ended July 3, 2022 and June 27, 2021 totaled $484,000 and $473,000, respectively. Supplier Concentrations: The following inventory purchases were made frff om major suppliers during each fisca ff l year noted: Fiscal Year 2022 ............................................................................................ 2021 ............................................................................................ Percentage of Inventory Purchases Number of pp Suppliers 38% 44% 6 8 We have long-term contracts or arrangements with most of our suppliers to guarantee the availability of raw materials and component parts. Labor Concentrations: We had approximately 3,373 fulff time associates were represented by a labor union at July 3, 2022 at our Milwaukee facility, which associates account for all production associates at our Milwaukee, WI facility. The current contract with our Milwaukee unionized associates is effective through November 1, 2025. Additionally, approximately 104 or 3.1 percent of our full Leon, Mexico facility. The current contract with our Leon unionized associates is effective through April 12, 2023. l-time associates. Approximately 180 or 5.3 percent of our full time associates were represented by a labor union at our ff ff 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 forff 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. new vehicle production and ten to Revenue is recognized at a point in time when control of the parts produced are transferred to the customer according to the terms of the contract, which is usually when the parts are shipped or delivered to the customer’s premises. Customers are generally invoiced upon shipment or delivery and payment generally occurs within 45 to 90 days after 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 futur e ff periods. the shipment date. The amount of ff 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 satisfyff 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 and Comprehensive Income. Shipping and handling costs are accounted for as fulfiff llment costs and are included in Cost of Goods Sold in the accompanying Consolidated Statements of Income and Comprehensive Income. 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 39 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 forff 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 frff om customers. We maintain an allowance for doubtfulff 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 July 3, 2022 or June 27, 2021. 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 $12.2 million in 2022 and $10.8 million in 2021. activity associated with foreign denominated assets held by our Mexican subsidiaries. The Rabbi Trust assets fundff Other Income (Expense), Net: Net other income (expense) included in the accompanying Consolidated Statements of Income and Comprehensive Income primarily included foreign currency transaction gains and losses, realized and unrealized gains and losses on our Mexican peso currency forward contracts, the components of net periodic benefiff t 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 fromff 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 2022 and 2021 to minimize earnings volatility resulting fromff changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. Unrealized gains and losses on the peso forff ward contracts recognized as a result of mark-to-market adjusd 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. The impact of these items for the periods presented was as follows (thousands of dollars): tments as of July 3, 2022 may or may not be realized in future periods, our Foreign currency transaction gain (loss) ................................................... $ Rabbi Trust Assets (loss) gain................................................................... Unrealized gain on Mexican peso forward contracts ................................ Realized gain on Mexican peso forward contracts, net ............................. Pension and postretirement plans cost....................................................... Other .......................................................................................................... $ Years Ended July 3, 2022 yy June 27, 2021 237 (304) 384 361 (488) 233 423 $ $ (2,445) 865 723 164 (483) 11 (1,165) Warranty Reserve: We have a warranty liability recorded related to our known and potential exposure to warranty claims in the event our products fail to perform as expected, and in the event we may be required to participate in the repair costs incurred by our customers for such products. The recorded warranty liability balance involves judgment and estimates. Our liability estimate is based on an analysis of historical warranty data as well as current trends and information, including our customers’ recent extension and/or expansion of their warranty programs. In recent fiscal periods, our largest customers have extended their warranty protection for their vehicles and have since demanded higher warranty cost sharing arrangements frff om their suppliers in their terms and conditions to purchase, including from STRATTEC. As additional information becomes available, actual results may diffff erff 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): frff om Year ended July 3, 2022........................................................... $ Year ended June 27, 2021........................................................ $ 8,425 8,500 $ $ 265 373 $ $ 590 448 $ $ 8,100 8,425 Balance, Beginning of Year Provision Charged p to Expense Payments y Balance, End of Year 40 Foreign Currency Translation: The financial statements of our forff eign subsidiaries and equity investees are translated into U.S. dollars using the exchange rate at each balance sheet date forff applicable period for sales, costs and expenses. Foreign currency translation adjustments are included as a component of accumulated other comprehensive loss. Foreign currency transaction gains and losses are included in other income (expense), net in the accompanying Consolidated Statements of Income and Comprehensive Income. assets and liabilities and the average exchange rate forff each Accumulated Other Comprehensive Loss (“AOCL”): The following tables summarize the changes in AOCL for the years ended July 3, 2022 and June 27, 2021 (thousands of dollars): Balance June 27, 2021 ............................................................... $ Other comprehensive loss before reclassifications .............. Income Tax................................................................ $ 14,685 1,700 606 $ 2,112 188 (43) Foreign Currency Translation Adjustments j Year Ended yJuly 3, 2022 y Retirement and Postretirement Plans Total 16,797 1,888 563 Net other comprehensive loss beforff e Reclassifications .......................................................... Reclassifications: Actuarial losses (A) ........................................................ Total reclassifications before tax.................................... Income Tax................................................................ Net reclassifications........................................................ Other comprehensive loss .................................................... Other comprehensive loss attributable 2,306 — — — — 2,306 145 2,451 (422) (422) 99 (323) (178) (422) (422) 99 (323) 2,128 to non-controlling interest ......................................... yJuly 3, 2022.................................................................. $ 268 16,723 $ Balance — 1,934 $ 268 18,657 Balance June 28, 2020 ............................................................... $ Other comprehensive loss before reclassifications .............. Income Tax................................................................ $ 20,136 (6,924) (220) $ 1,977 540 (128) Foreign Currency Translation Adjustments j Year Ended June 27, 2021 Retirement and Postretirement Plans Total 22,113 (6,384) (348) Net other comprehensive loss beforff e Reclassifications .......................................................... (7,144) 412 (6,732) Reclassifications: Prior service credits (A).................................................. Actuarial losses (A) ........................................................ Total reclassifications before tax.................................... Income Tax................................................................ Net reclassifications........................................................ Other comprehensive income............................................... Other comprehensive income 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 (A) Amounts reclassified are included in the computation of net periodic benefit cost, which is included in Other Income (Expense), net in the accompanying Consolidated Statements of Income and Comprehensive Income. See Retirement Plans and Postretirement Costs note to these Notes to Financial Statements below. 41 Stock-Based Compensation: We maintain an omnibus stock incentive plan. This plan provides forff 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 July 3, 2022 were 177,959. 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 frff om 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 3 years after the date of grant. ff 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 fiff xed awards with graded vesting schedules is amortized on a straight-line basis over the vesting period for the entire award. The expected term of awards granted is determined based on historical experience with similar awards, giving consideration to the contractual terms and vesting schedules. The expected volatility is determined based on our historical stock prices over the most recent period commensurate with the expected term of the award. The risk-frff ee 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 faiff 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. r value of each restricted stock grant was based on the market price of the All compensation cost related to stock options granted under the plan has been recognized as of July 3, 2022. Unrecognized compensation cost as of July 3, 2022 related to restricted stock granted under the plan was as follows ff (thousands of dollars): Weighted Average Period over which Cost is to be Recognized y (in years) Compensation Cost Restricted stock ggranted ............................................................. $ 1,374 1.0 Unrecognized compensation cost will be adjusted forff ff any future changes in estimated and actual forfeitures. Cash received from stock option exercises and the related income tax benefit were as follows ff (thousands of dollars): Fiscal Year 2022 ............................................................................................ $ 2021 ............................................................................................ $ Cash Received from Stock Option Exercises Income Tax Benefit 827 $ 526 $ 74 130 The intrinsic value of stock options exercised and the fair ff value of options vested were as follows (thousands of dollars): Years Ended July 3, 2022 y June 27, 2021 555 — 451 $ — $ Intrinsic value of options exercised ............................................ $ Fair value of stock poptions vested .............................................. $ No options were granted during the fiscal years ended July 3, 2022 or June 27, 2021. 42 The range of options outstanding as of July 3, 2022 was as follow ff s: $25.64.................................................................................. $38.71.................................................................................. $79.73.................................................................................. Number of Options Outstanding and Exercisable Weighted Average Exercise Price Outstanding and Exercisable 4,251 27,911 9,010 41,172 $ $ $ $ 25.64 38.71 79.73 46.34 Weighted Average Remaining Contractual Life Outstanding (In Years) 0.13 1.13 2.13 Income Taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differff ences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary diffff erence 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 forff Income Taxes in the accompanying Consolidated Statements of Income and Comprehensive Income. s are expected to be recovered, ff 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. ff WITTE’s primary market for these products has been Europe. ADAC, of Grand Rapids, Michigan, is a privately held automotive supplier and manufactures engineered products, including door handles and other automotive trim parts, utilizing plastic injection molding, automated painting and various assembly processes. The Alliance Agreements include a set of cross-licensing agreements for the manufacture, distribution and sale of WITTE products by STRATTEC and ADAC in North America, and the manufacture, distribution and sale of STRATTEC and ADAC products by WITTE in Europe. Additionally, a joint venture company, Vehicle Access Systems Technology LLC (“VAST LLC”), in which WITTE, STRATTEC and ADAC each hold a one-third equity interest, exists to seek opportunities to manufacture and sell each company’s products in areas of the world outside of North America and Europe. 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 $918,000 in 2022 and $874,000 in 2021. STRATTEC also pays WITTE a royalty related to certain latch product sales. Such royalties incurred totaled $889,000 in 2022 and $1.1 million in 2021. The outstanding payable balance to WITTE was $459,000 and $427,000 as of July 3, 2022 and June 27, 2021, 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 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 major car, motorcycle, commercial vehicle, tractor and off-road vehicle manufacturers in India. They are a leading manufacturer in the Indian marketplace of security & access products, handles, automotive safety, restraint systems, driver information and telematics systems forff branch offices in South Korea and Japan in support of customer sales and engineering requirements. both OEMs and the aftermarket. VAST LLC also maintains 2021, ff 43 VAST LLC investments are accounted for using the equity method of accounting. Results of the VAST LLC forff eign subsidiaries and joint venture are reported on a one-month lag basis. The activities of the VAST LLC forff eign subsidiaries and joint ventures resulted in equity earnings of joint ventures to STRATTEC of approximately $181,000 during 2022 and $2.6 million during 2021. During 2022, capital contributions totaling $450,000 were made to VAST LLC forff STRATTEC’s portion of the capital contribution totaled $150,000. 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. operations in Brazil. purposes of funding ff 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 sales and decreased net income to STRATTEC of approximately $111.8 million and $100,000, respectively, in 2022 and increased net sales and increased net income to STRATTEC of approximately $126.2 million and $4.1 million, respectively, in 2021. ADAC Charges ADAC-STRATTEC LLC an engineering, research and design fee as well as a sales fee. Such feff es are calculated as a percentage of ADAC-STRATTEC LLC net sales, are included in the consolidated results of STRATTEC, and totaled $7.8 million in 2022 and $8.8 million in 2021. The related outstanding payable balance to ADAC was $1.9 million as of each of July 3, 2022 and June 27, 2021. Additionally, ADAC-STRATTEC LLC sells production parts to ADAC. Sales to ADAC are included in the consolidated results of STRATTEC and totaled $9.1 million in 2022 and $11.6 million in 2021. The related outstanding receivable balance fromff ADAC was $1.6 million and $1.5 million as of July 3, 2022 and June 27, 2021, respectively. STRATTEC POWER ACCESS LLC (“SPA”) was forff med in fiff scal year 2009 to supply the North American portion of the power sliding door, lift gate, tail gate and deck lid system access control products which were acquired frff om 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 fiff nancial results of STRATTEC and resulted in increased net sales and increased net income to STRATTEC of approximately $95.7 million and $5.3 million, respectively, in 2022 and $95.2 million and $6.4 million, respectively, in 2021. See further discussion under Equity Earnings of Joint Ventures included in Notes to Financial Statements herein. EQUITY EARNINGS OF JOINT VENTURES As discussed above under the note Investment in Joint Ventures and Majority Owned Subsidiaries, we hold a one-third ownership interest in VAST LLC, for which we exercise significff ant 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. During the quarter ended March 27, 2022, VAST China experienced a fireff at their Taicang facility. As a result, certain door handle and painting operations were subsequently transfeff rred to their new Jingzhou facility and to another supplier. The transfer of production negatively impacted VAST China’s profitability forff the six month period ended July 3, 2022. The following are summarized statements of operations and summarized balance sheet data for VAST LLC (thousands of dollars): Years Ended Net sales ...................................................................................... $ Cost of goods sold ....................................................................... Gross profit ............................................................................ Engineering, selling and administrative expense ........................ (Loss) income from operations .............................................. Other income, net ........................................................................ (Loss) income before (benefit) provision forff income taxes ...................................................................... (Benefit) provision for income taxes........................................... Net income............................................................................. $ STRATTEC’s share of VAST LLC net income ................................................................................... $ Intercompany profit eliminations ................................................ STRATTEC’s qequi yty earnings of VAST LLC............................ $ g 44 July 3, 2022 y 191,642 $ 160,886 30,756 31,887 (1,131) 902 June 27, 2021 210,149 171,930 38,219 30,605 7,614 1,681 (229) (766) 537 $ 179 $ 2 181 $ 9,295 1,554 7,741 2,580 (20) 2,560 Cash and cash equivalents........................................................... $ Receivables, net........................................................................... Inventories, net ............................................................................ Other current assets ..................................................................... Total current assets ................................................................ Property, plant and equipment, net.............................................. glong-term assets................................................................. Other Total assets............................................................................. $ Current debt................................................................................. $ Other current liabilities................................................................ gLong-term debt............................................................................ Other long-term liabilities ........................................................... Total liabilities ....................................................................... $ Net assets..................................................................................... $ STRATTEC’s share of VAST LLC net assets............................ $ yJuly 3, 2022 y 21,694 $ 39,467 26,881 14,574 102,616 70,096 16,686 189,398 $ 388 $ 87,294 20,079 2,258 110,019 $ 79,379 $ 26,460 $ 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 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 frff om VAST LLC to STRATTEC for general headquarter expenses. The following tables summarize the related party transactions with VAST LLC forff dollars): the periods indicated (thousands of Years Ended Sales to VAST LLC .................................................................... $ Purchases from VAST LLC ........................................................ $ Expenses charged to VAST LLC ................................................ $ charged from VAST LLC ........................................... $ pExpenses g Accounts receivable from VAST LLC........................................ $ Accounts p ypayable to VAST LLC ................................................ $ CREDIT FACILITIES July 3, 2022 y 1,805 $ 169 $ 593 $ 784 $ June 27, 2021 3,900 527 1,507 1,167 July 3, 2022 y June 27, 2021 84 25 63 $ 23 $ STRATTEC has a $40 million secured revolving credit facili ff ty (the “STRATTEC Credit Facility”) with BMO Harris Bank N.A. ADAC-STRATTEC LLC has a $25 million secured revolving credit faff cility (the “ADAC-STRATTEC Credit Facility”) with BMO Harris Bank N.A., which is guaranteed by STRATTEC. The credit facilities expire on August 1, 2024. Borrowings under either credit facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixeff 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 July 3, 2022, we were in compliance with all financial covenants required by these credit facilities. d assets located in the U.S. Interest on Outstanding borrowings under the credit facilities referff enced in the above paragraph as of the end of 2022 and 2021 were as follows (thousands of dollars): STRATTEC Credit Facility ........................................................ $ ADAC-STRATTEC Credit Facility............................................ $ 45 July 3, 2022 y — $ 11,000 11,000 $ June 27, 2021 — 12,000 12,000 Average outstanding borrowings and the weighted average interest rate under each such credit facility during 2022 and 2021 were as follows (thousands of dollars): Average Outstanding g Borrowings Years Ended Weighted Average Interest Rate Years Ended STRATTEC Credit Facilityy..................................................... $ ADAC-STRATTEC Credit Faci ylity ........................................ $ July 3, 2022 y 332 $ 14,248 $ June 27, 2021 8,775 14,346 July 3, 2022 y June 27, 2021 2.0% 1.5% 1.2% 1.4% We believe that the credit faff cilities referenced above are adequate, along with existing cash balances and cash flow frff om operations, to meet our anticipated capital expenditure, working capital, dividend and operating expenditure requirements. COMMITMENTS AND CONTINGENCIES We are from time to time subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, alleged breaches of contracts, product warranties, intellectual property matters and employment related matters. It is our opinion that the outcome of such matters will not have a material adverse impact on the consolidated financial position, results of operations or cash flows of STRATTEC. With respect to warranty matters, although we cannot ensure that the future costs of warranty claims by customers will not be material, we believe our established reserves are adequate to cover potential warranty settlements. In 1995, we recorded a provision for estimated costs to remediate an environmental contamination site at our Milwaukee facility. The facility was contaminated by a solvent spill, which occurred in 1985, frff om 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 suffff icient 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 findi known environmental regulations, that the environmental reserve of $1.4 million at July 3, 2022 is adequate. ngs-to-date and ff ff At July 3, 2022, we had purchase commitments related to zinc and aluminum. We also had minimum rental commitments under non-cancelable operating leases with a term in excess of one year. The purchase and minimum rental commitments are payable as follows (thousands of dollars): Fiscal Year 2023 ............................................................................................ $ 2024 ............................................................................................ $ 2025 ............................................................................................ $ 2026 ............................................................................................ $ 2027 ............................................................................................ $ Purchase Commitments Minimum Rental Commitments 5,925 $ — $ — $ — $ — $ 497 509 522 535 1,299 INCOME TAXES The provision for income taxes consisted of the following (thousands of dollars): Currently (recoverable) payable: Federal................................................................................... $ State....................................................................................... Foreign .................................................................................. Deferred tax provision ................................................................ $ 46 Years Ended July 3, 2022 y June 27, 2021 (691) $ 161 2,931 2,401 (1,981) 420 $ 557 420 2,661 3,638 1,473 5,111 The items accounting for the differenc ff e between income taxes computed at the Federal statutory tax rate and the provision forff income taxes were as follows: U.S. statutory rate ....................................................................... State taxes, net of Federal tax benefit ......................................... Foreign subsidiaries .................................................................... Return to provision adjustment ................................................... Global intangible low-taxed income ........................................... Research and development tax credit ......................................... Solar investment tax credit.......................................................... Non-controlli gng interest .............................................................. Stock based compensation .......................................................... Other ........................................................................................... Years Ended July 3, 2022 y June 27, 2021 21.0% 0.4 8.4 (11.1) 0.5 (9.7) (0.8) (1.8) (1.3) (1.1) 4.5% 21.0% 1.1 1.0 — 0.5 (2.3) — (5.9) 0.1 (0.9) 14.6% The return to provision adjustment related to adjustments we made to our fisff cal 2021 estimated foreign tax credits and estimated tax impacts associated with our investment in VAST LLC. These true-up adjustments resulted fromff returns during fiscal 2022 and were attributable to actual results included in the non-US income tax returns, which are filed on a calendar year basis, and which differ from estimates included in our fiscal 2021 tax provision. This adjustment was not material to our previously issued financial statements. the filing of our US income tax The components of deferred tax (liabilities) assets were as follow ff s (thousands of dollars): Unrecognized pension and postretirement benefiff t plan liabilities ........................................................................... $ Accrued warranty ........................................................................ Payroll-related accruals ............................................................... Stock-based compensation .......................................................... Inventory reserve......................................................................... Environmental reserve................................................................. Repair and maintenance supply parts reserve ............................. Allowance forff doubtful accounts ................................................ Lease Liability............................................................................. gRight of Use Assets ..................................................................... Credit carry-forwards .................................................................. Postretirement obligations........................................................... Accumulated depreciation........................................................... Accrued pension obligations ....................................................... Joint ventures............................................................................... Other............................................................................................ $ July 3, 2022 y June 27, 2021 604 $ 423 3,085 360 1,010 327 222 118 710 (710) 2,986 (233) (3,886) 504 971 446 6,937 $ 659 499 3,044 306 964 327 284 118 799 (799) 1,544 (294) (4,663) 459 1,187 618 5,052 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 July 3, 2022 resulted in future benefits of approximately $2.8 million and expire between 2031 and 2040. We currently anticipate having sufficient Federal taxable income to offff set these credit carry-forwards. State credit carry- forwards at July 3, 2022 resulted in future benefits of approximately $192,000 and expire at varying times between 2025 and 2031. A valuation allowance of $158,000 has been recorded as of July 3, 2022, due to our assessment of the future realization of certain state credit carry-forward benefits. We do not currently anticipate having suffff icient forwards. Foreign income before the provision for income taxes was $8.6 million in 2022 and $5.1 million in 2021. state taxable income to offset these credit carry- ff 47 The total liability for unrecognized tax benefits was $1.5 million as of July 3, 2022 and $1.6 million as of June 27, 2021 and was included in Other Long-term Liabilities in the accompanying Consolidated Balance Sheets. This liability includes approximately $1.3 million and $1.5 million of unrecognized tax benefits at July 3, 2022 and June 27, 2021, respectively, and approximately $137,000 of accrued interest at July 3, 2022 and $146,000 at June 27, 2021. 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 $1.0 million at July 3, 2022 and $ 1.1 million at June 27, 2021. 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 forff the years ended July 3, 2022 and June 27, 2021 (thousands of dollars): Years Ended Unrecognized tax benefits, beginning of year............................. $ Gross increases – tax positions in prior years ............................. Gross decreases – tax positions in prior years............................. Gross increases – current period tax positions ............................ Tax years closed .......................................................................... Unrecognized tax benefits, end of yyear ....................................... $ g yJuly 3, 2022 y 1,458 $ 13 (19) 241 (379) 1,314 $ June 27, 2021 1,462 76 — 207 (287) 1,458 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 2019 through 2022 forff Federal, fiscal 2018 through 2022 forff most states and calendar 2017 through 2021 for foreign jurisdictions. RETIREMENT PLANS AND POSTRETIREMENT COSTS We have a noncontributory Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified defined benefitff plan. The SERP is funded through a Rabbi Trust with TMI Trust Company. Under the SERP, as amended December 31, 2013, participants received an accrued lump-sum benefit as of December 31, 2013 which was credited to each participant’s account. Subsequent to December 31, 2013, each eligible participant receives a supplemental retirement benefit equal to the foregoing lump-sum benefit,ff 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 full y vested in their account balances with any new individuals participating in the SERP effective on or aftff er January 1, 2014 being subject to a five year vesting period. The SERP, which is considered a nonqualified defined benefiff t 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 futff ure required lump sum benefit payments to participants. The Rabbi Trust assets had a value of $3.3 million at July 3, 2022 and $3.6 million at June 27, 2021, respectively. Refer to Fair Value of Financial Instruments discussion included in Notes to Financial Statements herein for furff ther discussion of Rabbi Trust assets. The Rabbi Trust assets are excluded from the SERP tables below as they do not qualifyff as plan assets. The projected benefit obligation under the SERP, which is included in the SERP tables below, was $3.2 million at July 3, 2022 and $2.8 million at June 27, 2021. The SERP has a separately determined accumulated benefit obligation, which is the actuarial present value of benefits based on service rendered and current and past compensation levels. This differsff frff om the projected benefit obligation in that it includes no assumptions about future compensation levels. The accumulated benefit obligation under the SERP was $2.8 million at July 3, 2022 and $2.6 million at June 27, 2021. plus ff We also sponsor a postretirement health care plan forff 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. ff Amounts included in accumulated other comprehensive loss, net of tax, at July 3, 2022, which have not yet been recognized in net periodic benefit cost were as follows (thousands of dollars): Net actuarial loss ......................................................................... $ SERP Postretirement 1,157 777 $ Unrecognized net actuarial losses included in accumulated other comprehensive loss at July 3, 2022 which are expected to be recognized in net periodic benefitff cost (credit) in fiff scal 2023, net of tax, for the SERP and postretirement plans are as follows (thousands of dollars): ff Net actuarial loss ......................................................................... $ SERP Postretirement 205 94 $ 48 The following tables summarize the SERP and postretirement plans’ income and expense, funded status and actuarial assumptions for the years indicated (thousands of dollars). We use a June 30 measurement date for our SERP and postretirement plans. SERP Benefits Years Ended Postretirement Benefits Years Ended yJuly 3, 2022 y June 27, 2021 yJuly 3, 2022 y June 27, 2021 COMPONENTS OF NET PERIODIC BENEFIT COST (CREDIT): Service cost .............................................................................. $ Interest cost .............................................................................. Plan settlements........................................................................ Amortization of prior service cost (credit)............................... Amortization of unrecognized net loss .................................... Net pperiodic benefit cost (credit).............................................. $ WEIGHTED-AVERAGE ASSUMPTIONS: Benefit Obligations: Discount rate......................................................................... Rate of compensation increases............................................ Net Periodic Benefit Cost: Discount rate......................................................................... Rate of compensation increases............................................ CHANGE IN PROJECTED BENEFIT OBLIGATION: Benefit obligation at beginning of year................................... $ Service cost........................................................................... Interest cost........................................................................... Actuarial loss (gain) ............................................................. Benefits paid......................................................................... Benefit obligation at end of year ............................................. $ CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year ......................... $ Employer contribution.......................................................... Benefits paid......................................................................... Fair value of plan assets at end of year ................................... $ Funded status – accrued benefit obligations ........................... $ AMOUNTS RECOGNIZED IN CONSOLIDATED BALANCE SHEETS: Accrued payroll and benefits (current liabilities).................... Accrued benefit obligations (long-term liabilities) ................. Net amount recognized............................................................ $ CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OTHER COMPREHENSIVE INCOME: Net periodic benefit cost ......................................................... $ Net 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 53 — — 86 202 $ $ 63 41 65 — 10 179 $ $ 12 13 — — 336 361 $ $ 4.26% 4.0% 2.06% 3.0% 2.06% 3.0% 2.33% 3.0% 2,797 63 53 265 (14) 3,164 $ $ — $ 14 (14) — $ (3,164) $ 2,293 63 41 631 (231) 2,797 $ $ — $ 231 (231) — $ (2,797) $ 4.23% n/a 2.01% n/a 709 12 13 (77) (99) 558 $ $ — $ 99 (99) — $ (558) $ (1,905) (1,259) (3,164) $ (463) (2,334) (2,797) $ (95) (463) (558) $ $ 202 265 — — (86) 179 $ 179 631 (65) — (10) 556 $ 361 (77) — — (336) (413) 13 16 — (8) 359 380 2.01% n/a 2.07% n/a 821 13 16 (26) (115) 709 — 115 (115) — (709) (110) (599) (709) 380 (26) — 8 (359) (377) 381 $ 735 $ (52) $ 3 49 For measurement purposes as it pertains to the estimated obligation associated with retirees prior to January 1, 2010, a 5.6 percent annual rate increase in the per capita cost of covered health care benefiff ts was assumed for fiscal 2023; the rate was assumed to decrease gradually to 3.0 percent by the year 2025 and remain at that level thereafter. The health care cost trend assumption has a minimal effect on our postretirement benefit amounts reported. We expect to contribute $1.9 million to our SERP and $96,000 to our postretirement health care plan in fiscal 2023. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the fiscal below (thousands of dollars): ff years noted SERP Benefits Postretirement Benefits 2023............................................................................................ $ 2024............................................................................................ $ 2025............................................................................................ $ 2026............................................................................................ $ 2027............................................................................................ $ 2028-2032................................................................................... $ 1,946 $ 14 $ 14 $ 14 $ 14 $ 2,373 $ 96 98 67 40 38 233 All U.S. associates may participate in our 401(k) Plan. We contribute 100 percent up to the first 5 percent of eligible compensation that a participant contributes to the plan. Our contributions to the 401(k) Plan were as foll ff ows (thousands of dollars): Years Ended Company contributions............................................................... $ p y 1,964 $ July 3, 2022 y June 27, 2021 1,706 SHAREHOLDERS’ EQUITY We have 18,000,000 and 12,000,000 shares of authorized common stock, par value $.01 per share, with 3,876,703 and 3,805,065 shares outstanding at July 3, 2022 and June 27, 2021, 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 July 3, 2022. As of July 3, 2022, 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 2022 or 2021. EARNINGS PER SHARE Basic earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the potential dilutive common shares outstanding during the applicable period using the treasury stock method. Potential dilutive common shares include outstanding stock options and unvested restricted stock awards. A reconciliation of the components of the basic and diluted per share computations follows (in thousands, except per share amounts): ff Years Ended Net income attributable to STRATTEC...................................... $ 7,032 $ July 3, 2022 y June 27, 2021 22,532 Weighted average shares of common stock outstanding ............ Incremental shares – stock based compensation ......................... Diluted weighted average shares of common stock outstanding ............................................................................... Basic earnings per share.............................................................. $ earnings pper share........................................................... $ Diluted g 3,861 49 3,910 1.82 $ 1.80 $ 3,788 64 3,852 5.95 5.85 Potentially dilutive common shares that were excluded frff om the calculation of diluted earnings per share because their inclusion would have been antidilutive were as follows: Years Ended July 3, 2022 .................................................................................. June 27, 2021................................................................................ Number of Options Excluded 36,921 9,010 50 STOCK OPTION AND PURCHASE PLANS A summary of stock option activity under our stock incentive plan was as follows ff : Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in yyears) y Aggregate Intrinsic Value (in thousands) Balance at June 28, 2020 ......................................................... Exercised ................................................................................. Balance at June 27, 2021 ......................................................... Exercised ................................................................................. Balance at yJuly 3, 2022............................................................ Exercisable as of: July 3, 2022 ............................................................................. June 27, 2021........................................................................... 90,860 $ (18,236) $ 72,624 $ (31,452) $ 41,172 $ 41,172 $ 72,624 $ 35.88 28.85 37.65 26.28 46.34 46.34 37.65 No options were granted during fiscal 2022 or 2021. A summary of restricted stock activity under our stock incentive plan was as folff lows: 1.2 $ 1.2 $ 1.5 $ 31 31 790 Weighted Average Grant Date Fair Value Shares Nonvested Balance at June 28, 2020.......................................... Granted ....................................................................................... Vested......................................................................................... Forfeited ..................................................................................... Nonvested Balance at June 27, 2021.......................................... Granted ....................................................................................... Vested......................................................................................... Forfeited ..................................................................................... yJuly 3, 2022 ............................................ Nonvested Balance at 69,394 $ 48,300 $ (34,669) $ (1,050) $ 81,975 $ 43,875 $ (38,000) $ (2,750) $ 85,100 $ 30.59 21.20 34.95 22.84 23.31 42.50 25.56 32.70 31.89 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 2,186 at an average price of $37.32 during 2022 and 2,541 at an average price of $31.03 during 2021. A total of 46,484 shares remain available for purchase under the plan as of July 3, 2022. EXPORT SALES Total export sales, sales from the United States to locations outside of the United States, are summarized as folff lows (thousands of dollars and percent of total net sales): pExport sales .............................................................................. $ 122,293 July 3, 2022 y Net Sales Years Ended June 27, 2021 % 27% Net Sales $ 130,260 % 27% During the years ended July 3, 2022 and June 27, 2021, no countries accounted for sales of ten percent or more of total net sales. 51 PRODUCT SALES Sales by product group were as follows (thousands of dollars and percent of total net sales): Years Ended July 3, 2022 y June 27, 2021 Net Sales % Net Sales % Door handles & exterior trim .................................................. $ yKeys & locksets....................................................................... Power access............................................................................ Latches..................................................................................... Aftermarket & OE service....................................................... Driver controls......................................................................... Other ........................................................................................ $ 111,805 107,274 95,662 48,947 44,826 34,442 9,309 452,265 25% $ 24 21 11 10 7 2 100% $ 126,218 116,572 95,245 51,211 47,138 40,031 8,880 485,295 SALES AND RECEIVABLE CONCENTRATION Sales to our largest customers were as follows (thousands of dollars and percent of total net sales): General Motors Company ....................................................... $ Stellantis (Formerly Fiat Chrysler Automobiles) .................... Ford Motor Company .............................................................. $ Years Ended July 3, 2022 y June 27, 2021 Net Sales % Net Sales % 130,184 83,255 79,735 293,174 29% $ 18 18 65% $ 146,547 85,629 67,670 299,846 Receivables from our largest customers were as follows ff (thousands of dollars and percent of gross receivables): General Motors Company ....................................................... $ Stellantis (Formerly Fiat Chrysler Automobiles) .................... Ford Motor Company .............................................................. $ July 3, 2022 y Receivables % June 27, 2021 Receivables % 24,594 12,845 10,602 48,041 32% $ 17 14 63% $ 22,934 11,938 8,204 43,076 26% 24 20 10 10 8 2 100% 30% 18 14 62% 32% 17 12 61% 52 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 ff 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 effeff ctiveness of the design and operation of STRATTEC’s disclosure controls and procedures. Based on such evaluation, the Chief Executive Officer concluded that the disclosure controls and procedures were effff ective 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, as of the end of the period covered by this report at reaching a and Chief Financial Officer ff ff There was no change in our internal control over fiff nancial reporting (as defined in Rules 13a-15(f)ff and 15d-15(f)ff under the Exchange Act) that occurred during the quarter ended July 3, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 53 Management’s Annual Report on Internal Controls over Financial Reporting STRATTEC SECURITY CORPORATION is responsible forff 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 forff establishing and maintaining effeff ctive 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. limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or frff aud 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. Any system of internal control, no matter how well designed, has inherent ff 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 firmff actions taken in discharging responsibilities for accounting, financial reporting, and internal control. Crowe LLP, independent registered public accounting firm, has direct and confident audits. , and reviews audit plans and results, as well as management’s ial access to the Audit Committee at all times to discuss the results of their ff Management assessed the Corporation’s system of internal control over financial reporting as of July 3, 2022, in relation to criteria for effective internal control over financial reporting as described in Internal by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management concluded that, as of July 3, 2022, its system of internal control over financial reporting was effff ecff Internal Control – IntII egrated Framework on the Corporation’s internal control over financial reporting, which is included herein. . Crowe LLP, independent registered public accounting firm, has issued an attestation report tive and met the criteria of the Control – Integrated (2013), issued Framework rr rr rr rr j /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 Offff icer ff 54 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 July 3, 2022, 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 July 3, 2022, 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 sheets of the Company as of July 3, 2022 and June 27, 2021, the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the years in the two-year period ended July 3, 2022, and the related notes (collectively referred to as the "financial statements") and our report dated September 8, 2022 expressed an unqualified opinion. ff Basis for Opinion The Company’s management is responsible for maintaining effff eff ctive 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 finaff ncial registered with the PCAOB and are required to be independent with reporting based on our audit. We are a public accounting firmff 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 perforff m 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 fiff nancial 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 ing such other procedures as we considered necessary in the based on the assessed risk. Our audit also included performff circumstances. We believe that our audit provides a reasonable basis forff our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over fiff nancial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forff external purposes in accordance with generally accepted accounting principles. A company’s internal control over fiff nancial 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 fiff nancial 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 8, 2022 55 ITEM 9B. OTHER INFORMATION Not applicable. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 56 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The infoff rmrr atitt on included in our Proxy Statement, dated on or aba out Septembm er 8, 2022, under “Proposal 1: Electitt on of Directors,” “Corprr orate Governrr ance Matttt ers-Code of Business Ethtt ics,” “Audit Committtt ee Matttt ers-Audit Committtt ee Financial Expertrr ,” “Executitt ve Offff iff cers,” “Delinquent Sectitt on 16(a) Reportrr s,” “Director’s Meetitt ngs and Committtt ees – Nominatitt ng and Corprr orate Governrr ance Committtt ee,” and “Corprr orate Governrr ance Matttt ers-Director Nominataa itt ons” is incorprr orated herein by refeff rence. The Audit Committtt ee of our Boaraa d of Directors is an “auaa dit committtt ee” foff r purprr oses of Sectitt on 3(a)(58)(A) of thtt e Securirr titt es Exchange Act of 1934. The membm ers of thtt e Audit Committtt ee consist of thtt ree outside independent directors, David R. Zimmer, Audit Committtt ee Chairmrr an, Thomas W. Florsheim, Jr., and Michael J. Koss. ITEM 11. EXECUTIVE COMPENSATION The infoff rmrr atitt on included in our Proxy Statement, dated on or aba out Septembm er 8, 2022, under “Director Compmm ensata itt on” and “Executitt ve Compmm ensatitt on” is incorprr orated herein by refeff rence. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS The infoff rmrr atitt on included in our Proxy Statement, dated on or aba out Septembm er 8, 2022, under “Securirr tytt Ownership” is incorprr orated herein by refeff rence. Equity Compensation Plan Informati ff on The following table summarizes share information, as of July 3, 2022, for our Amended and Restated Stock Incentive Plan. Plan Category Equity compensation plans approved by shareholders ................................. Equity compensation plans not approved by shareholders ................................. Total..................................................................... Number of common shares to be issued upon exercise of outstanding options, warrants, and rights Weighted-average exercise price of outstanding options, warrants, and rights Number of common shares available for future issuance under equity compensation plans 41,172 $ — 41,172 $ 46.34 — 46.34 177,959 — 177,959 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The infoff rmrr atitt on included in our Proxy Statement, dated on or aba out Septembm er 8, 2022, under “Transactitt ons Withtt Related Persons” and “Corprr orate Governrr ance Matttt ers-Director Independence” is incorprr orated herein by refeff rence. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The infoff rmrr atitt on included in our Proxy Statement, dated on or aba out Septembm er 8, 2022, under “Audit Committtt ee Matttt ers-Fees of Independent Registered Public Accountitt ng Firmrr ” is incorprr orated herein by refeff rence. 57 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 10 (a) Financial Statements See Item 8 foff r thtt e Consolidated Financial Statements included in thtt is Formrr 10-K PART IV (b) Exhibits See thtt e foff llowing List of Exhibits: Exhibit 3.1 (13) 3.2 (20) 3.3 (27) 3.4 (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)** Amended and Restated Articles of Incorporation of the Company Amendment to 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 faff vor 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 Exchange Commission on Appendix B to the C p y pSeptemberr 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 forff STRATTEC: Bonus Plan for Executive Officers and Senior Managers STRATTEC SECURITY CORPORATION Team Incentive Plan forff STRATTEC: Bonus Plan for Non-employee Members of the Board of Directors STRATTEC SECURITY CORPORATION Team Incentive Plan forff 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 yoxy Statementt on Schedule 14A filed with the Securities and ompany’s Pr 2020 .) g 58 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 10.8 (3)** 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 31.1 31.2 32 (28) 101 104 Employment Agreement between the Company and Patrick J. Hansen made as of May 5, 2010 Employment Agreement between the Company and Rolando J. Guillot made as of May 5, 2010 Employment Agreement between the Company and 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 Chanaa ge of Contrtt ol Empmm loyment Agreement betwtt een thtt e Compmm anaa y anaa d Richaraa d P. Messina made as of July 1, 2016 Change of Control Employment Agreement between the Company and Al Hamdan made as of May 4, 2017 Form of Restricted Stock Grant Agreement with non-employee directors STRATTEC SECURITY CORPORATION EMPLOYEE STOCK PURCHASE PLAN (Amended effective as of February 22, 2021) Letttt er Agreement between thtt e Compm any and Haraa old M. Strtt attt on II made as of Septembm er 1, 2012 Letter regarding Change in Auditors Subsidiaries of the Company Consent of Independent Registered Public Accounting Firm dated September 8, 2022 Rule 13a-14(a) Certificaff Rule 13a-14(a) Certificaff 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 frff om the Company’s Annual Report on Form 10-K for the year ended July 3, 2022 has been formatted in Inline XBRL. tion forff Frank J. Krejci, Chief Executive Officer tion forff Patrick J. Hansen, Chief Financial Officer ff * * * * * * * * * * * * * * 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) (26) Incorporated by referff ence frff om the exhibit to the Form 8-K filed on October 7, 2005. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on August 4, 2011. Incorporated by referff ence frff om the exhibit to the March 28, 2010 Form 10-Q filed on May 6, 2010. Incorporated by referff ence frff om the exhibit to the July 1, 2012 Form 10-K filed on September 6, 2012. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on December 27, 2013. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on June 25, 2015. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on October 10, 2013. Incorporated by referff ence frff om the exhibit to the Form 10-K filed on September 5, 2014. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on April 29, 2016. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on June 24, 2016. Incorporated by referff ence frff om the exhibit to the Form 10-K filed on September 8, 2016. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on June 27, 2017. Incorporated by referff ence frff om the exhibit to the Form 10-K filed on September 7, 2017. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on March 27, 2018. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on September 28, 2018. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on December 31, 2018. Incorporated by referff ence frff om the exhibit to the Form 10-K filed on September 6, 2018. Incorporated by referff ence frff om the exhibit to the Form 10-K filed on September 5, 2019. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on October 28, 2019. Incorporated by referff ence frff om the exhibit to the Form 10-Q filed on November 7, 2019. Incorporated by referff ence frff om the exhibit to the Form 10-K filed on September 3, 2020. Incorporated by referff ence frff om Appendix B to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 3, 2020. Incorporated by referff ence frff om the exhibit to the Form 10-Q filed on November 5, 2020. Incorporated by referff ence frff om the exhibit to the Form 10-Q filed on May 6, 2021. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on June 2, 2021. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on October 9, 2020. Incorporated by referff ence frff om the exhibit to the Form 8-K filed on October 21, 2021. (27) (28) This certification is not "filed" ff forff purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. ITEM 16. FORM 10-K SUMMARY None 59 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STRATTEC SECURITY CORPORATION By: /s/ Frank J. Krejci Frank J. Krejci President and Chief Executive Officer ff j Date: September 8, 2022 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 Offff iff cer, and Director (Principal Executive Offff iff cer) Date September 8, 2022 /s/ Frank J. Krejci j 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 g /s/ Tina Chang Tina Chang /s/ Patrick J. Hansen Patrick J. Hansen Chairman and Director August 23, 2022 Director Director Director Director Senior Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) August 23, 2022 August 23, 2022 August 23, 2022 August 23, 2022 September 8, 2022 60