Strattec Security Corporation

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

☒ 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 2, 2023.

Commission File Number 0-25150
STRATTEC SECURITY CORPORATION
(Exact name of registrant as specified in its charter)

Wisconsin
(State of Incorporation)

39-1804239
(I.R.S. Employer Identification No.)

3333 West Good Hope Road, Milwaukee, WI 53209
(Address of principal executive offices)
(414) 247-3333
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $.01 par value

Trading Symbol
STRT
Securities registered pursuant to Section 12(g) of the Act:
None

Name of exchange on which registered
The NASDAQ Stock Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐Yes ☒No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐Yes ☒No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. ☒Yes ☐No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). ☒Yes ☐No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer

☐

Accelerated filer

☒

☒

☒

☐
☐

Smaller Reporting Company

Non-accelerated filer
Emerging growth 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.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the Registrant included in
the filing reflect the correction of an error to previously issued financial statements. ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the Registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒No
The aggregate market value of the voting Common Stock held by non-affiliates of the registrant as of December 30, 2022 (the last business day of the
Registrant’s most recently completed second quarter), was approximately $77,501,000 (based upon the last reported sale price of the Common Stock
at December 30, 2022 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 4, 2023, there were outstanding 4,017,187 shares of the Registrant’s $.01 par value Common Stock (which includes any unvested
restricted shares previously awarded).

Document
Portions of the Proxy Statement dated September 7, 2023, for the Annual Meeting of

Shareholders to be held on October 10, 2023.

Documents Incorporated by Reference

Part of the Form 10-K into which incorporated

III

STRATTEC SECURITY CORPORATION
ANNUAL REPORT IN FORM 10-K
July 2, 2023

PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II

ITEM 5.
ITEM 6.

ITEM 7.
ITEM 7A.
ITEM 8.

ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.

PART III
ITEM 10.
ITEM 11.

ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
SIGNATURES

BUSINESS .........................................................................................................................................................
RISK FACTORS ................................................................................................................................................
UNRESOLVED STAFF COMMENTS.............................................................................................................
PROPERTIES.....................................................................................................................................................
LEGAL PROCEEDINGS...................................................................................................................................
MINE SAFETY DISCLOSURES ......................................................................................................................

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES ...............................................................................
[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 .................

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE...........................................
EXECUTIVE COMPENSATION .....................................................................................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS ........................................................................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES ...................................................................................

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.........................................................................
FORM 10-K SUMMARY ..................................................................................................................................
............................................................................................................................................................................

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

A number of the matters and subject areas discussed in this Form 10-K as well as in portions of the Company’s Proxy
Statement, dated September 7, 2023, which is incorporated herein by reference, contain “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking
words or phrases such as “anticipate,” “believe,” “would,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will” and
“could,” or the negative of these terms or words of similar meaning. These statements include expected future financial results,
product offerings, global expansion, liquidity needs, financing ability, planned capital expenditures, management’s or the Company’s
expectations and beliefs, and similar matters discussed, or otherwise incorporated herein by reference, in this Form 10-K. The
discussions of such matters and subject areas are qualified by the inherent risks and uncertainties surrounding future expectations
generally, and also may materially differ from the Company’s actual future experience.

The Company’s business, operations and financial performance are subject to certain risks and uncertainties, which could result

in material differences in actual results from the Company’s current expectations. These risks and uncertainties include, but are not
limited to, general economic conditions, in particular relating to the automotive industry, consumer demand for the Company’s and its
customers’ products, competitive and technological developments, customer purchasing actions, changes in warranty provisions and
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 from 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 factors carefully in evaluating the forward-

looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking
statements made herein are only made as of the date of this Form 10-K and the Company undertakes no obligation to publicly update
such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this Form 10-K.

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ITEM 1. BUSINESS

Basic Business

PART I

STRATTEC SECURITY CORPORATION designs, develops, manufactures and markets automotive access control products

including mechanical locks and keys, electronically enhanced locks and keys, passive entry passive start systems (PEPS), steering
column and instrument panel ignition lock housings, latches, power sliding side door systems, power tailgate systems, power lift gate
systems, power deck lid systems, door handles and related products for primarily North American automotive customers. We also
supplied global automotive manufacturers through a strategic relationship with WITTE Automotive (“WITTE”) of Velbert, Germany
and ADAC Plastics Inc., doing business as ADAC Automotive (“ADAC”), of Grand Rapids, Michigan called VAST Automotive
Group (“VAST”). Under this unique strategic relationship STRATTEC, WITTE and ADAC marketed the products of each company
to global customers under the “VAST Automotive Group” brand name (as more fully described under Vehicle Access Systems
Technology LLC herein). Effective as of June 30, 2023, STRATTEC sold its one-third interest in VAST LLC to WITTE. Going
forward and effective as of the closing of the sale of its VAST LLC interest, STRATTEC entered into a strategic preferred partner
relationship with WITTE covering VAST LLC pursuant to the terms of a cooperation framework agreement that enables STRATTEC
to continue to market and rely on the global capabilities of VAST LLC. See "VAST, LLC, SPA, LLC and SPA de Mexico Equity
Restructuring Agreement" below for additional information regarding the sale of STRATTEC's VAST LLC interest to WITTE.
STRATTEC products are shipped to customer locations in the United States, Canada, Mexico, Europe, South America, Korea, China
and India, and we, along with our partners, provide full service and aftermarket support for each VAST Automotive Group partners’
products.

History

The product line that became STRATTEC was part of Briggs & Stratton Corporation’s founding business in 1908. In 1995,

STRATTEC was spun off from Briggs & Stratton through a tax-free distribution to the then-existing Briggs & Stratton shareholders
and has been an independent public company for over twenty-eight years.

Our history in the automotive security business spans 115 years. STRATTEC has been the world’s largest producer of

automotive locks and keys since the late 1920s, and we currently maintain a significant share of the North American markets for these
products.

Products

Our traditional products are lock sets (locks and keys) for cars and light trucks. Typically, two keys are provided with each
vehicle lockset. Most of the vehicles we currently supply are using keys with sophisticated radio frequency identification technology
for additional theft prevention. Keys with remote entry devices integrated into a single unit and bladeless electronic keys as well as
turn-key passive entry passive start systems (PEPS) have been added to our product line and are gaining in popularity.

Ignition lock housings represent another access control product for us. These housings are the mating part for our ignition locks

and typically are part of the steering column structure, although there are instrument panel-mounted versions for certain vehicle
applications. These housings are either die cast from zinc or injection molded plastic and may include electronic components for theft
deterrent systems.

We have developed and are continuing to develop access control products, including trunk latches, lift gate latches, tailgate

latches, hood latches, side door latches and related hardware. With our acquisition of Delphi Corporation’s Power Products Group in
fiscal 2009, we have been supplying and continue to supply various power access devices for sliding side doors, tailgates, lift gates
and trunk lids to our automotive industry customers. Through a joint venture formed with ADAC Automotive during fiscal 2007, we
also supply painted and non-painted door handles and components and related vehicle access hardware.

In recent years, more and more vehicle access systems have moved from purely mechanical components to integrated electro-

mechanical systems. STRATTEC has been at the forefront of this new technology, working with Original Equipment Manufacturers’
(OEMs) product development and purchasing groups to provide cost-effective, innovative solutions to the challenges facing our
customers.

STRATTEC’s customer-focused structure and formalized product development process helps us identify and meet customer

needs in order to support the customer's program milestones. From concept and design, through implementation and into the
aftermarket, STRATTEC delivers products that provide the optimum value solution to security and access control requirements. We
have a comprehensive Products & Solutions portfolio that can be viewed on our website at www.strattec.com (see “Available
Information” below for additional information).

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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 marketplace is enhanced.

Markets

We are a direct supplier to OEM automotive and light truck manufacturers as well as other transportation-related manufacturers.

Our largest customers are Stellantis, 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 further description.

Direct sales to various OEMs represented approximately 80 percent and 79 percent of our total sales for fiscal 2023 and 2022,

respectively. The remainder of our revenue is received primarily through sales to the OEM service channels, the aftermarket and Tier
1 automotive supplier customers, and sales of certain products to non-automotive commercial customers.

Sales to our major automotive customers, both OEM and Tier 1, are coordinated through direct sales personnel located in our

Detroit-area office. Sales are also facilitated through daily interaction between our Program Managers, Application Engineers and
other product engineering personnel. Sales to other OEM customers are accomplished through a combination of our sales personnel
located in Detroit and personnel in our Milwaukee headquarters office.

The majority of our OEM products are sold in North America. While some exporting is done to Tier 1 and automotive assembly
plants in Europe, Asia and South America, we have restructured our presence in these markets and elsewhere through our entry into a
cooperation framework agreement with WITTE related to the business of VAST LLC as part of our sale of our VAST LLC interest to
WITTE under the terms of the Equity Restructuring Agreement. We are also independently evaluating our presence in markets
outside of North America through other channels.

OEM service and replacement parts are sold to the OEM’s own service operations. In addition, we distribute our components

and security products to the automotive aftermarket through approximately 50 authorized wholesale distributors, as well as other
marketers and users of component parts, including export customers. Increasingly, our products find their way into the retail channel,
specifically the hardware store channel. Our ability to provide a full line of keys to that channel has been accomplished through the
introduction of the STRATTEC “XL” key line. This extension to our product line includes keys that we currently do not supply on an
OEM basis, including keys for Toyota, Honda and other popular domestic and import vehicles. This extended line of keys enables
automotive repair specialists to satisfy consumer needs for repair or replacement parts. Our aftermarket activities are serviced through
a warehousing operation in El Paso, Texas.

Customer Sales Focus

To bring the proper focus to the relationships with our major customers, we have six customer-focused teams, each with a

Director of Sales, one or two Engineering Program Managers and various Customer Application Engineers. In addition to customer
teams for General Motors, Ford and Stellantis, we currently have teams for New Domestic Vehicle Manufacturers (primarily the
Japanese and Korean automotive manufactures), User Interface Controls (formerly Driver Control/Ignition Lock Housing) customers,
Tier 1 customers, and Service and Aftermarket customers. Sales and engineering for ADAC-STRATTEC LLC (described in greater
detail below) are supported by our partner in this joint venture, ADAC Automotive.

Each Sales Director is responsible for the overall relationship between STRATTEC and a specific customer group. Program

Managers are responsible for coordinating cross functional activities while managing new product programs for their customers.

Product Engineering Focus

To best serve our customers’ product needs, STRATTEC’s engineering resources are organized into groups which focus on
specific access control applications. We currently have six engineering groups: Locks and Keys, Aftermarket, Latches, Power Access
Devices, 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.

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Underlying this organization is a formalized product development process to identify and meet customer needs in the shortest

possible time. By following this streamlined development system, we shorten product lead times, tighten our response to market
changes and provide our customers with the optimum value solution to their security/access control requirements. STRATTEC is also
IATF 16949:2016 and ISO 14001 certified. This means we embrace the philosophy that quality should exist not only in the finished
product, but in every step of our processes as well.

Operations

A significant number of the components that go into our products are manufactured at our headquarters in Milwaukee,

Wisconsin. This facility produces zinc die cast components, stampings and milled key blades. We have three owned production
facilities currently in operation in Juarez, Mexico operating as STRATTEC de Mexico. Plant No. 1 houses key finishing and assembly
operations for locksets and ignition lock housings. Plant No. 2 houses our key molding and plastic injection molding operations for
door handles and components, as well as containing dedicated space for the assembly operations of ADAC-STRATTEC de Mexico.
Plant No. 3 houses both latch and power access assembly operations for STRATTEC Power Access de Mexico. Plant No. 4 is in Leon,
Mexico and houses our custom paint system for door handles and assembly for ADAC-STRATTEC de Mexico and is owned by the
ADAC-STRATTEC de Mexico joint venture.

STRATTEC de MEXICO

We have formed STRATTEC de Mexico as a wholly owned subsidiary of STRATTEC to own and operate the three production

facilities in Juarez, Mexico described above under "Operations". 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.

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 offered a full range of access control related products available on a global basis to
support customer programs. To identify this powerful combination of independent companies focused on working together, we
renamed the joint venture Vehicle Access Systems Technology LLC (VAST LLC). We referred to the combination of the alliance
structure and joint venture as “VAST Automotive Group” (VAST). WITTE became WITTE Automotive, and ADAC became ADAC
Automotive. What was 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 became wholly owned by VAST LLC and had annual net sales of approximately $205.7 million and $190.4
million during fiscal 2023 and 2022, respectively. This gave STRATTEC a one-third interest in VAST China’s activities in the
Chinese/Asian market for manufacturing and assembly of painted door handles, locksets and latch products. VAST China currently
operates out of two manufacturing facilities in Taicang and Jingzhou, China. The Fuzhou, China facility closed during our fiscal 2021.
In March, 2014, VAST LLC purchased the remaining 49 percent interest of its local partner in Brazil, which had annual net sales of
approximately $1.6 million and $1.3 million during fiscal years 2023 and 2022, respectively.

On April 30, 2015 VAST LLC executed a purchase agreement to become a 50:50 Joint Venture partner with Minda

Management Services Limited, an affiliate of both Minda Corporation Limited and Spark Minda, Ashok Minda Group of New Delhi,
India (collectively, “Minda”). As part of this transaction, VAST acquired a fifty percent equity interest in the former Minda-Valeo
Security Systems joint venture entity, based in Pune, India. 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 $31.4 million and $29.4
million during fiscal years 2023 and 2022, respectively. Minda is a leading manufacturer of security & access products and handles,
for both OEMs and the aftermarket in India. Minda-VAST financial results are accounted for on the equity method of accounting by
VAST LLC.

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ADAC-STRATTEC LLC and ADAC-STRATTEC de MEXICO

During fiscal 2007, we formed a new entity with ADAC Automotive called ADAC-STRATTEC LLC including a wholly owned

Mexican subsidiary ADAC-STRATTEC de Mexico (collectively, ASdM). The purpose of this joint venture is to produce certain
ADAC and STRATTEC products utilizing ADAC’s plastic molding injection expertise and STRATTEC’s assembly capability.
ASdM currently operates out of defined space in STRATTEC de Mexico Plant No. 2 located in Juarez, Mexico. Products from this
joint venture include non-painted door handle components and exterior trim components for OEM customers producing in North
America. STRATTEC owns 51% of this joint venture and its financial results are consolidated into STRATTEC’s financial
statements. In our fiscal year ending 2022, ASdM was near break-even due to rising material and labor costs that could not be passed
on to customers through higher customer purchase prices. In our fiscal year ended 2023, ASdM generated losses due to continued
increased material and labor costs. ASdM represented $121.9 million and $111.8 million of our consolidated net sales in our fiscal
2023 and 2022, respectively. STRATTEC de Mexico Plant No. 4 is in Leon, Mexico and houses our custom paint system for door
handles and assembly for ADAC-STRATTEC de Mexico.

STRATTEC POWER ACCESS LLC and STRATTEC POWER ACCESS de MEXICO

During fiscal year 2009, we formed a new subsidiary with WITTE Automotive called STRATTEC POWER ACCESS LLC
(SPA) to acquire the North American business of the Delphi Power Products Group. WITTE was a 20 percent minority owner in SPA
until June 30, 2023, at which time WITTE transferred and sold its minority interest to STRATTEC. See "VAST, LLC, SPA, LLC and
SPA de Mexico Equity Restructuring Agreement" below for additional information regarding STRATTEC's purchase of WITTE's
interest in SPA. SPA 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 financial statements. In our fiscal years ending 2023 and
2022, SPA was profitable and represented $114.1 million and $95.7 million, respectively, of our consolidated net sales.

VAST LLC, SPA LLC and SPA de MEXICO Equity Restructuring Agreement

On June 30, 2023, STRATTEC completed an Equity Restructuring Agreement with WITTE related to both, STRATTEC’s

VAST LLC joint venture and its STRATTEC Power Access LLC (SPA) joint venture. Prior to the closing of the Restructuring
Agreement, STRATTEC was a one-third owner of the VAST LLC joint venture with WITTE and ADAC Plastics, Inc. Under the
terms of the Restructuring Agreement, STRATTEC agreed to sell to WITTE its one-third interest in VAST LLC for a net purchase
price of $18,500,000 plus STRATTEC purchased ownership of: (1) WITTE's 20% minority interest in STRATTEC Power Access
LLC (SPA), a Delaware limited liability company formed in the Company’s 2009 fiscal year to supply the North American portion of
the Power Sliding Doors, Liftgates, Tailgates, Deck Lids and other Access Control System products which were acquired from Delphi
Corporation in 2009; and (2) the net assets of VAST LLC's Korea branch office, which business is operated by a newly registered
Korea branch of the Company, following the closing of the Restructuring Agreement. As part of the restructuring agreement, ADAC
Plastics, Inc took over 100% of VAST Brazil.

After over 2 decades of a business Alliance and JV partnership with WITTE, we jointly came to the conclusion that the
changing technology in the auto industry, changes in our respective product lines and shifts in global commerce necessitated a rethink
of our business relationship. The primary result of this rethinking is the sale of our equity stake in VAST LLC and securing 100%
ownership of SPA as described above.

While the equity ownership in VAST has changed, we expect to continue to leverage the VAST brand and to collaborate on

product development and manufacturing capabilities with WITTE and VAST in winning new business and serving global customers.
Accordingly, as part of the sale of STRATTEC's interest in VAST LLC, we entered into at closing a cooperation framework
agreement with WITTE covering the business of VAST LLC, which provides a framework for the parties to collaborate on global
programs related to product development and manufacturing. This Equity Restructuring Agreement and the aforementioned
cooperation framework agreement will position STRATTEC to redeploy assets, both financial and technical, to create greater focus on
STRATTEC-specific strategic growth opportunities in North America and around the world. We believe this transaction is a very
positive step to allow us to be more focused and competitive in this exciting and once-in-a-lifetime restructuring of a major industry
where we are well-positioned to take advantage of new opportunities. This includes more of our product applications on Electric
Vehicles, growing consumer demand for Power Access products, expansion of electronics capabilities and other new automotive
products. It will also give us greater resources to further explore diversification of markets, complimentary technology and regions
outside of North America.

Part of the restructuring agreement and in order to continue to manage our customer relationships and coordinate global
programs and activities, as noted above, we also entered into a new cooperation framework agreement with WITTE Automotive. This
cooperation framework agreement will enable STRATTEC to supply and deliver global programs by leveraging the VAST global
footprint with the added advantage of providing regional support from WITTE’s operating entities in Europe, China and India. We
will also jointly, along with ADAC Plastics and WITTE, continue to leverage the sales/engineering offices in Japan, Korea and Brazil.

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ADAC-STRATTEC LLC and ADAC-STRATTEC de MEXICO were not affected by the Equity Restructuring Agreement. For
further information on VAST LLC and the equity restructuring, see "Investment in Joint Ventures and Majority Owned Subsidiaries"
and "Equity Earnings of Joint Ventures" included in Notes to Financial Statements under Item 8 in this Form 10-K.

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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 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 temporarily disrupted our normal
seasonal sales patterns during fiscal 2023 and 2022.

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Vehicle List

2024 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 2024 fiscal year:

Dodge Charger
Ford Focus *
Ford Mustang
Honda Accord
Honda Prologue (EV)
Maserati Ghibli *
Maserati MC20 *
Maserati Quattroporte *
Volkswagen Jetta

GMC Sierra (EV)

Pickup

GMC Terrain
GMC Yukon and Yukon XL
Honda Odyssey
Hyundai Staria *
Jeep Meridian
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 MKX
Lincoln Nautilus
Lincoln Navigator
Maserati Levante *
Ram 1500 Pickup
Ram 1500 Classic Pickup
Volkswagen Jetta
Volkswagen Tiguan (PH option)
Volvo Polestar 3 (EV)
Volvo XC90 (PH option)

PASSENGER CARS

Acura NSX
Acura ZDX (EV)
Aston Martin DB 11 *
Aston Martin DB 12 *
Aston Martin DBS *
Aston Martin DBX *
Aston Martin Valkyrie
Aston Martin Vantage *
Cadillac ATS *
Cadillac CT5 *

Cadillac Celestiq (EV)
Cadillac Lyriq (EV)
Chevrolet Bolt (EV)
Chevrolet Camaro
Chevrolet Corvette
Chevrolet Malibu
Chevrolet Seeker *
Chrysler 300
Cruise Origin (EV)
Dodge Challenger

LIGHT TRUCKS, VANS AND SPORT UTILITY VEHICLES

Acura MDX
Acura RDX
Audi Q5
Brightdrop EV600 (EV)
Buick Enclave
Buick Envista *
BMW X7
Cadillac Escalade &
Escalade ESV

Cadillac Escalade (EV)
Cadillac Lyriq
Cadillac XT4
Cadillac XT5
Cadillac XT6
Chevrolet Blazer
Chevrolet Blazer (EV)
Chevrolet Colorado *
Chevrolet Cobalt *
Chevrolet Equinox
Chevrolet Equinox (EV)
Chevrolet Express Van
Chevrolet Joy *
Chevrolet Malibu
Chevrolet S-10 *
Chevrolet Silverado &

Silverado HD Pickup
Chevrolet Silverado (EV)
Chevrolet Seeker *
Chevrolet Spin *

Chevrolet Suburban
Chevrolet Tahoe
Chevrolet Trail Blazer *
Chevrolet Traverse
Chevrolet Trax *
Chrysler 300
Chrysler Pacifica (PH option)
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

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

* Vehicles produced outside of North America, or both in and outside North America.
EV – Electric Vehicle
PH – Plug-In Hybrid

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Emerging Technologies

Automotive vehicle access systems, which are both theft deterrent and consumer friendly, are trending toward electro-

mechanical and connected devices. Electronic companies are developing user identification systems such as bio-systems, card holder
(transmitter) systems, etc., while mechanical locks, keys, housings, and latches are evolving to accommodate electronics. We believe
we are positioning ourselves as a vehicle access control supplier by building our product, engineering and manufacturing expertise in
the required electro-mechanical products, which include vehicle access latches, keys with remote entry electronic systems, ignition
interface systems with passive start and Phone as a Key (PaaK) capabilities. In both 2018 and 2019, we were awarded the Automotive
News Pace Award for Excellence and Innovation for our Invis-A-RiseTM Power Liftgate and Invis-A-RiseTM Power Tailgate products.
As the automotive industry continues developing various levels of autonomous vehicles, we believe that we are well positioned to
continue the development and incorporation of power sliding doors, power tailgates and other consumer convenience features into
these types of vehicles.

These technologies benefit us by increasing our potential customer base as a Tier 2 supplier while maintaining our Tier 1 status

on some product lines and by adding additional product line availability.

Sources and Availability of Raw Materials

Our primary raw materials are high-grade zinc, brass, nickel silver, steel, aluminum, plastic resins and semiconductor chips and
other electronics. These materials are generally available from a number of suppliers, but we have chosen to concentrate our sourcing
with one primary vendor for each commodity. We believe our sources for raw materials are very reliable and adequate for our needs.
We have not experienced any significant long term supply problems in our operations. However, the impacts of geopolitical instability
have adversely impacted the supply of certain semiconductor chips and related electronics components which has adversely impacted
our, and our customers’, ability to build product and fulfill orders. See further discussion under “Risk Related to Coronavirus and
Other Health Epidemics,” “Risk Related to Geopolitical Instability,” and “Risk Factors-Sources of and Fluctuations in Market Prices
of Raw Materials” included under Item 1A of this Form 10-K.

Patents, Trademarks and Other Intellectual Property

We believe that the success of our business will not only result from the technical competence, creativity and marketing abilities

of our employees but also from the protection of our intellectual property through patents, trademarks and copyrights. As part of our
ongoing research, development and manufacturing activities, we have a policy of seeking patents on new products, processes and
improvements when appropriate.

Although, in the aggregate, the intellectual property discussed herein are of considerable importance to the manufacturing and

marketing of many of our access control products, we do not consider any single patent or trademark or group of related patents or
trademarks to be material to our business as a whole, except for the STRATTEC and STRATTEC with logo trademarks.

We also rely upon trade secret protection for our confidential and proprietary information. We maintain confidentiality
agreements with our key executives. In addition, we enter into confidentiality agreements with selected suppliers, consultants and
employees as appropriate to evaluate new products or business relationships pertinent to our success. However, there can be no
assurance that others will not independently obtain similar information and techniques or otherwise gain access to our trade secrets or
that we can effectively protect our trade secrets.

Dependence Upon Significant Customers

A significant portion of our annual sales are to General Motors Company, Ford Motor Company, and Stellantis. These three

customers accounted for approximately 66 percent and 65 percent of our net sales in 2023 and in 2022, respectively. Further
information regarding sales to our largest customers is set forth under the caption “Risk Factors – Loss of Significant Customers,
Vehicle Content, Vehicle Models and Market Share” and “Risk Factors – Production Slowdowns by Customers” included under Item
1A of this Form 10-K and “Notes to Financial Statements-Sales and Receivable Concentration” included in Notes to Financial
Statements under Item 8 in this Form 10-K.

The products sold to these customers are model specific, fitting only certain defined applications. Consequently, we are highly

dependent on our major customers for their business, and on these customers' ability to produce and sell vehicles which utilize our
products. We have enjoyed good relationships with General Motors Company, Stellantis, Ford Motor Company and other customers
in the past, and expect to continue to do so in the future. However, a significant change in the purchasing practices of, or a significant
loss of volume from, one or more of these customers could have a detrimental effect on our financial performance. We cannot provide
any assurance that any lost sales volume could be replaced despite our historical relationships with our customers.

9

Sales and Marketing; Backlog

We provide our customers with engineered access control products including locksets, fobs, push button passive entry passive
start ignition systems, steering column lock housings, electromechanical latches, power sliding door systems, power tailgate systems,
power liftgate systems, power decklids, painted and non-painted door handles, door handle components and trim and other access
products which are unique to specific vehicles. Any given vehicle will typically take 1 to 3 years of development and engineering
design time prior to being offered to the public. The access control products are designed concurrently with the vehicle. Therefore,
commitment to STRATTEC as the production source for such products and components occurs 1 to 3 years prior to the start of
production for such components. We employ an engineering staff that assists in providing design and technical solutions to our
customers. We believe that our engineering expertise is a competitive advantage and contributes toward our strong market position in
our industry. For example, we regularly provide innovative design proposals for our product offerings to our customers that we
believe will improve customer access, vehicle security system quality, theft deterrence and system cost.

The typical process used by automotive manufacturers in selecting a supplier for access control products is to offer the business

opportunity to us and several of our competitors. Each competitor will pursue the opportunity, doing its best to provide the customer
with the most attractive proposal. Price pressure is strong during this process but once an agreement is reached, a commitment is made
for each year of the product program. Typically, price reductions resulting from productivity improvement by STRATTEC over the
life of the product program are included in the contract and are estimated in evaluating each of these opportunities. A blanket purchase
order, a contract indicating a specified part will be supplied at a specified price during a defined time period, is issued by customers
for each model year. Production quantity releases or quantity commitments are made to that purchase order for weekly deliveries to
the customer. As a consequence and because we are a "Just-in-Time" supplier to the automotive industry, we do not maintain a
backlog of orders in the classic sense for future production and shipment and, accordingly, we are unable to provide a meaningful
backlog comparison from year to year.

Competition

We compete with domestic and foreign-based competitors on the basis of custom product design, engineering support, quality,

delivery and price. While the number of direct competitors in our product markets is currently relatively small, the automotive
manufacturers actively encourage competition between potential suppliers. We have a large share of the North American market for
our access control products because of our ability to provide optimal value, which is a beneficial combination of price, quality,
technical support, program management, innovation and aftermarket support. In order to reduce access control product production
costs while still offering a wide range of technical support, we utilize assembly operations and certain light manufacturing operations
in Mexico, which results in lower labor costs as compared to the United States.

As locks and keys become more sophisticated and involve additional electronics, competitors with specific electronic expertise
may emerge to challenge us. To address this, we have in recent years strengthened our electrical engineering knowledge and service.
We are also working with several electronics suppliers to jointly develop and supply these advanced products.

Our lockset, steering column lock housing, latches and power access competitors include Huf North America, Ushin, Valeo,
Tokai-Rika, Alpha-Tech, Honda Lock, Shin Chang, Magna, Edscha, Stabilus, Aisin, Brose, Mitsuba, Ohi, Kiekert, Inteva, Novares
and Gecom. For additional information related to competition, see the information set forth under “Risk Factors-Highly Competitive
Automotive Supply Industry” included under Item 1A of this Form 10-K.

Research and Development

We engage in research and development activities pertinent to automotive access control. A major area of focus for research is

the expanding role of vehicle access via electronic interlocks and modes of communicating authorization data between consumers and
vehicles. Development activities include new products, applications and product performance improvements. In addition, specialized
data collection equipment is developed to facilitate increased product development efficiency and continuous quality improvements.
For fiscal years 2023 and 2022, we incurred approximately $15.9 million and $12.2 million, respectively, on research and
development. We believe that, historically, we have committed sufficient resources to research and development and we intend to
continue to invest in the future as required to support additional product programs associated with both existing and new customers.
Patents are pursued and will continue to be pursued as appropriate to protect our interests resulting from these activities.

Customer Tooling

We incur costs related to tooling used in component production and assembly. Some of these costs are reimbursed by customers
who then own the tools involved. See the information set forth under “Organization and Summary of Significant Accounting Policies-
Customer Tooling in Progress” included in Notes to Financial Statements under Item 8 in this Form 10-K.

10

Environmental Compliance

As is the case with other manufacturers, we are subject to Federal, state, local and foreign laws and other legal requirements

relating to the generation, storage, transport, treatment and disposal of materials as a result of our manufacturing and assembly
operations. These laws include the Resource Conservation and Recovery Act (as amended), the Clean Air Act (as amended), the Clean
Water Act of 1990 (as amended) and the Comprehensive Environmental Response, Compensation and Liability Act (as amended). We
have an environmental management system that is ISO-14001 certified. We believe that our existing environmental management
system is adequate and we have no current plans for substantial capital expenditures in the environmental area.

As discussed in “Commitments and Contingencies” under Notes to Financial Statement under Item 8 in this Form 10-K, a site at

our Milwaukee facility is contaminated by a solvent spill from a former above-ground solvent storage tank located on the east side of
the facility, which spill occurred in 1985. We continue to monitor this situation.

We do not currently anticipate any materially adverse impact on our financial statements or competitive position as a result of

compliance with Federal, state, local and foreign environmental laws or other legal requirements. However, risk of environmental
liability and charges associated with maintaining compliance with environmental laws is inherent in the nature of our business and
there is no assurance that material liabilities or charges could not arise.

Human Capital

At July 2, 2023, we had approximately 3,361 associates worldwide, of which approximately 475 were employed in the United
States and approximately 2,886 were employed outside of the United States. Approximately 178 or 5.3 percent were represented by a
collective bargaining agreement at our Milwaukee, Wisconsin facility, all of whom are our production associates. Approximately 102
or 3.0 percent were represented by a collective bargaining agreement at our Leon, Mexico facility. In recent years, we have not
experienced any significant work slowdowns, stoppages or other labor disruptions. The current contract with our Milwaukee
unionized associates is effective through November 1, 2025. The current contract with our Leon unionized associates is effective
through April 8, 2024.

We are guided by our “Values and Beliefs” mission statement that focuses on Empowerment, Communication, Citizenship,
Enterprise, Change and Consensus. We remain committed to areas of work place safety, product quality and customer satisfaction.
Successful execution of our mission is dependent on attracting, developing and retaining key associates and members of our
management team, as well as providing competitive pay and benefits.

Social Responsibility

We are committed to conducting business and making decisions honestly, fairly and within the law, and are guided by our

“Values and Beliefs” mission statement. We are dedicated to earning and keeping the trust and confidence of our shareholders,
customers and associates as well as the communities where we do business.

Our “Code of Business Ethics” provides guidelines and a framework for conducting business in an ethical manner. These

beliefs go beyond STRATTEC and are expected of our suppliers as detailed in our “Supplier Code of Conduct.” We have adopted
policies that seek to eliminate human trafficking, slavery, child labor etc. from our global supply chain. In addition, we annually
comply and file a Form SD with the Securities and Exchange Commission regarding “Conflict Minerals Disclosure and Report” as
directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The purpose of this report is to help prevent
products used to finance or benefit armed groups in the covered countries of this filing.

Our commitment to our environment is documented in our “Environmental Management System,” which provides for
continuous improvement of our efforts toward preventing pollution, complying with relevant environmental legislation and
regulations and complying with customer-based environmental regulations. In addition, we maintain our own IATF 16949:2016 and
ISO 14001 annual certifications, which are globally recognized quality standards for the automotive industry. STRATTEC’s major
initiatives in this area consist of energy improvement initiatives, primarily related to solar in Milwaukee, WI, Auburn Hills, MI, and
Juarez, Mexico, and moves to more energy efficient production capital equipment in Milwaukee, WI to reduce carbon emissions.

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Available Information

We maintain our corporate website at www.strattec.com and make available, free of charge, through this website our code of

business ethics, annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements for
annual shareholder meetings and amendments to those reports that we file with, or furnish to, the Securities and Exchange
Commission (the "Commission") as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
Commission. We are not including all the information contained on or made available through our website as a part of, or
incorporating such information by reference into, this Annual Report on Form 10-K. However, this report includes (or incorporates by
reference) all material information about STRATTEC that is included on our website which is otherwise required to be included in
this report.

ITEM 1A. RISK FACTORS

We recognize we are subject to the following risk factors based on our operations and the nature of the automotive industry in

which we operate:

RISK RELATED TO INFECTIOUS DISEASE OUTBREAKS, SUCH AS COVID-19

Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, the global economy. For
example, the Coronavirus (COVID-19) pandemic adversely affected our operations and supply chains, in particular related to the
sourcing of semiconductor chips, which caused us to experience reductions in demand for certain of our products and services as a
result of the pandemic and this supply chain disruption. Because we and our suppliers manufacture products in facilities around the
world, we have been and may continue to be vulnerable to an outbreak of COVID-19 (or the resurgence of such an outbreak) or other
contagious diseases in those regions as well as in the United States. The effects of COVID-19 and other contagious diseases have
included and may continue to include disruptions or restrictions on our ability to travel, our ability to manufacture our affected
products and our ability to ship these affected products to customers as well as disruptions that have and may continue to affect our
key customers and suppliers, including those in these regions or other affected regions of the world, including in the United States,
Mexico, China and neighboring countries. Current and future disruption of our ability to manufacture or distribute our products or of
the ability of our customers to take orders of our products or our suppliers to deliver key raw materials on a timely basis could have a
material adverse effect on our sales levels, pricing for raw materials and components and our operating results. In addition, the
worsening of COVID-19 and future outbreaks of contagious diseases in the human population could result in a widespread health
crisis that adversely affects the economies and financial markets of many countries (including those where we operate or where our
products are ultimately used), resulting in an economic downturn that could affect demand for our products and impact our operating
results.

RISK RELATED TO GEOPOLITICAL INSTABILITY

We are currently operating in a period of geopolitical instability resulting from the ongoing military conflict between Russia

and the Ukraine, which has significantly contributed to economic uncertainty, capital market disruption and supply chain interruptions
in the U.S. and global markets. On February 24, 2022, a full-scale military invasion of the Ukraine by Russian troops began. While the
length and impact of the ongoing conflict is unpredictable, the Ukraine conflict could lead to market disruptions, including supply
chain interruptions and significant volatility in commodity prices, and in credit and capital markets. The conflict in the Ukraine has led
to sanctions and other penalties being levied against Russia by the U.S., the EU, and other countries. Additional potential sanctions
and penalties have also been proposed. Russian military actions and the resulting sanctions, as well as future geopolitical conflicts,
could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets,
potentially further disrupting the supply chain for necessary components and raw materials used by us or our customers in producing
product. Any of the foregoing factors could have a material adverse effect on our business, operating results, financial condition and
cash flows.

BUSINESS RISKS

Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share – Sales to General Motors Company,
Ford Motor Company and Stellantis represented approximately 66 percent of our annual net sales (based on fiscal 2023 results) and,
accordingly, these customers account for a significant percentage of our outstanding accounts receivable. The contracts with these
customers provide for supplying the customer’s requirements for a particular model. The contracts do not specify a specific quantity of
parts. The contracts typically cover the life of a model, which averages approximately four to five years. Components for certain
customer models may also be “market tested” annually. Therefore, the loss of any one of these customers, the loss of a contract for a
specific vehicle model, a reduction in vehicle content, the early cancellation of a specific vehicle model, technological changes or a
significant reduction in demand for certain key models could occur, and if so, could have a material adverse effect on our existing and
future revenues, operating results, financial condition and cash flows.

12

Our major customers also have significant under-funded legacy liabilities related to pension and postretirement health care

obligations. The loss in our major customers’ North American automotive market share to the New Domestic automotive
manufacturers (primarily the Japanese and Korean automotive manufacturers) and/or a significant decline in the overall market
demand for new vehicles may ultimately result in severe financial difficulty for these customers, including bankruptcy. If our major
customers cannot fund their operations, we may incur significant write-offs of accounts receivable and inventory, incur impairment
charges or require restructuring actions.

Production Slowdowns by Customers – Our major customers and many of their suppliers were significantly impacted by the
Great Recession of 2008/2009, by the COVID-19 pandemic in 2020, by supply chain issues resulting from the 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 major customers again instituted
production cuts and shuttered plants. While production subsequently increased after the cuts made in 2009 and again in 2021 when
plants reopened following the COVID-19 closures, the current Ukraine conflict and semiconductor chip shortage, any additional
economic slowdowns, pandemics or part supply shortages could bring about new production cuts which could have a material adverse
effect on our existing and future revenues, operating results, financial condition and cash flows.

Cross-border Trade Issues or Tariffs – Our business is impacted by international or cross-border trade, including the import
and export of products and goods into and out of the United States and trade tensions among nations. The shipping of goods across
national borders is often more expensive and complicated than domestic shipping. Customs and duty procedures and reviews,
including duty-free thresholds in various key markets, the application of tariffs, and security related governmental processes at
international borders, may increase costs, discourage cross-border purchases, delay transit and create shipping uncertainties. Further,
uncertainties stemming from changes in U.S. trade policies in particular with European countries and China, tariffs and the reaction of
other countries thereto, could have an adverse effect on our business and may adversely impact our results of operations, financial
condition and cash flows or reduce profitability on certain of our products.

Highly Competitive Automotive Supply Industry – The automotive component supply industry is highly competitive. Some

of our competitors are companies, or divisions or subsidiaries of companies, that are larger than STRATTEC and have greater
financial, global and technology capabilities. Our products may not be able to compete successfully with the products of these other
companies, which could result in loss of customers and, as a result, decreased sales and profitability. Some of our major customers
have previously announced that they will be reducing their supply base. This could potentially result in the loss of these customers and
consolidation within the supply base. The loss of any of our major customers could have a material adverse effect on our existing and
future revenues, results of operations, financial condition and cash flows.

In addition, our competitive position in the North American automotive component supply industry could be adversely affected

in the event that we are unsuccessful in making strategic investments, acquisitions or alliances or in establishing joint ventures that
would enable us to expand globally. We principally compete for new business at the beginning of the development of new models and
upon the redesign of existing models by our major customers. New model development generally begins two to five years prior to the
marketing of such new models to the public. The failure to obtain new business on new models or to retain or increase business on
redesigned existing models could adversely affect our business and financial results. In addition, as a result of relatively long lead
times for many of our components, it may be difficult in the short-term for us to obtain new sales to replace any unexpected decline in
the sale of existing products. Finally, we may incur significant product development expense in preparing to meet anticipated
customer requirements which may not be recovered.

Cyclicality and Seasonality in the Automotive Market – The automotive market is cyclical and is dependent on consumer

spending, on the availability of consumer credit and to a certain extent, on customer sales incentives. Economic factors adversely
affecting consumer demand for automobiles and automotive production, such as rising fuel costs, could adversely impact our net sales
and net income. We typically experience decreased sales and operating income during the first fiscal quarter of each year due to the
impact of scheduled customer plant shut-downs in July and new model changeovers during that period.

OPERATIONAL RISKS

Shortage of Raw Materials or Components Supply – In the event of catastrophic acts of nature such as fires, tsunamis,
hurricanes, earthquakes and global pandemics and wars, a rapid increase in production demands or other unforeseen economic events
such has prolonged periods of inflation, either we or our customers or other suppliers may experience supply shortages of raw
materials or components. This could be caused by a number of factors, including a lack of production line capacity or manpower,
working capital constraints or adverse conditions in banking and capital markets. In order to manage and reduce the costs of purchased
goods and services, we and others within our industry have been rationalizing and consolidating our supply base. As a result, there is
greater dependence on fewer sources of supply for certain components and materials used in our products, which could increase the
possibility of a supply shortage of any particular component. If any of our customers experience a material supply shortage, either

13

directly or as a result of supply shortages at another supplier, that customer may halt or limit the purchase of our products. Similarly, if
we or one of our own suppliers experience a supply shortage, we may become unable to produce the affected products if we cannot
procure the components from another source. Such production interruptions could impede a ramp-up in vehicle production and could
have a material adverse effect on our business, results of operations, financial condition and cash flows.

We consider the production capacities and financial condition of suppliers in our selection process, and expect that they will

meet our delivery requirements. However, there can be no assurance that strong demand, capacity limitations, shortages of raw
materials, labor disputes or other problems will not result in any shortages or delays in the supply of components to us.

Because of the COVID-19 pandemic and the recent Ukraine conflict, we have experienced supply chain disruptions in
particular with semiconductor chip shortages that impact our OEM customers’ ability to finish assembly of new vehicles and which
have adversely impacted orders for our products and, accordingly, our results of operations and cash flows. The continuation or
renewal of these impacts could have a material adverse effect on our future revenues, financial results, financial condition and cash
flows.

Sources of and Fluctuations in Market Prices of Raw Materials – Our primary raw materials are high-grade zinc, brass,
nickel silver, aluminum, steel and plastic resins, which are typically sourced from a limited number of suppliers. We believe our
sources of raw materials are reliable and adequate for our needs. However, the development of future sourcing issues related to using
existing or alternative raw materials and the global availability of these materials as well as significant fluctuations in the market
prices of these materials may have an adverse effect on our results of operations, financial condition and cash flows if the increased
raw material costs cannot be recovered from our customers. During fiscal 2021, 2022 and 2023, we experienced higher raw material
costs on the items listed above including freight costs on both raw material and purchased components.

Given the significant financial impact on us relating to changes in the cost of our primary raw materials, commencing with fiscal

2008 and thereafter, we began quoting quarterly material price adjustments for changes in our zinc costs in our negotiations with our
customers. Our success in obtaining these quarterly price adjustments in our customer contracts is dependent on separate negotiations
with each customer. It is not a standard practice for our customers to include such price adjustments in their contracts. We have been
successful in obtaining quarterly price adjustments in some of our customer contracts. However, we have not been successful in
obtaining the adjustments with all of our customers.

Foreign Operations – We operate wholly owned and majority owned manufacturing operations in Mexico. As these operations

continue to expand, their success will depend, in part, on our ability to anticipate and effectively manage certain risks inherent in
international operations, including: enforcing agreements and collecting receivables through certain foreign legal systems, payment
cycles of foreign customers, compliance with foreign tax laws, general economic and political conditions in these countries and
compliance with foreign laws and regulations.

Cyber Vulnerability – In the ordinary course of business, we collect and store sensitive data, including our proprietary business
information and that of our customers, suppliers and business partners, as well as personally identifiable information of our customers
and employees, in our internal data centers, cloud services and on our networks. The secure processing, maintenance and transmission
of this information is critical to our operations and business strategy. Cybersecurity attacks are becoming more sophisticated and
include, but are not limited to, malicious software attempts to gain unauthorized access to data, and other electronic security breaches
that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, corruption or
destruction of data and other manipulation or improper use of systems or networks. Despite our security measures, our information
technology and infrastructure, as well as that of our partners, customers and suppliers, may be vulnerable to malicious attacks,
breaches or system failures due to employee error, malfeasance or other disruptions, including as a result of rollouts of new systems.
Any such breach or operation failure would compromise our networks or that of our business partners, customers or suppliers, and the
information stored could be accessed, publicly disclosed, lost or stolen, cause transaction processing errors, processing inefficiencies,
delays or cancellation of customer orders, the loss of customers, impediments to the manufacturing or shipment of products, or other
business disruptions. Although we have cybersecurity insurance in place, such access or other loss of information could result in legal
claims or proceedings, regulatory fines or penalties, disruption in our operations, damage to our reputation, loss of confidence in our
products and services, increased costs, or the loss of assets, any of which could have a negative impact on our business, results of
operations, financial condition and cash flows. In addition, as security threats and cybersecurity and data privacy and protection laws
and regulations continue to evolve and increase in terms of sophistication, we may be required to or choose to invest additional
resources in the security of our systems. Any such increased level of investment could adversely affect our financial condition or
results of operations. We have programs in place to address and mitigate cybersecurity risks. These programs include regular
monitoring of outside threats, continuous update of software to mitigate risk, education of employees to the risks of external threats,
and simplification of infrastructure to minimize servers. Although we believe the foregoing programs are reasonable actions to
mitigate cybersecurity risks, the failure of these programs to adequately protect against these risks could have a negative impact on our
business, results of operations, financial condition and cash flows.

14

Qualified Personnel – Our business success depends, to a significant degree, on attracting and retaining qualified personnel.

Our ability to sustain and grow our business requires us to hire, retain, develop and motivate a highly skilled and diverse management
team and workforce. These types of employees are in high demand and often have competing employment opportunities. The labor
market for skilled employees is highly competitive and we may lose key employees or be forced to increase their compensation to
retain these types of employees. Failure to ensure that we have the leadership capacity with the necessary skill set and experience
could impede our ability to deliver our growth objectives and execute our strategic plan. Organizational and reporting changes
resulting from any future leadership transition or corporate initiatives could result in increased turnover. Additionally, any unplanned
turnover or inability to attract and retain key employees could have a negative effect on our results of operations, including by
significantly increasing our recruitment, training and other related employee costs. Moreover, the loss of key personnel, or the failure
to attract qualified personnel, could have a material adverse effect on our business, results of operations, financial condition and cash
flows.

Disruptions Due to Work Stoppages and Other Labor Matters – Our major customers and many of their suppliers have
unionized work forces. Work stoppages or slow-downs experienced by our customers or their suppliers could result in slow-downs or
closures of assembly plants where our products are included in assembled vehicles. For example, strikes by a critical supplier called
by the United Auto Workers led to extended shut-downs of most of General Motors’ North American assembly plants in February
2008 and September 2019. A material work stoppage experienced by one or more of our customers could have an adverse effect on
our business and our financial results. In addition, all production associates at our Milwaukee facility are unionized. A sixteen-day
strike by these associates in June 2001 resulted in increased costs as all salaried associates worked with additional outside resources to
produce the components necessary to meet customer requirements. The current contract with our Milwaukee unionized associates is
effective through November 1, 2025. We also have unionized associates at our Leon, Mexico facility. The current contract with our
Leon unionized associates is effective through April 8, 2024. We may encounter further labor disruption and we may also encounter
unionization efforts in our other plants or other types of labor conflicts, any of which could have an adverse effect on our business,
financial results, financial condition and cash flows. Labor contracts between General Motors Company, Ford Motor Company and
Stellantis and their unionized associates under the United Auto Workers union expire in 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.

FINANCIAL RISKS

Financial Distress of Automotive Supply Base – During the Great Recession, which impacted calendar years 2009 and 2010,

deteriorating automotive industry conditions adversely affected STRATTEC and our supply base. Lower production levels at our
major customers, volatility in certain raw material and energy costs and the global credit market crisis resulted in severe financial
distress among many companies within the automotive supply base. During the above time frame, several automotive suppliers filed
for bankruptcy protection or ceased operations. The potential continuation or renewal of financial distress within the supply base
(whether from infectious disease, the Ukraine conflict, the ongoing supply chain and logistics disruptions or otherwise) and our
suppliers’ inability to obtain credit from lending institutions could lead to commercial disputes and possible supply chain
interruptions. In addition, the potential for future adverse industry conditions (including from infectious disease, the Ukraine conflict
or otherwise) may require us to provide financial assistance or other measures to ensure uninterrupted production. The continuation or
renewal of these industry conditions could have a material adverse effect on our existing and future revenues, financial results,
financial condition and cash flows.

Cost Reduction – There is continuing pressure from our major customers to reduce the prices we charge for our products. This

requires us to generate cost reductions, including reductions in the cost of components purchased from outside suppliers. If we are
unable to generate sufficient production cost savings in the future to offset pre-programmed price reductions or additional price
reduction demands, our gross margin and profitability will be adversely affected.

Currency Exchange Rate Fluctuations – Our sales are denominated in U.S. dollars. We have manufacturing operations in

Mexico, and as a result, a portion of our manufacturing costs are incurred in Mexican pesos. Therefore, fluctuations in the U.S.
dollar/Mexican peso exchange rate may have a material effect on our profitability, cash flows, financial position, and may
significantly affect the comparability of our results between financial periods. Any depreciation in the value of the U.S. dollar in
relation to the value of the Mexican peso will adversely affect the cost of our Mexican operations when translated into U.S. dollars.
Similarly, any appreciation in the value of the U.S. dollar in relation to the value of the Mexican peso will decrease the cost of our
Mexican operations when translated into U.S. dollars.

15

Inflationary Pressures – We continue to experience elevated inflation in the markets in which we operate, with higher

commodity, labor, freight and other cost pressure. While many costs will moderate over time, the increases in wage levels are likely to
have longer-term effects on our cost structure. Additionally, we may continue to experience price increases from our suppliers in
connection with the inflationary pressures they face. The inability to offset inflationary price increases through price increases from
our customers, modifications to our products, continuous improvement actions or otherwise may have a material adverse effect on our
financial results and financial condition.

Interest Rates – Rising interest rates could have a dampening effect on overall economic activity, the financial condition of our
customers and suppliers and the financial condition of end consumers who ultimately create demand for the products we supply, all of
which could negatively affect demand for our products.

Program Volume and Pricing Fluctuations – We incur costs and make capital expenditures for new program awards based

upon certain estimates of production volumes over the anticipated program life for certain vehicles. While we attempt to establish the
price of our products for variances in production volumes, if the actual production of certain vehicle models is significantly less than
planned, our net sales and net income may be adversely affected. We cannot predict our customers’ demands for the products we
supply either in the aggregate or for particular reporting periods.

Investments in Customer Program Specific Assets – We make investments in machinery and equipment used exclusively to

manufacture products for specific customer programs. This machinery and equipment is capitalized and depreciated over the expected
useful life of each respective asset. Therefore, the loss of any one of our major customers, the loss of specific vehicle models or the
early cancellation of a vehicle model could result in impairment in the value of these assets which may have a material adverse effect
on our financial results and financial condition.

Credit Facilities – Historically, from time to time we have relied on our existing credit facilities to provide us with adequate
working capital to operate our business and fund our capital expenditures, including our expansion initiatives. Escalation of any global
inflationary pressures on our operating results may impact our ability to satisfy our lending covenants in the short term. Additionally,
we cannot provide assurance that we will be able to refinance, extend the maturity of, or otherwise amend the terms of our existing
credit facilities, or that any refinancing, extension, or amendment will be on terms favorable to us or even on commercially reasonable
terms. If our lenders reduce or terminate our access to amounts under our credit facilities, we may not have sufficient capital to fund
our working capital needs and/or we may need to secure additional capital or financing to fund our working capital requirements or to
repay outstanding debt under our credit facilities. Moreover, new credit facilities resulting from any refinancing of our existing
facilities could have a significantly higher rate of interest and greater borrowing costs than our existing facilities. We can make no
assurance that we will be successful in ensuring our availability of amounts under our credit facilities or in connection with raising
additional capital and that any amount, if raised, will be sufficient to meet our cash flow requirements. If we are not able to maintain
our borrowing availability under our credit facilities and/or raise additional capital when needed, we may be forced to sharply curtail
our efforts to manufacture and promote the sale of our products or to curtail our operations.

There can be no assurance that the financial terms or covenants of any new credit facility will be the same or as favorable as

those under our existing facilities. Additionally, our ability to complete a refinancing of our existing credit facilities prior to their
respective maturities is subject to a number of conditions beyond our control. For example, if a disruption in the financial markets
were to occur at the time that we intended to refinance our credit facilities, we might be restricted in our ability to access the credit
lines. The restrictive covenants in any such new credit facility may limit our ability to engage in acts that may be in our best long term
interests. A breach of any of these types of restrictive covenants in our credit facilities could result in a default under these facilities.
If a default occurs, the lenders under our credit facilities may elect to declare all outstanding borrowings, together with accrued
interest, to be immediately due and payable, to terminate any commitments they have to provide further borrowings and to exercise
any other rights they have under the facilities or applicable law.

Warranty Claims – We are exposed to warranty claims in the event that our products fail to perform as expected, and we may
be required to participate in the repair costs incurred by our customers for such products. We are engaged in ongoing discussions with
our customers regarding warranty information and potential claims. The results of these discussions could result in additional warranty
charges/claims in future periods. Depending on the nature of and the volume of vehicles involved in the potential warranty claims,
these charges could be material to our financial statements. Prior to fiscal 2010, we had experienced relatively low warranty charges
from our customers due to our commercial arrangements and improvements in the quality, reliability and durability of our products.
Due to our largest customers’ extension and/or expansion of their warranty protection programs and demands for higher warranty cost
sharing arrangements from their suppliers in their terms and conditions of purchase, including from STRATTEC, we increased our
provision to cover warranty exposures since fiscal year 2010. In 2015, 2018, and 2023, our increased warranty provision was the result
of various known or expected customer warranty issues outstanding and estimated future warranty costs to be incurred as of June
2015, June 2018, and June 2023, respectively, for which amounts were reasonably estimable. As additional information becomes
available, actual results may differ from recorded estimates or we may need to record additional warranty provisions. Although we

16

have product recall insurance in place, if our customers demand higher warranty-related cost recoveries, or if our products fail to
perform as expected, it could have a material adverse impact on our results of operations, financial condition and cash flows.

LEGAL AND REGULATORY RISKS

Environmental, Safety and Other Regulations – We are subject to Federal, state, local and foreign laws and other legal

requirements related to the generation, storage, transport, treatment and disposal of materials as a result of our manufacturing and
assembly operations. These laws include, among others, the Resource Conservation and Recovery Act (as amended), the Clean Air
Act (as amended) and the Comprehensive Environmental Response, Compensation and Liability Act (as amended). We have an
environmental management system that is ISO-14001 certified. We believe that our existing environmental management system is
adequate for current and anticipated operations and we have no current plans for substantial capital expenditures in the environmental
area. An environmental reserve was established in 1995 for estimated costs to remediate a site at our Milwaukee facility. The site was
contaminated from a former above-ground solvent storage tank, located on the east side of the facility. The contamination occurred in
1985 and is being monitored in accordance with Federal, state and local requirements. We do not currently anticipate any material
adverse impact on our results of operations, financial condition or competitive position as a result of compliance with Federal, state,
local and foreign environmental laws or other related legal requirements. However, risk of environmental liability and changes
associated with maintaining compliance with environmental laws is inherent in the nature of our business and there is no assurance
that material liabilities or changes could not arise.

Compliance Related to Regulations Related to Conflict Minerals – We are required to disclose the use of tin, tantalum,

tungsten and gold (collectively, “conflict minerals”) mined from the Democratic Republic of the Congo and adjoining countries (the
“covered countries”) if a conflict mineral(s) is necessary to the functionality of a product manufactured, or contracted to be
manufactured, by us. We may determine, as part of our compliance efforts, that certain products or components we obtain from our
suppliers could contain conflict minerals. If we are unable to conclude that all our products are free from conflict minerals originating
from covered countries, this could have a negative impact on both our existing and future business, reputation and/or results of
operations. We may also encounter challenges to satisfy customers who require that our products be certified as conflict free, which
could place us at a competitive disadvantage if we are unable to substantiate such a claim. Compliance with these rules could also
affect the sourcing and availability of some of the minerals used in the manufacture of products or components we obtain from our
suppliers, including our ability to obtain products or components in sufficient quantities and/or at competitive prices to sell to our
customers.

Income Taxes – We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions.

Significant judgment is required in determining our global provision for income taxes, deferred tax assets or liabilities and in
evaluating our tax positions on a worldwide basis. While we believe our tax positions are consistent with the tax laws in the
jurisdictions in which we conduct our business, it is possible that these positions may be overturned by jurisdictional tax authorities,
which may have a significant impact on our global provision for income taxes. Tax laws are dynamic and subject to change as new
laws are passed and new interpretations of these laws are issued or applied. We are also subject to ongoing tax audits. These audits can
involve complex issues, which may require an extended period of time to resolve and can be highly subjective. Tax authorities may
disagree with certain tax reporting positions taken by us and, as a result, assess additional taxes against us. We regularly assess the
likely outcomes of these audits in order to determine the appropriateness of our tax provision.

GENERAL RISK FACTOR

In addition to the specific risks above, we, our customers, and our suppliers may be adversely affected by changing economic
conditions throughout the world. These conditions may result in reduced consumer and investor confidence, instability in the credit
and financial markets, volatile corporate profits, and reduced business and consumer spending. We, our customers, and our suppliers
and the economy as a whole also may be affected by future world or local events outside of our control, such as tariffs and other trade
protection measures put in place by the United States or other countries, acts of terrorism, developments in the war on terrorism, civil
unrest, conflicts in international situations, weather events, natural disasters, outbreaks of infectious diseases, such as the COVID-19
pandemic, and government or political related developments or issues, including changes in tax laws and regulations. These factors
could have a material adverse impact on our results of operations, financial condition, and cash flows. Additionally, political and
social turmoil, international conflicts (such as the Ukraine conflict) and terrorist acts may put pressure on global economic conditions
that may adversely impact our operating results. Unstable political, social or economic conditions may make it difficult for us, our
customers and our suppliers to accurately forecast and plan future business activities. If such conditions arise or persist, they could
have a material adverse impact on our results of operations, financial condition and cash flows.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

17

ITEM 2. PROPERTIES

We have five manufacturing plants, one warehouse, and one sales office. These facilities are described as follows:

Location

Type

Milwaukee, Wisconsin ................ Headquarters and General Offices; Component Parts
Manufacturing

Juarez, Chihuahua Mexico........... Subsidiary Offices and Assembly
Juarez, Chihuahua Mexico........... Subsidiary Offices and Assembly
Juarez, Chihuahua Mexico........... Subsidiary Offices, Key Finishing, Injection Molding

and Assembly Operations

Leon, Mexico............................... Subsidiary Offices, Door Handle Injecting Molding,

Painting and Assembly
El Paso, Texas.............................. Finished Goods and Service Parts Distribution Warehouse
Auburn Hills, Michigan ............... Sales and Engineering Office for Detroit Customer Area

Sq. Ft.

345,123
169,488
69,900

114,877

129,887
114,715
62,736

Owned or
Leased

Owned
Owned
Owned

Owned

Owned
Leased**
Owned

** Leased unit within a complex.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business we may be involved in various legal proceedings from time to time. We do not believe we are

currently involved in any claim, action or proceeding the ultimate disposition of which would have a material adverse effect on our
financial statements.

ITEM 4. MINE SAFETY DISCLOSURES

None.

18

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER

PURCHASES OF EQUITY SECURITIES

PART II

Our common stock is traded on the NASDAQ Global Market under the symbol “STRT.”

Registered shareholders of record at July 2, 2023, were 827.

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 2, 2023, the number of shares of the Company’s common
stock authorized for repurchase under the program totaled 3,839,395. The program currently authorizes the repurchase of the
Company’s common stock from time to time, directly or through brokers or agents, and has no expiration date. Over the life of the
repurchase program through July 2, 2023, 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 2, 2023.

ITEM 6.

[RESERVED]

19

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). 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 2023 and 2022, the above domestic automotive
OEMs together represented each year 66 percent and 65 percent, respectively, of our total net sales.

During fiscal years 2023 and 2022, we experienced strong sales demand for our components from our major North American

customers noted above as it relates to light trucks and both sport utility and car-based utility vehicles in comparison to passenger cars,
influenced by customer preferences. If gas prices were to rise substantially over the next several years, this consumer buying trend
may not continue, which is approximately 90 percent light trucks and sport utility vehicles in comparison to 10 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 significant amount of our current and future product content will
continue to be purchased by our major customers and will be adopted in this changeover (refer to vehicle list included at page 7 in this
Form 10-K).

Fiscal 2023 net sales were $492 million compared to $452 million in fiscal 2022. The net sales improvement in fiscal 2023
reflected an improvement in the global semiconductor chip shortage which had caused our OEM customers to temporarily shut down
their assembly plants reducing our net sales during fiscal 2022. Despite higher sales in fiscal 2023, net income attributable to
STRATTEC for fiscal 2023 was negative $6.7 million compared with the net income attributable to STRATTEC of $7.0 million in
fiscal 2022. The deterioration in profitability was primarily driven by escalating manufacturing input costs for raw materials and
purchased materials, higher shipping and Mexican labor wages, which increased on January 1 of both 2022 and 2023 as part of a
Government mandated minimum wage increase of 22% and 20% respectively. In addition to the inflationary cost increases, the
Mexican Peso strengthened against the U.S. Dollar throughout fiscal year 2023 negatively affecting the cost of our operations in
Mexico. Seeking pricing recovery from our customers for the aforementioned inflationary costs was a prime focus of ours throughout
fiscal year 2023. However, given the long-term nature of our supply agreements, such pricing concessions are not customary and,
therefore, resulted in protracted rounds of negotiations with limited effect on our fiscal 2023 profitability. Despite the limited price
concession results in fiscal 2023, we are committed to aggressively seeking a favorable resolution to these negotiations early in fiscal
year 2024.

As we look to the future, the June 2023 projections from our third-party forecasting service, S&P Global, indicate that North

American light vehicle production will show an increase in demand over the coming years. Model year 2023 preliminary North
American vehicle build was 15.1 million. By model year, based on these projections we are expecting a 2024 vehicle build of 15.2
million vehicles, 16.1 million vehicles for 2025, and 16.6 million vehicles for 2026 and 2027. The North American vehicle build for
Ford, General Motors and Stellantis reflects relative stability ranging between 6.7 million and 7.1 million vehicles each model year
from 2024 through 2027 without much fluctuation between each customer. Of course, all of these forecasts are subject to variability
based on what happens in the overall North American and global economies, the current levels of employment, availability of
consumer credit, home equity values, fluctuating fuel prices, changes in customer vehicle and option preferences, product quality
issues, including related to recall and product warranty coverage issues, and other key factors that we believe could determine whether
consumers can or will purchase new vehicles or particular brands.

Fiscal 2024 Outlook

As stated above, we anticipate the 2024 North American light vehicle production, which closely aligns with our fiscal 2024
timing, to be relatively stable with a potential for modest growth. Similarly, we anticipate modest growth in our net sales on the basis
of a stable industry and the launch of several new programs in the model year. From a cost of sales perspective, we anticipate some
key challenges from fiscal 2023 will continue into fiscal 2024, notably a strong Mexican Peso relative to the U.S. Dollar, risk of
another round of Mexican government mandated minimum wage increases in January 2024 affecting the cost of our Mexican
operations, and increased purchased material costs from our suppliers. As for positive cost trends, we anticipate a continued recovery
in the cost of some key raw materials, a trend which began in the second half of fiscal 2023.

20

With a focus to offset the anticipated aforementioned cost challenges and to improve present profitability, management is

targeting the following actions in fiscal 2024:

(1)

Successfully conclude price-concession negotiations with our key customers by the end of Q2 to achieve between $10
million and $15 million in present program pricing improvement for the fiscal year as well as receive one-time retroactive
price adjustment payments totaling between $4 million and $6 million

(2)

Salaried staff reduction commencing in Q1 reducing annualized spending by approximately $2 million

(3) Drive operational actions that reduce overhead in operations and purchase of materials by $3 million per year

(4) Reduce fiscal year-end inventory levels by $10 million compared with that for fiscal 2023

We believe the successful execution of these actions together with that of our overall fiscal plan will considerably improve

STRATTEC’s profitability in fiscal 2024, reestablishing a solid foundation from which to grow profitability thereafter.

Results of Operations

2023 Compared to 2022

Net Sales (millions of dollars) .................................................................. $

492.9

$

452.3

Years Ended

July 2, 2023

July 3, 2022

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

July 2, 2023

July 3, 2022

General Motors Company ........................................................................ $
Ford Motor Company ...............................................................................
Stellantis ...................................................................................................
Tier 1 Customers ......................................................................................
Commercial and Other OEM Customers .................................................
Hyundai / Kia ...........................................................................................

Total...................................................................................................... $

150.3
96.6
78.1
73.3
56.3
38.3
492.9

$

$

130.2
79.7
83.3
59.3
65.0
34.8
452.3

The year-over-year sales increase of $40.6 million was due to improved global semiconductor chip availability in the current

year period relative to the prior year period. Additionally, our 2023 fiscal year was 52 weeks while our 2022 fiscal year was 53 weeks.
The impact of the additional week of sales during the prior year partially offset the lower net sales in the prior year from the
semiconductor chip shortage and which extra week increased prior year sales by approximately $7.4 million. The following items
further impacted sales to the noted customer groups between periods:

-

-

-

-

Sales to General Motors Company, Ford Motor Company, and Hyundai/Kia were positively impacted in the current year
due to higher vehicle production volumes resulting from improved global semiconductor chip availability relative to the
prior year. Sales growth to General Motors Company in the current year was attributed to higher production volumes of
their GMC and Chevrolet pickup trucks and certain SUVs for which we supply a wide range of components. Increased
sales to Ford Motor Company in the current year were due to higher production volumes of their F-Series Pickups
including the Super Duty Pickup, for which we supply a wide range of components, and an increased percentage of the
F-Series Super Duty Pickup including our power end gate product option. Sales to Hyundai / Kia increased year-over-
year due to higher levels of production of the Kia Carnival minivan in the current year period as compared to the prior
year period.
The decrease in net sales to Stellantis was driven primarily by its lower production volumes related to the Chrysler
Pacifica minivan, the Jeep Wrangler, Jeep Gladiator, and Dodge Ram Truck for which we supply components.
Sales to Tier 1 Customers improved in the current year compared to the prior year due to higher vehicle production
volumes relating to the improvement in semiconductor chip availability referenced above.
Sales to Commercial and Other OEM Customers, which are comprised of aftermarket products and vehicle access
control products, such as latches, fobs, driver controls and door handles, declined in the current year as compared to the
prior year due to the allocation of available semiconductor chips toward the production of components for production
vehicles rather than aftermarket products.

21

Years Ended

July 2, 2023

July 3, 2022

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....................................... $

298.5
152.3
450.8

66.2% $
33.8%

$

260.8
135.4
396.2

65.8%
34.2%

Total cost of goods sold increased $54.6 million between years primarily driven by higher sales volumes in the current year as

compared to the prior year as discussed above, however, both direct material costs and labor and overhead costs increased as a percent
of net sales, with direct material costs growing at a higher rate, explaining the increase in its percent of cost of goods sold shown
above. The increase in direct material costs between years beyond the portion that was attributed to higher net sales was driven by
escalating costs of raw material and purchased components as well as a shift toward products with a higher proportion of material
costs as a percent of their total cost of goods related to the aforementioned prioritization of production vehicles over aftermarket
products. It is worth noting that there was an improvement in the cost of raw materials in the latter half of the current fiscal year
compared with the prior year, primarily driven by reduced supplier pricing on zinc and steel.

Labor and overhead costs increased $16.9 million between years. The variable portion of labor and overhead costs increased in
the current year commensurate with the production volume increase required to support the increased sales volumes compared to the
prior year. Apart from the improved fixed cost absorption associated with the higher sales compared with the prior year, labor and
overhead costs were further impacted by the following:

Cost Increases:

- Mexico wages and benefits increased $6.9 million in the current year as compared to the prior year as a result of January

-

1, 2022 and January 1, 2023 government mandated minimum wage increases.
The U.S. dollar value of our Mexican operations was negatively impacted by approximately $5.5 million in the year as
compared to the prior year due to an unfavorable Mexican peso to U.S. dollar exchange rate between years. The average
U.S. dollar / Mexican peso exchange rate decreased to approximately 18.98 pesos to the dollar for the year from
approximately 20.33 pesos to the dollar in the prior year.
Freight costs increased $2.3 million between years due to an increase in fuel costs and supply chain disruptions.
-
- Warranty costs increased by $2.1 million in the year as compared with the prior year due to specific warranty claims

involving our product.

Cost Decreases:

-

-

Production efficiencies that controlled headcount at our Mexico facilities combined with having one less operational
week in the current fiscal year resulted in reduced labor and benefit costs of approximately $2.1 million in the current
year as compared to the prior year.
Royalty costs paid on sales of certain aftermarket products decreased $0.9 million in the year as compared to the prior
year due to lower volumes in these aftermarket products stemming from the current semiconductor chip shortage.

Gross Profit (millions of dollars) ........................................................... $
Gross Profit as a percentage of net sales ................................................

$

42.2
8.6%

56.0
12.4%

Years Ended

July 2, 2023

July 3, 2022

Gross profit dollars in the current year decreased $13.8 million as compared to the prior year driven by the aforementioned

inflationary pressures on direct material and labor and overhead costs as well as by the strengthening of the Mexican peso against the
U.S. dollar. The resulting decrease in gross profit as a percentage of net sales was 3.8 percentage points from the prior year to the
current year.

Engineering, Selling and Administrative Expenses in the current year and prior year were as follows:

Expenses (millions of dollars)................................................................ $
Expenses as a percentage of net sales ....................................................

48.2

$

9.8%

47.1
10.4%

Years Ended

July 2, 2023

July 3, 2022

Engineering, selling and administrative expenses were impacted by the following:
Cost Increases:

-

The current year includes higher outside expenditures on new product development costs associated with utilizing third
party vendors for a portion of our development work.

22

-

-

The current year includes an increase in engineering costs related to our ADAC-STRATTEC LLC door handle and
exterior trim products. Such expenses are based on a percentage of ADAC-STRATTEC LLC net sales.
The current year includes increased salary costs and increased recruiting costs for new and replacement positions.

Cost Decrease:

-

The prior year included an additional week of expense as our fiscal 2022 was a 53 week year and our fiscal 2023 was a
52 week year.

Loss from operations in the current year was $6.1 million compared to income from operations of $8.9 million in the prior year.

This change between years was the result of an increase in cost of goods sold and increased engineering, selling and administrative
expenses, which were partially offset by an increase in sales 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 2, 2023 and July 3, 2022 were $1.6 million and $177,000

respectively. Current year equity earnings of joint ventures includes STRATTEC's one-third of a loss on disposal of VAST LLC's
investment in Brazil of $531,000 and a gain on sale of STRATTEC's one-third share of VAST LLC of $110,000. Effective June 30,
2023, STRATTEC entered into and completed transactions contemplated by an Equity Restructuring Agreement between STRATTEC
and WITTE. Accordingly, effective as of June 30, 2023, STRATTEC sold its one-third interest in VAST LLC to WITTE. Refer to the
discussion of "VAST, LLC, SPA, LLC and SPA de Mexico Equity Restructuring Agreement" above and the Equity Restructuring
Agreement in Joint Ventures and Majority Owned Subsidiaries included in the Notes to Financial Statements included within this
Form 10-K for additional information regarding the sale of STRATTEC's VAST LLC interest to WITTE Automotive.

Improved profitability from our VAST LLC joint venture resulted from increased net sales and increased profitability in VAST

China’s operations between fiscal years. VAST China’s sales and profitability improved in the current year due to an improved
semiconductor chip availability environment compared with that of the prior year. Additionally, during the prior year, VAST China
experienced a fire at their Taicang plant. As a result, certain door handle and painting operations were temporarily transferred to their
Jingzhou facility and another supplier. The transfer of production negatively impacted VAST China's profitability in the prior year.
Due to a limited amount of business in both India and Brazil during fiscal 2023 the VAST LLC joint venture in India continued to
have break-even operating results and the VAST LLC joint venture in Brazil continued to report losses.

Included in other (expense) income, net in the current year and prior year were the following items (thousands of dollars):

Foreign currency transaction (loss) gain ................................................. $
Rabbi Trust Assets gain (loss).................................................................
Unrealized gain on Mexican peso forward contracts ..............................
Realized gain on Mexican peso forward contracts, net ...........................
Pension and postretirement plans cost.....................................................
Other ........................................................................................................

$

Years Ended

July 2, 2023

July 3, 2022

(2,935) $
202
—
1,022
(722)
255
(2,178) $

237
(304)
384
361
(505)
233
406

-

-

Foreign currency transaction gains and losses resulted from activity associated with foreign denominated assets and
liabilities held by our Mexican subsidiaries.
The Rabbi Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in
the Trust are considered trading securities.

- We entered into the Mexican peso currency forward contracts during fiscal 2023 and 2022 to reduce earnings volatility
resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. No peso forward
currency contracts are outstanding as of July 2, 2023.
Pension and postretirement plan costs include net periodic benefit cost other than the service cost component.

-

Our effective income tax rate for 2023 was (16.7) percent compared to 4.5 percent in 2022. Our 2023 effective tax rate was
impacted by $2.2 million in China non-resident capital gain tax resulting from the sale of our interest in VAST LLC, a valuation
allowance of $1.4 million related to our assessment of the future realization of capital loss carryforwards generated from the sale of
our interest in VAST LLC, and the impact of available R&D and foreign tax credits on pre-tax book losses. Our 2022 effective tax
rate was impacted by adjustments made to the amount of our 2021 estimated foreign 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. Our income tax provision for each year 2023 and 2022 was affected by the non-controlling interest portion

23

of our pre-tax income, Global Intangible Low Taxed Income (GILTI) provisions and R&D tax credit. The non-controlling interest
impacts the effective tax rate as our ADAC-STRATTEC LLC and STRATTEC POWER ACCESS LLC entities are taxed as
partnerships for U.S. tax purposes.

Liquidity and Capital Resources

Working Capital (millions of dollars)

Current Assets .......................................................................................... $
Current Liabilities.....................................................................................
Working Capital ....................................................................................... $

225.8
109.0
116.8

$

$

188.2
81.5
106.7

July 2, 2023

July 3, 2022

Outstanding Receivable Balances from Major Customers

Our primary source of cash flow is from our major customers, which include Stellantis, General Motors Company and Ford

Motor Company. As of the date of filing this Annual Report with the Securities and Exchange Commission, all of our customers are
making payments on their outstanding accounts receivable in accordance with the payment terms included on their purchase orders. A
summary of our outstanding receivable balances from our major customers as of July 2, 2023 and July 3, 2022 was as follows
(millions of dollars):

General Motors Company ........................................................................ $
Ford Motor Company ...............................................................................
Stellantis ...................................................................................................

$

July 2, 2023

July 3, 2022

27.5
17.4
14.1
59.0

$

$

24.6
10.6
12.8
48.0

Cash Balances in Mexico

We earn a portion of our operating income in Mexico. As of July 2, 2023, $2.2 million of our $20.6 million cash and cash

equivalents balance was held in Mexico. These funds are available for repatriation as deemed necessary.

Cash Flow Analysis

Cash Flows from (millions of dollars):

Operating Activities.............................................................................. $
Investing Activities...............................................................................
Financing Activities..............................................................................

$

Years Ended

July 2, 2023

July 3, 2022

10.1
8.9
(7.4)
11.6

$

$

10.4
(14.3)
(1.9)
(5.8)

Cash flow from operating activities was consistent between years as the impact of the reduction in profitability between years,

as previously discussed, was offset by a net decrease in working capital requirements. The net decrease in our working capital
requirements included the following working capital changes (millions of dollars):

Increase (Decrease) in Working Capital Requirements
2022

Change

2023

Accounts Receivable................................................................ $
Inventories................................................................................
Customer Tooling ....................................................................
Other Assets .............................................................................
Accounts Payable and Other Liabilities...................................

$

$

13.7
(2.9)
10.0
0.5
(24.0)
(2.7) $

5.9
9.6
3.3
(0.2)
(1.8)
16.8

$

$

7.8
(12.5)
6.7
0.7
(22.2)
(19.5)

-

Accounts receivable balances increased in both the current and prior year periods. The increase in the accounts receivable
balance during the current year reflect increased sales as of the end of our fiscal 2023. The increase in accounts receivable
balances during the prior year was mostly due to payments from a specific customer being made in advance of the payment

24

term due dates in the prior year while current year payments from that customer were made according to the planned
payment term due dates.
The change in inventory levels reflected a decrease during the current year and an increase during the prior year. The
current year decrease was due to a reduction in inventory balances to align with historical customer production patterns,
mostly offset by a change in inventory management and shipping terms with a significant vendor. The prior year increase
was due to an inventory build-up while our OEM customers experienced reduced production schedules due to certain part
shortages, including for semiconductor chips.
The change in customer tooling balances, which consisted of costs incurred for the development of tooling that will be
directly reimbursed by the customer whose parts are produced from the tool, was the result of the timing of tooling
development spending required to meet customer production requirements and related billings for customer
reimbursements.
The change in other assets was relatively consistent between years. The increase in value added tax recoverable balances in
the current year due to several periods being open to audit in Mexico was mostly offset by a reduction in our Rabbi Trust
assets of $863,000 resulting from a current year SERP settlement and a $627,000 reduction in our Mexico peso forward
contract asset.
The current year increase in accounts payable and other liabilities is due to the following:

-

-

-

-

- Accounts payable increased approximately $14.0 million in the current year primarily due to a change in inventory
management, shipping terms, and payment terms with a significant vendor and the suspension of ADAC-
STRATTEC LLC's payment of engineering, research and design fees as well as a sales fees to ADAC in order to
comply with ADAC-STRATTEC debt covenants.
- Accrued salaries and benefits increased approximately $4.7 million in the current year resulting from increased
salaries and benefits for our Mexican associates.
- Income taxes payable increased $2.4 million in the current year primarily due to the accrual of a China non-
resident capital gain tax as a result of the sale of our interest in VAST LLC.
- Value added tax payable balances increased $3.0 million in the current year due to several periods being open to
audit in Mexico.

Net cash provided by investing activities of $8.9 million during 2023 included proceeds from the sale of our interest in VAST
LLC of $26.2 million and a net increase in cash of $354,000 resulting from STRATTEC's purchase of the net assets of VAST Korea.
The cash inflows were partially offset by capital expenditures of $17.4 million in support of requirements for new product programs
and the upgrade and replacement of existing equipment and a $278,000 investment in VAST LLC for the purpose of funding general
operating expenses for Sistema de Acesso Veicular Ltda, VAST LLC's Brazilian joint venture. Net cash used by investing activities of
$14.3 million during 2022 included capital expenditures of $14.2 million, which were made in support of requirements for new
product programs and the upgrade and replacement of existing equipment. Net cash used by investing activities during 2022 also
included an investment in VAST LLC of $150,000 for the purpose of funding general operating expenses for Sistema de Acesso
Veicular Ltda.

Net cash used in financing activities of $7.4 million during 2023 included a payment of $9.0 million related to STRATTEC's

purchase of the remaining non-controlling interest of STRATTEC POWER ACCESS LLC from WITTE Automotive, the repayment
of borrowings under credit facilities of $15.0 million, and $600,000 of dividend payments to non-controlling interests in our
subsidiaries. These cash outflows were partially offset by additional borrowings under our credit facilities of $17.0 million and
$183,000 received for the exercise of stock options under our stock incentive plan and purchases under our employee stock purchase
plan. Net cash used in financing activities of $1.9 million during 2022 included repayments of borrowings under credit facilities of
$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.

Cash Requirements

Dividends

On May 13, 2020, our Board of Directors took action to temporarily suspend payment of our quarterly dividend for the

foreseeable future in order to conserve cash as a result of the economic downturn that began with COVID-19. No dividends were paid
to shareholders during fiscal 2023 and fiscal 2022.

25

Future Capital Expenditures

We anticipate capital expenditures will be approximately $14.0 million in fiscal 2024 in support of requirements for new

product programs and the upgrade and replacement of existing equipment.

Stock Repurchase Program

Our Board of Directors has authorized a stock repurchase program to buy back outstanding shares of our common stock. Shares
authorized for buy back under the program totaled 3,839,395 at July 2, 2023. A total of 3,655,322 shares have been repurchased over
the life of the program through July 2, 2023, at a cost of approximately $136.4 million. No shares were repurchased during fiscal 2023
or 2022. Additional repurchases may occur from time to time and are expected to continue to be funded by cash flow from operations
and current cash balances. At this time, we anticipate minimal or no stock repurchase activity in fiscal year 2024.

Other Cash Requirements

In connection with the June 30, 2023 sale of our interest in VAST LLC to WITTE Automotive, we will be required to pay
nonresident capital gain tax in China. The payment, which will be made during our fiscal 2024, is expected to total approximately $2.2
million.

We also have an operating lease for our El Paso, Texas finished goods and service parts distribution warehouse, which has a
term in excess of one year. We also have purchase commitments related to zinc and other purchased parts. Refer to required future
payments under the lease and purchase commitments in the discussion of Leases under Organization and Summary of Significant
Accounting Policies and in the discussion of Commitments and Contingencies included in the Notes to Financial Statements included
as part of Item 8 within this Form 10-K.

Credit Facilities

STRATTEC has a $40 million secured revolving credit facility (the “STRATTEC Credit Facility”) with BMO Harris Bank N.A.

ADAC-STRATTEC LLC has a $25 million secured revolving credit facility (the “ADAC-STRATTEC Credit Facility”) with BMO
Harris Bank N.A., which is guaranteed by STRATTEC. The credit facilities expire on August 1, 2024. Borrowings under either credit
facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixed assets located in the U.S. Interest on
borrowings under the STRATTEC Credit Facility were at varying rates based, at our option, on LIBOR plus 1.25 percent or the bank’s
prime rate through February 22, 2023. Interest on borrowings under the ADAC-STRATTEC Credit Facility were at varying rates
based, at our option, on LIBOR plus 1.25 percent or the bank’s prime rate through February 6, 2023. Subsequent to these dates,
interest on borrowings under both credit facilities were at varying rates based, at our option, on SOFR plus 1.35 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 2, 2023, 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 2, 2023 or
July 3, 2022. The average outstanding borrowings and weighted average interest rate on the STRATTEC Credit Facility loans were
approximately $15.4 million and 5.7 percent, respectively, during 2023. 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.
Outstanding borrowings under the ADAC-STRATTEC Credit Facility totaled $13 million at July 2, 2023 and $11 million at July 3,
2022. The average outstanding borrowings and weighted average interest rate on the ADAC-STRATTEC Credit Facility loans were
approximately $12.4 million and 5.3 percent, respectively, during 2023. 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. 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.

On August 22, 2023, STRATTEC entered into an agreement, which is effective September 6, 2023, with BMO Harris Bank
N.A. to renew the term of its current $40 million secured credit facility until August 1, 2026. The two parties are working on a renewal
of the $25 million secured credit facility for ADAC-STRATTEC LLC, which is guaranteed by STRATTEC, for completion in fiscal
year 2024.

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.

26

Critical Accounting Policies

We believe the following represents our critical accounting policies:

Liability for Uncertain Tax Positions – We are subject to income taxation in many jurisdictions around the world. Significant

management judgment is required in the accounting for income tax contingencies because the outcomes are often difficult to
determine. We are required to measure and recognize uncertain tax positions that we have taken or expect to take in our income tax
returns. The benefit of an uncertain tax position can only be recognized in the financial statements if management concludes that it is
more likely than not that the position will be sustained with the tax authorities. For a position that is likely to be sustained, the benefit
recognized in the financial statements is measured at the largest amount that is greater than 50 percent likely of being realized. A
reserve is established for the difference between a position taken in an income tax return and the amount recognized in the financial
statements. The amount of unrecognized benefits, that if recognized, would affect the effective tax rate was $1.1 million at July 2,
2023 and $1.0 million at July 3, 2022. 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
$110,000 at July 2, 2023 and $100,000 at July 3, 2022. Refer to the discussion of Income Taxes included in the Notes to Financial
Statements included as part of Item 8 within this Form 10-K.

Warranty Reserve – We have a warranty reserve recorded related to our exposure to warranty claims in the event our products
fail to perform as expected, and we may be required to participate in the repair costs incurred by our customers for such products. The
recorded warranty reserve balance involves judgment and estimates. Our reserve estimate is based on an analysis of historical
warranty data as well as current trends and information. Actual warranty costs might differ from estimates due to the level of actual
claims varying from our claims experience and estimates and final negotiations and settlements reached with our customers.
Therefore, future actual claims experience could result in changes in our estimates of the required reserve. Sensitivity of potential
warranty or product recall claims is dependent on the respective customer platform, volumes, production years and product content.
We have product recall insurance once a recall claim exceeds $2.5 million with a limit of $30 million. Refer to the discussion of
Warranty Reserve under Organization and Summary of Significant Accounting Policies included in the Notes to Financial Statements
included as part of Item 8 within this Form 10-K.

We believe the reserve discussed above is estimated using consistent and appropriate methods. However, changes to the

assumptions could materially affect the recorded reserve amount.

New Accounting Standards

Refer to the discussion of New Accounting Standards under Organization and Summary of Significant Accounting Policies

included in the Notes to Financial Statements included as part of Item 8 within this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS (Deloitte & Touche LLP PCAOB

No. 34; Crowe LLP PCAOB No. 173).........................................................................................................................
CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME .......................
CONSOLIDATED BALANCE SHEETS .............................................................................................................................
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY...............................................................................
CONSOLIDATED STATEMENTS OF CASH FLOWS......................................................................................................
NOTES TO FINANCIAL STATEMENTS ...........................................................................................................................

Page

29
32
33
34
35
36

28

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of STRATTEC SECURITY CORPORATION

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of STRATTEC SECURITY CORPORATION and subsidiaries (the
"Company") as of July 2, 2023, the related consolidated statements of (loss) income and comprehensive (loss) income, shareholders’
equity, and cash flows, for the fiscal year ended July 2, 2023, and the related notes (collectively referred to as the "financial
statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as
of July 2, 2023, and the results of its operations and its cash flows for the fiscal year ended July 2, 2023, in conformity with
accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of July 2, 2023, based on criteria established in Internal Control
— Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated September 7, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.

Warranty Reserve – Refer to the Notes to the Financial Statements

Critical Audit Matter Description

The Company records a reserve for known and potential exposure to warranty claims in the event its products fail to perform as
expected and in the event it may be required to participate in the repair costs incurred by its customers for such products. At July 2,
2023, the Company’s warranty reserve was $9.7 million.

The warranty reserve is estimated based on management’s analysis of historical warranty data, current trends and information, known
and projected claims for products sold, and the terms of specific agreements. The warranty reserve requires management to apply
significant judgment to develop its estimate. Actual warranty costs may differ from management’s estimated costs as a result of, but
not limited to, negotiation with customers, changes to the assumptions of repair and/or replacement costs, and changes in trends in
product performance. Such matters may require future adjustments to the reserve which could be material.

We identified the warranty reserve as a critical audit matter because estimating future warranty costs requires significant judgment by
management. Auditing management’s assumptions about management’s estimated future warranty costs involves a high degree of
auditor judgment and an increased extent of effort to evaluate the reasonableness of management’s estimates.

29

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the determination of the warranty reserve included the following, among others:

- We tested the effectiveness of internal controls relating to management’s process for developing the assumptions and

inputs used to estimate the warranty reserve.

- We evaluated the methods and significant assumptions, including the frequency and average cost of warranty claims, used

by management to estimate the warranty reserve by:
o

Evaluating the methodology used to determine the reserve in order to understand how key assumptions were
developed.

o

o

o

o

o

Testing the accuracy of the underlying data that served as the basis for the analysis, including the historical claims
and settlements paid on those claims.

Testing the completeness of the warranty reserve by conducting interviews of operational and executive
management regarding knowledge of known product warranty claims or product issues and evaluating whether they
were appropriately considered in the determination of the warranty reserve.

Evaluating management’s ability to accurately estimate the warranty reserve by comparing the product warranty
reserve in prior years to the actual product warranty claims paid in the subsequent years.

Comparing the warranty reserve to industry data to assess the reasonableness of management’s estimate in
comparison to recent trends in actual warranty claims.

Developing an independent expectation of the Company’s warranty reserve and comparing it to management’s
estimate to evaluate the reasonableness of the estimate.

/s/ Deloitte & Touche LLP

Milwaukee, Wisconsin
September 7, 2023

We have served as the Company's auditor since 2023.

30

REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of STRATTEC SECURITY CORPORATION
Milwaukee, Wisconsin

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of STRATTEC SECURITY CORPORATION (the "Company") as of
July 3, 2022, the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for the
year ended July 3, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of July 3, 2022, and the results of its operations
and its cash flows for the year ended July 3, 2022, in conformity with accounting principles generally accepted in the United States of
America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit
provides a reasonable basis for our opinion.

/s/ Crowe LLP

We served as the Company's auditor from fiscal year 2021 to 2022.

Oak Brook, Illinois
September 8, 2022

31

CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Years Ended

July 2, 2023

July 3, 2022

NET SALES .......................................................................................................................... $
Cost of goods sold ..................................................................................................................
GROSS PROFIT ..................................................................................................................
Engineering, selling, and administrative expenses.................................................................
(LOSS) INCOME FROM OPERATIONS.........................................................................
Equity earnings of joint ventures............................................................................................
Interest expense ......................................................................................................................
Other (expense) income, net...................................................................................................
(LOSS) INCOME BEFORE BENEFIT FOR INCOME TAXES

AND NON-CONTROLLING INTEREST .....................................................................
Provision for income taxes .....................................................................................................
NET (LOSS) INCOME ........................................................................................................
Net (loss) income attributable to non-controlling interest......................................................
NET (LOSS) INCOME ATTRIBUTABLE TO STRATTEC

SECURITY CORPORATION......................................................................................... $

COMPREHENSIVE (LOSS) INCOME:
NET (LOSS) INCOME ........................................................................................................ $
Currency translation adjustments, net of tax ..........................................................................
Pension and postretirement plans, net of tax..........................................................................
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) ..............................................
COMPREHENSIVE (LOSS) INCOME ............................................................................
Comprehensive income attributable to non-controlling interest ............................................
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO

$

$

$

492,946
450,794
42,152
48,241
(6,089)
1,559
(960)
(2,178)

(7,668)
1,281
(8,949)
(2,279)

(6,670)

(8,949)
6,164
689
6,853
(2,096)
180

STRATTEC SECURITY CORPORATION .................................................................. $

(2,276)

$

(LOSS) INCOME PER SHARE ATTRIBUTABLE TO STRATTEC

SECURITY CORPORATION:
Basic................................................................................................................................... $
Diluted ............................................................................................................................... $

AVERAGE SHARES OUTSTANDING:

Basic...................................................................................................................................
Diluted ...............................................................................................................................

(1.70)
(1.70)

$
$

3,921
3,921

452,265
396,249
56,016
47,119
8,897
177
(221)
406

9,259
415
8,844
1,828

7,016

8,844
(2,318)
376
(1,942)
6,902
1,560

5,342

1.82
1.79

3,861
3,910

The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of (Loss) Income and
Comprehensive (Loss) Income.

32

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE AMOUNTS)

July 2, 2023

July 3, 2022

ASSETS
CURRENT ASSETS:

Cash and cash equivalents.................................................................................................. $
Receivables, less allowance for doubtful accounts of $500 at July 2, 2023 and

20,571

$

8,774

July 3, 2022 .....................................................................................................................
Inventories, net ...................................................................................................................
Customer tooling in progress, net.......................................................................................
Income taxes recoverable ...................................................................................................
Value added tax 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 ........................................................................................................
Value added tax payable.................................................................................................
Income tax payable.........................................................................................................
Environmental ................................................................................................................
Warranty.........................................................................................................................
Other...............................................................................................................................
Total current liabilities ...............................................................................................

Commitments and Contingencies – see note beginning on page 51
BORROWINGS UNDER CREDIT FACILITIES............................................................
ACCRUED PENSION OBLIGATIONS............................................................................
ACCRUED POSTRETIREMENT OBLIGATIONS........................................................
OTHER LONG-TERM LIABILITIES..............................................................................
SHAREHOLDERS’ EQUITY:

Common stock, authorized 18,000,000, $.01 par value, issued 7,530,170 shares at

July 2, 2023 and 7,481,169 shares at July 3, 2022 ..........................................................
Capital in excess of par value.............................................................................................
Retained earnings ...............................................................................................................
Accumulated other comprehensive loss .............................................................................
Less: Treasury stock at cost (3,601,124 shares at July 2, 2023 and 3,604,466 shares

at July 3, 2022) ................................................................................................................
Total STRATTEC SECURITY CORPORATION shareholders’ equity.......................
Non-controlling interest .................................................................................................
Total shareholders’ equity ..........................................................................................

$

89,811
77,597
20,800
2,711
7,912
6,380
225,782
—
13,619
7,083
94,446
340,930

57,927

22,616
6,499
2,607
1,390
9,725
8,222
108,986

13,000
1,206
1,157
5,557

75
100,309
234,299
(14,194)

(135,526)
184,963
26,061
211,024
340,930

$

$

$

The accompanying Notes to Financial Statements are an integral part of these Consolidated Balance Sheets.

75,827
80,482
10,828
2,492
4,518
5,311
188,232
26,654
7,081
5,438
91,729
319,134

43,950

17,959
3,454
249
1,390
8,100
6,427
81,529

11,000
1,259
1,329
4,070

75
101,524
240,969
(18,588)

(135,580)
188,400
31,547
219,947
319,134

33

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Total
Shareholders'
Equity

Common
Stock

Capital in
Excess of
Par Value

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

BALANCE June 27, 2021........ $
Net income...............................
Currency translation

adjustments ...........................

Pension and postretirement
funded status adjustment,
net of tax of $96.....................

Cash dividends paid to non-
controlling interests of
subsidiaries............................
Stock-based compensation.........
Stock option exercises...............
Employee stock purchases .........
BALANCE July 3, 2022 .......... $
Net loss....................................
Currency translation

adjustments ...........................

Pension and postretirement
funded status adjustment,
net of tax of $212 ...................

Cash dividends paid to non-
controlling interests of
subsidiaries............................

Purchase of SPA Non-

212,797
8,844

$

(2,318)

$

376

(1,800)
1,140
827
81
219,947
(8,949)

6,164

689

(600)

controlling interest .................
Stock-based compensation.........
Stock option exercises...............
Employee stock purchases .........
BALANCE July 2, 2023 .......... $

(7,877)
1,466
109
75
211,024

$

74
—

—

—

—
—
1
—
75
—

—

—

—

—
—
—
—
75

$

$

99,512
—

233,953
7,016

$

(16,914) $
—

Treasury
Stock
(135,615) $
—

—

—

—

—

(2,050)

376

—

—

—
1,140
826
46
101,524
—

$

—
—
—
—
240,969
(6,670)

—

—

—

—

—

—

(2,811)
1,466
109
21
100,309

$

—
—
—
—
234,299

$

$

$

$

—
—
—
—
(18,588) $
—

—
—
—
35
(135,580) $
—

3,705

689

—

—

—

—

—
—
—
(14,194) $

—
—
—
54
(135,526) $

Non-
controlling
interest

31,787
1,828

(268)

—

(1,800)
—
—
—
31,547
(2,279)

2,459

—

(600)

(5,066)
—
—
—
26,061

The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Shareholders’ Equity.

34

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) income................................................................................................................ $
Adjustments to reconcile net (loss) income to net cash provided by operating

(8,949)

$

8,844

Years Ended

July 2, 2023

July 3, 2022

activities:
Equity earnings of joint ventures....................................................................................
Depreciation ...................................................................................................................
Foreign currency transaction loss (gain) ........................................................................
Unrealized gain on peso forward contracts ....................................................................
Loss on settlement of pension obligation .......................................................................
Deferred income taxes....................................................................................................
Stock-based compensation expense ...............................................................................
Change in operating assets and liabilities:

Receivables.................................................................................................................
Inventories ..................................................................................................................
Other assets.................................................................................................................
Accounts payable and accrued liabilities ...................................................................
Other, net ........................................................................................................................
Net cash provided by operating activities ......................................................................

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in joint ventures ...............................................................................................
Proceeds from Sale of interest in VAST LLC....................................................................
Purchase of VAST Korea net assets...................................................................................
Additions to property, plant and equipment.......................................................................
Proceeds received on sale of property, plant and equipment .............................................
Net cash provided by (used in) investing activities............................................................

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings under credit facilities ......................................................................................
Repayments under credit facilities .....................................................................................
Purchase of SPA non-controlling interest ..........................................................................
Exercise of stock options and employee stock purchases ..................................................
Dividends paid to non-controlling interests of subsidiaries ...............................................
Net cash used in financing activities ..................................................................................
FOREIGN CURRENCY IMPACT ON CASH .................................................................
NET INCREASE (DECREASE) 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:

Income taxes....................................................................................................................... $
Interest ................................................................................................................................ $

Non-Cash Investing Activities:

Purchase price receivable from sale of interest in VAST LLC.......................................... $
Change in capital expenditures in accounts payable .......................................................... $

(1,559)
17,485
2,935
—
217
(4,937)
1,466

(13,696)
2,885
(10,483)
23,964
767
10,095

(278)
26,170
354
(17,370)
25
8,901

17,000
(15,000)
(9,019)
183
(600)
(7,436)
237

11,797

8,774
20,571

2,759
890

(2,000)
(1,437)

$

$
$

$
$

(177)
19,379
(237)
(384)
—
(1,986)
1,140

(5,935)
(9,622)
(3,074)
1,811
677
10,436

(150)
—
—
(14,188)
5
(14,333)

13,000
(14,000)
—
908
(1,800)
(1,892)
98

(5,691)

14,465
8,774

(842)
230

—
1,297

The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Cash Flows.

35

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, fobs, passive entry passive start systems (PEPS),
steering column and instrument panel ignition lock housings, latches, power sliding side door systems, power tailgate systems, power
lift gate systems, power deck lid systems, door handles and related products for primarily North American automotive customers. We
also supply global automotive manufacturers through a strategic relationship with WITTE Automotive (“WITTE”) of Velbert,
Germany and ADAC Automotive (“ADAC”) of Grand Rapids, Michigan. Under this relationship, STRATTEC, WITTE and ADAC
market the products of each company to global customers under the “VAST Automotive Group” brand name (as more fully described
herein). STRATTEC products are shipped to customer locations in the United States, Canada, Mexico, Europe, South America, Korea,
China and India, and we, along with our VAST LLC partners, provide full service and aftermarket support for each VAST
Automotive Group partner’s products. As noted below, effective as of June 30, 2023 we sold our one-third ownership interest in
VAST LLC to WITTE and entered into a cooperation framework agreement with WITTE related to VAST LLC which provides a
framework for the parties to collaborate on global programs related to product development and manufacturing.

The accompanying consolidated financial statements reflect the consolidated results of STRATTEC SECURITY
CORPORATION, its wholly owned Mexican subsidiary, STRATTEC de Mexico, and its majority owned subsidiaries, ADAC-
STRATTEC, LLC and STRATTEC POWER ACCESS LLC. Effective June 30, 2023, STRATTEC POWER ACCESS LLC became a
wholly owned subsidiary of STRATTEC SECURITY CORPORAITON as a result of the purchase of the remaining non-controlling
interest. 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. Effective June 30, 2023, we sold our equity investment in Vehicle Access Systems Technology to WITTE. Prior to the
sale, equity investments in Vehicle Access Systems Technology LLC (“VAST LLC”) for which we exercised significant influence but
did not control and were not variable interest entities of STRATTEC, were accounted for using the equity method. VAST LLC
consisted primarily of four wholly owned subsidiaries in China, one wholly owned subsidiary in Brazil and one joint venture entity in
India. The results of the VAST LLC foreign subsidiaries and joint venture were reported on a one-month lag basis. We have only one
reporting segment.

During December 2022, management determined that a previously unrecorded liability for postretirement death benefits was

required to be recognized in accordance with ASC 715. Eligible participants for this death benefit include all salaried retirees who
retired prior to October 1, 2001 and all hourly retirees who were hired prior to June 27, 2005 and retired prior to January 1, 2010. As
such, this actuarially calculated liability and the unrecognized actuarial losses impacting Accumulated Other Comprehensive Loss are
reported in the Consolidated Balance Sheets. Additionally, interest cost and amortization of actuarial losses are reported in the
Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.

Additionally, management identified a correction to previously reported Equity Earnings of Joint Ventures in the Consolidated
Statements of (Loss) Income and Comprehensive (Loss) Income, which correction also impacts the previously reported Investment in
Joint Ventures amount reported in the Consolidated Balance Sheets. While prior period amounts have been corrected for
comparability, the corrections for both of these items, both individually and in total, were not material to the previously reported
consolidated financial statements.

36

The impact of the prior period corrections on the Consolidated Balance Sheets, the related components of Stockholders’ Equity,

and the related components of Accumulate Other Comprehensive Loss is as follows (thousands of dollars):

July 3, 2022

Previously
Reported

Adjustment

As Reported

ASSETS
Investment in joint ventures ..............................................$
Deferred income taxes.......................................................
Total assets ........................................................................$

26,344
6,937
318,680

LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued Liabilities: Payroll and

benefits .........................................................................$
Total current liabilities ......................................................
Accrued postretirement obligations ..................................

Retained earnings ..............................................................
Accumulated other comprehensive loss............................
Total STRATTEC SECURITY

CORPORATION shareholders'
equity............................................................................
Total shareholders' equity..................................................
Total liabilities and shareholders'

17,905
81,475
463

241,504
(18,657)

188,866
220,413

equity............................................................................$

318,680

Accumulated Other Comprehensive Loss:
Foreign currency translation adjustments .........................$
Retirement and Postretirement Benefit Plans....................
Accumulated other comprehensive loss............................$

(16,723)
(1,934)
(18,657)

Retained earnings ..............................................................$
Accumulated other comprehensive loss............................
Total STRATTEC SECURITY

CORPORATION shareholders' equity ........................
Total shareholders' equity..................................................$

Previously
Reported

234,472
(16,797)

181,646
213,433

$

$

$

$

$

$

$

$

Accumulated Other Comprehensive Loss:
Foreign currency translation adjustments .........................$
Retirement and Postretirement Benefit

Plans .............................................................................
Accumulated other comprehensive loss............................$

(14,685)

$

(2,112)
(16,797)

$

310
144
454

54
54
866

(535)
69

(466)
(466)

454

(10)
79
69

June 27, 2021

Adjustment

(519)
(117)

(636)
(636)

2

(119)
(117)

$

$

$

$

$

$

$

$

$

$

26,654
7,081
319,134

17,959
81,529
1,329

240,969
(18,588)

188,400
219,947

319,134

(16,733)
(1,855)
(18,588)

As Reported

233,953
(16,914)

181,010
212,797

(14,683)

(2,231)
(16,914)

37

The impact of the prior period corrections on the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income

is as follows (thousands of dollars):

Year Ended July 3, 2022

Previously
Reported

Adjustment

As Reported

$

181
423

$

(4)
(17)

Equity earnings of joint ventures..................................$
Other income (expense), net.........................................
Income before provision for

income taxes and non-controlling
interest .....................................................................
Provision for income taxes ...........................................
Net income....................................................................
Net income attributed to STRATTEC

SECURITY CORPORATION ................................$

Comprehensive Income:
Net income....................................................................$
Currency translation adjustments,

net of tax ..................................................................

(2,306)

Pension and postretirement plans,

net of tax ..................................................................

178

Other comprehensive income

(loss), net of tax .......................................................
Comprehensive income ................................................
Comprehensive income attributed
to STRATTEC SECURITY
CORPORATION.....................................................$

Earnings per share attributed to
STRATTEC SECURITY
CORPORATION: diluted .......................................$

9,280
420
8,860

7,032

8,860

$

$

(2,128)
6,732

177
406

9,259
415
8,844

7,016

(21)
(5)
(16)

(16)

$

(16)

$

8,844

(12)

198

186
170

(2,318)

376

(1,942)
6,902

5,172

$

170

$

5,342

1.80

$

(0.01)

$

1.79

The correction of prior period amounts had no impact on total operating, investing, and financing activities on the Consolidated

Statements of Cash Flows for the year ended July 3, 2022. In conjunction with the correction of the prior period amounts, the
following footnotes, which were impacted by the above adjustments, were also corrected: Shareholders’ Equity, Other (Expense)
Income, net, Earnings Per Share, Pension and Postretirement Benefits, and Accumulated Other Comprehensive Loss.

Reclassifications: For consistency with current year presentation, reclassifications have been made to the Consolidated
Balance Sheet for the fiscal year ended July 3, 2022 in order to separately state Value Added Tax Recoverable and Value Added Tax
Payable. These reclassifications had no effect on the reported results of operations and cash flows.

Risks and Uncertainties: Due to the evolving global economic conditions since 2020, initially as a result of the COVID-19

pandemic, the automotive industry experienced a decline in global customer sales and production volumes. Although industry
production has recovered modestly, production remains well below recent historic levels. Moreover, since 2020, industry and
economic conditions have been influenced directly and indirectly by macroeconomic events such as the COVID-19 pandemic and,
beginning in February 2022, the Russia-Ukraine conflict, resulting in unfavorable conditions. These conditions have severely
restricted the level of economic activity in many countries, and continue 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. Our 2022 net sales were negatively impacted by a global semiconductor chip
shortage (especially as it relates to the automotive industry). 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
2023 and 2022 operating results.

38

Inflationary pressures in the U.S. and global economy continue to adversely impact our operating results and 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, assessment of our annual effective tax rate, valuation of deferred income taxes,
assessment of excess and obsolete inventory reserves, and assessment of collectability of trade receivables.

Significant Accounting Policies: The significant accounting policies followed in the preparation of these financial statements,

as summarized in the following paragraphs, are in conformity with accounting principles generally accepted in the United States of
America (U.S. GAAP).

Principles of Consolidation and Presentation: The accompanying consolidated financial statements include the accounts of

STRATTEC SECURITY CORPORATION, its wholly owned 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.

New Accounting Standards: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The update

revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded.
Originally, the update was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15,
2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, Financial Instruments – Credit Losses,
Derivatives and Hedging, and Leases. This ASU defers the effective date of ASU 2016-13 for public companies that are considered
smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods
within those fiscal years. We are planning to adopt this standard in the first quarter of our fiscal 2024. The adoption of this
pronouncement will not have a material impact on our consolidated financial statements.

Subsequent Event: On August 22, 2023, STRATTEC entered into an agreement, which is effective September 6, 2023, with

BMO Harris Bank N.A. to renew the term of its current $40 million secured credit facility until August 1, 2026. Under the terms of the
new agreement, interest on borrowings under the credit facility will be at varying rates based, at our option, on Term SOFR plus 1.85
percent or the bank’s prime rate. Refer to the discussion of Credit Facilities herein.

Fiscal Year: Our fiscal year ends on the Sunday nearest June 30. The year ended July 2, 2023 is comprised of 52 weeks. The

year ended July 3, 2022 is comprised of 53 weeks.

Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make

estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the periods presented.
These estimates and assumptions could also affect the disclosure of contingencies. Actual results and outcomes may differ from
management’s estimates and assumptions.

Cash and Cash Equivalents: Cash and cash equivalents include all short-term investments with an original maturity of three
months or less due to the short-term nature of the instruments. Excess cash balances are placed in short-term commercial paper and
short-term certificates of deposit.

Derivative Instruments: We own and operate manufacturing operations in Mexico. As a result, a portion of our manufacturing
costs are incurred in Mexican pesos, which causes our earnings and cash flows to fluctuate due to changes in the U.S. dollar/Mexican
peso exchange rate. During 2022 and 2023, we had contracts with Bank of Montreal that provide for monthly Mexican peso currency
forward contracts for a portion of our estimated peso denominated operating costs. Our objective in entering into currency forward
contracts is to minimize our earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican
operations. The Mexican peso forward contracts are not used for speculative purposes and are not designated as hedges. As a result, all
currency forward contracts are recognized in our accompanying consolidated financial statements at fair value and changes in the fair
value are reported in current earnings as part of Other (Expense) Income, net. No Mexican peso forward contracts were outstanding as
of July 2, 2023.

39

The fair market value of all outstanding Mexican peso forward contracts in the accompanying Consolidated Balance Sheets was

as follows (thousands of dollars):

Not designated as hedging instruments:

Other current assets:

Mexican peso forward contracts ....................................................... $

— $

627

July 2, 2023

July 3, 2022

The pre-tax effects of the Mexican peso forward contracts on the accompanying Consolidated Statements of (Loss) Income and

Comprehensive (Loss) Income consisted of the following (thousands of dollars):

Not Designated as Hedging Instruments:

Realized gain......................................................................................... $
Realized (loss)....................................................................................... $
Unrealized gain ..................................................................................... $

1,022

$
— $
— $

434
(73)
384

Other (Expense) Income, net
Years Ended

July 2, 2023

July 3, 2022

Fair Value of Financial Instruments: The fair value of our cash and cash equivalents, accounts receivable, accounts payable
and borrowings under our credit facilities approximated their book value as of July 2, 2023 and July 3, 2022. Fair value is defined as
the exchange price that would be received for an asset or paid for a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques
used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. There is an
established fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last
unobservable. Level 1 – Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time
quotes for transactions in active exchange markets involving identical assets. Level 2 – Inputs, other than quoted prices included
within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-
available pricing sources for comparable instruments. Level 3 – Unobservable inputs, where there is little or no market activity for the
asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing
the asset or liability, based on the best information available in the circumstances. The following table summarizes our financial assets
and liabilities measured at fair value on a recurring basis as of July 2, 2023 and July 3, 2022 (thousands of dollars):

July 2, 2023

July 3, 2022

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.....

161
327
492
503
1,022
—
—
Total assets at fair value .... $ 2,505

$ — $
—
—
—
—
113
—
113

$

$

161
— $
327
—
492
—
503
—
1,022
—
113
—
—
—
— $ 2,618

$

142
291
416
447
1,023
—
—
$ 2,319

$ — $
—
—
—
—
961
627
$ 1,588

$

142
— $
291
—
416
—
447
—
1,023
—
961
—
—
627
— $ 3,907

The Rabbi Trust assets fund our supplemental executive retirement plan and are included in Other Long-Term Assets in the
accompanying Consolidated Balance Sheets as of July 2, 2023. 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. Refer to discussion of Mexican peso forward contracts under Derivative Instruments above. The fair value of the
Mexican peso forward contracts considers the remaining term, current exchange rate and interest rate differentials between the two
currencies.

40

Receivables: Receivables consist primarily of trade receivables due from Original Equipment Manufacturers in the automotive

industry and locksmith/dealership distributors relating to our service and aftermarket sales. We evaluate the collectability of
receivables based on a number of factors. An allowance for doubtful accounts is recorded for significant past due receivable balances
based on a review of the past due items, general economic conditions (including with respect to the impact of 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 2, 2023 and July 3, 2022.

Inventories: Inventories are comprised of material, direct labor and manufacturing overhead, and are stated at net realizable
value using the first-in, first-out (“FIFO”) cost method of accounting. Inventories consisted of the following (thousands of dollars):

Finished products ...................................................................................... $
Work in process ........................................................................................
Purchased materials ..................................................................................

Excess and obsolete reserve......................................................................
Inventories, net.......................................................................................... $

July 2, 2023

July 3, 2022

17,196
17,492
50,024
84,712
(7,115)
77,597

$

$

19,499
18,263
48,209
85,971
(5,489)
80,482

We record a reserve for excess and obsolete inventory based on historical and estimated future demand and market conditions.

The reserve level is determined by comparing inventory levels of individual materials and parts to historical usage and estimated
future sales by analyzing the age of the inventory in order to identify specific materials and parts that are unlikely to be sold. Technical
obsolescence and other known factors are also considered in evaluating the reserve level. The activity related to the excess and
obsolete inventory reserve was as follows (thousands of dollars):

Year ended July 2, 2023......................................................... $
Year ended July 3, 2022......................................................... $

5,489
5,380

$
$

1,457
962

$
$

(169) $
$
853

7,115
5,489

Balance,
Beginning
of Year

Provision
Charged to
Expense

Amounts
Written Off /
(Recoveries)

Balance,
End of Year

Customer Tooling in Progress: We incur costs related to tooling used in component production and assembly. Costs for
development of certain tooling, which will be directly reimbursed by the customer whose parts are produced from the tool, are
accumulated on the balance sheet and are then billed to the customer. The accumulated costs are billed upon formal acceptance by the
customer of products produced with the individual tool. Other tooling costs are not directly reimbursed by the customer. We capitalize
and amortize these other tooling costs over the life of the related product based on the fact that the related tool will be used over the
life of the supply arrangement. To the extent that estimated costs exceed expected reimbursement from the customer we recognize a
loss.

Property, Plant and Equipment: Property, plant and equipment are stated at cost. Property, plant and equipment are

depreciated on a straight-line basis over the estimated useful lives of the assets as follows:

Classification
Land improvements ....................................................................................................
Buildings and improvements ......................................................................................
Machinery and equipment ..........................................................................................

Expected
Useful Lives

20 years
15 to 35 years
3 to 15 years

Property, plant and equipment consisted of the following (thousands of dollars):

Land and improvements............................................................................ $
Buildings and improvements ....................................................................
Machinery and equipment.........................................................................

Less: accumulated depreciation ................................................................

$

July 2, 2023

July 3, 2022

6,963
41,218
251,995
300,176
(205,730)
94,446

$

$

6,041
37,158
235,050
278,249
(186,520)
91,729

41

Depreciation expense was as follows for the periods indicated (thousands of dollars):

Fiscal Year
2023 ................................................................................................................................. $
2022 ................................................................................................................................. $

Depreciation
Expense

17,485
19,379

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 .......................................................................................... $

178,592
68,240

$
$

159,909
64,645

July 2, 2023

July 3, 2022

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount

of an asset may not be recoverable. If such indicators are present, the recoverability of assets to be held and used is assessed by a
comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If an asset
is determined to not be recoverable, the impairment recognized is calculated as the excess of the carrying amount of the asset over the
fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less estimated costs to
sell. There were no impairments recorded in the years ended July 2, 2023 or July 3, 2022.

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. During fiscal
2023, the El Paso warehouse lease was amended, which resulted in a lease modification that changed future payments for the existing
premises. The amended lease has a current lease term through December 2028. The lease does not contain an option to extend the
lease term, material residual value guarantees or restrictive covenants. Operating lease expense is recognized on a straight-line basis
over the lease term.

As the lease does not provide an implicit rate, we used our incremental borrowing rate at lease commencement to determine the

present value of our lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest we
would pay to borrow over a similar term with similar payments.

The operating lease asset and obligation related to our El Paso warehouse lease included in the accompanying Consolidated

Balance Sheets are presented below (thousands of dollars):

Right-of-Use Asset Under Operating Lease:

Other Long-Term Assets .................................................................................... $

Lease Obligation Under Operating Lease:

Current Liabilities: Accrued Liabilities: Other................................................... $
Other Long-Term Liabilities...............................................................................

$

July 2, 2023

July 3, 2022

4,465

465
4,000
4,465

$

$

$

3,021

403
2,618
3,021

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 2, 2023 (thousands of dollars):

2024 ................................................................................................................................................... $
2025 ...................................................................................................................................................
2026 ...................................................................................................................................................
2027 ...................................................................................................................................................
Thereafter ..........................................................................................................................................
Total Future Minimum Lease Payments ...........................................................................................
Less: Imputed Interest ...................................................................................................................
Total Lease Obligations..................................................................................................................... $

730
941
988
1,037
1,647
5,343
(878)
4,465

42

Cash flow information related to the operating lease is shown below (thousands of dollars):

Operating Cash Flows:

Cash Paid Related to Operating Lease Obligation.............................................. $

497

$

484

Years Ended

July 2, 2023

July 3, 2022

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)..........................................
Weighted Average Discount Rate..........................................................................

5.5
6.2%

6.3
3.3%

July 2, 2023

July 3, 2022

Operating lease expense for the years ended July 2, 2023 and July 3, 2022 totaled $497,000 and $484,000, respectively.

Supplier Concentrations: The following inventory purchases were made from major suppliers during each fiscal year noted:

Fiscal Year
2023..........................................................................................................
2022..........................................................................................................

Percentage of
Inventory
Purchases

39%
38%

Number of
Suppliers

6
6

We have long-term contracts or arrangements with most of our suppliers to assist in guaranteeing the availability of raw

materials and component parts.

Labor Concentrations: We had approximately 3,361 full-time associates as of July 2, 2023. Approximately 178 or 5.3 percent
of our full time associates were represented by a labor union at July 2, 2023 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 102 or 3.0 percent of our full time associates were represented by a labor
union at our Leon, Mexico facility. The current contract with our Leon unionized associates is effective through April 8, 2024.

Revenue Recognition: We generate revenue from the production of parts sold to automotive and light-truck Original
Equipment Manufacturers (“OEMs”), or Tier 1 suppliers at the direction of the OEM, under long-term supply agreements supporting
new vehicle production. Such agreements also require related production of service parts subsequent to the initial vehicle production
periods. Additionally, we generate revenue from the production of parts sold in aftermarket service channels and to non-automotive
commercial customers.

Revenue Recognition:

Our contracts with customers under long-term supply agreements do not commit the customer to a specified quantity of parts.
However, we are generally required to fulfill our customers’ purchasing requirements for the production life of the vehicle. Contracts
do not become a performance obligation until we receive either a purchase order and/or customer release for a specific number of
parts at a specified price. While long-term supply agreements may range from four to six years for new vehicle production and ten to
fifteen subsequent years for service parts production, contracts may be terminated by customers at any time. Historically, terminations
have been minimal. Contracts may also provide for annual price reductions over the production life of the vehicle, and prices are
adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors.

Revenue is recognized at a point in time when control of the parts produced are transferred to the customer according to the
terms of the contract, which is usually when the parts are shipped or delivered to the customer’s premises. Customers are generally
invoiced upon shipment or delivery and payment generally occurs within 45 to 90 days after the shipment date. The amount of
revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for those products based on purchase
orders, annual price reductions and ongoing price adjustments, some of which are accounted for as variable consideration. We use the
most likely amount method, the single most likely outcome of the contract, to estimate the amount to which we expect to be entitled.
There were no significant changes to our estimates of variable consideration during the reporting periods referenced in our
accompanying financial statements and significant changes to our estimates of variable consideration are not expected in future
periods.

43

We do not have an enforceable right to payment at any time prior to when the parts are shipped or delivered to the customer.

Therefore, we recognize revenue at the point in time we satisfy a performance obligation by transferring control of a part to a
customer. Amounts billed to customers related to shipping and handling costs are included in Net Sales in the accompanying
Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. Shipping and handling costs are accounted for as
fulfillment costs and are included in Cost of Goods Sold in the accompanying Consolidated Statements of (Loss) Income and
Comprehensive (Loss) 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
the accompanying Consolidated Balance Sheets. We expense all pre-production engineering costs for which reimbursement is not
contractually guaranteed by the customer. All pre-production tooling costs related to customer-owned tools for which reimbursement
is not contractually guaranteed by the customer or for which we do not have a non-cancelable right to use the tooling is also expensed
when incurred.

Receivables, net:

Receivables, net include amounts billed and currently due from customers. We maintain an allowance for doubtful accounts to
provide for estimated amounts of receivables not expected to be collected. We continually assess our receivables for collectability and
any allowance is recorded based upon age of the outstanding receivables, historical payment experience, customer creditworthiness
and general economic conditions.

Contract Balances:

We had no material contract assets or contract liabilities as of July 2, 2023 or July 3, 2022.

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 $15.9 million in 2023 and $12.2 million in 2022.

Other (Expense) Income, Net: Net other (expense) income included in the accompanying Consolidated Statements of (Loss)
Income and Comprehensive (Loss) Income primarily included foreign currency transaction gains and losses, realized and unrealized
gains and losses on our Mexican peso currency forward contracts, the components of net periodic benefit cost other than the service
cost component related to our pension and postretirement plans and Rabbi Trust gains and losses. Foreign currency transaction gains
and losses resulted from activity associated with foreign denominated assets and liabilities held by our Mexican subsidiaries. The
Rabbi Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in the Trust are
considered trading securities. We entered into the Mexican peso currency forward contracts during fiscal 2023 and 2022 to reduce
earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. Pension and
postretirement plan costs include the components of net periodic benefit cost other than the service cost component. The impact of
these items for the periods presented was as follows (thousands of dollars):

Foreign currency transaction (loss) gain................................................... $
Rabbi Trust Assets gain (loss) ..................................................................
Unrealized gain on Mexican peso forward contracts................................
Realized gain on Mexican peso forward contracts, net ............................
Pension and postretirement plans cost ......................................................
Other .........................................................................................................

$

Years Ended

July 2, 2023

July 3, 2022

(2,935) $
202
—
1,022
(722)
255
(2,178) $

237
(304)
384
361
(505)
233
406

44

Warranty Reserve: We have a warranty reserve recorded related to our known and potential exposure to warranty claims in the

event our products fail to perform as expected, and in the event we may be required to participate in the repair costs incurred by our
customers for such products. The recorded warranty reserve balance involves judgment and estimates. Our reserve estimate is based
on an analysis of historical warranty data as well as current trends and information. During 2023, we recorded warranty provisions
associated with customer-specific warranty claims involving our product. As additional information becomes available, actual results
may differ from recorded estimates, which may require us to adjust the amount of our warranty provision.

Changes in the warranty reserve were as follows (thousands of dollars):

Year ended July 2, 2023 ......................................................... $
Year ended July 3, 2022 ......................................................... $

8,100
8,425

$
$

2,405
265

$
$

780
590

$
$

9,725
8,100

Balance,
Beginning
of Year

Provision
Charged
to Expense

Payments

Balance,
End of Year

Foreign Currency Translation: The financial statements of our foreign subsidiaries and equity investees are translated into

U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the average exchange rate for each
applicable period for sales, costs and expenses. Foreign currency translation adjustments are included as a component of accumulated
other comprehensive loss. Foreign currency transaction gains and losses are included in other (expense) income, net in the
accompanying Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.

Accumulated Other Comprehensive Loss (“AOCL”): The following tables summarize the changes in AOCL for the years

ended July 2, 2023 and July 3, 2022 (thousands of dollars):

Balance July 3, 2022 ............................................................... $
Other comprehensive loss before reclassifications .............
Income Tax .................................................................

$

16,733
(4,698)
(636)

$

1,855
(559)
132

Foreign
Currency
Translation
Adjustments

Year Ended July 2, 2023
Retirement
and
Postretirement
Plans

Net other comprehensive loss before

reclassifications............................................................

(5,334)

Total

18,588
(5,257)
(504)

(5,761)

(830)
(342)
(1,172)
80
(1,092)
(6,853)

(830)
—
(830)
—
(830)
(6,164)

(427)

—
(342)
(342)
80
(262)
(689)

(2,459)
13,028

$

—
1,166

$

(2,459)
14,194

Reclassifications:

Sale of interest in VAST LLC ........................................
Actuarial losses (A).........................................................
Total reclassifications before tax ....................................
Income Tax .................................................................
Net reclassifications ........................................................
Other comprehensive loss ...................................................
Other comprehensive loss attributable

to non-controlling interest...........................................

Balance July 2, 2023 ............................................................... $

45

Balance June 27, 2021 ............................................................ $
Other comprehensive loss before reclassifications .............
Income Tax .................................................................

$

14,683
1,712
606

$

2,231
(82)
19

Foreign
Currency
Translation
Adjustments

Year Ended July 3, 2022
Retirement
and
Postretirement
Plans

Net other comprehensive loss before

reclassifications............................................................

Reclassifications:

Actuarial losses (A).........................................................
Total reclassifications before tax ....................................
Income Tax .................................................................
Net reclassifications ........................................................
Other comprehensive loss ...................................................
Other comprehensive loss attributable

to non-controlling interest...........................................

Balance July 3, 2022 ............................................................... $

Total

16,914
1,630
625

2,255

(409)
(409)
96
(313)
1,942

2,318

—
—
—
—
2,318

(63)

(409)
(409)
96
(313)
(376)

268
16,733

$

—
1,855

$

268
18,588

(A) Amounts reclassified are included in the computation of net periodic benefit cost, which is included in Other (Expense) Income,

net in the accompanying Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. See Retirement Plans
and Postretirement Costs note to these Notes to Financial Statements below.

Stock-Based Compensation: We maintain an omnibus stock incentive plan. This plan provides for the granting of stock
options, shares of restricted stock and stock appreciation rights. The Board of Directors has designated 2 million shares of common
stock available for the grant of awards under the plan. Remaining shares available to be granted under the plan as of July 2, 2023 were
134,769. Awards that expire or are cancelled without delivery of shares become available for re-issuance under the plan. We issue
new shares of common stock to satisfy stock option exercises.

Nonqualified and incentive stock options and shares of restricted stock have been granted to our officers, outside directors and
specified associates under the stock incentive plan. Stock options granted under the plan may not be issued with an exercise price less
than the fair market value of the common stock on the date the option is granted. Stock options become exercisable as determined at
the date of grant by the Compensation Committee of our Board of Directors. The options expire 10 years after the grant date unless an
earlier expiration date is set at the time of grant. The options vest 1 to 4 years after the date of grant. Shares of restricted stock granted
under the plan are subject to vesting criteria determined by the Compensation Committee of our Board of Directors at the time the
shares are granted and have a minimum vesting period of one year from the date of grant. Restricted shares granted have voting rights,
regardless of whether the shares are vested or unvested, but only have the right to receive cash dividends after such shares become
vested. Restricted stock grants issued vest 1 to 3 years after the date of grant.

No stock options were granted during 2023 or 2022, and all compensation cost related to previously granted options was

recognized prior to 2022. Accordingly, no compensation cost related to stock options was recorded during 2023 or 2022. The fair
value of each restricted stock grant was based on the market price of the underlying common stock as of the date of grant. The
resulting compensation cost is amortized on a straight-line basis over the vesting period. We record stock based compensation only for
those awards that are expected to vest.

Unrecognized compensation cost as of July 2, 2023 related to restricted stock granted under the plan was as follows (thousands

of dollars):

Restricted stock granted ........................................................................... $

1,370

0.9

Unrecognized compensation cost will be adjusted for any future changes in estimated and actual forfeitures.

Weighted Average
Period over
which Cost is to be
Recognized
(in years)

Compensation
Cost

46

Cash received from stock option exercises and the related income tax benefit were as follows (thousands of dollars):

Fiscal Year
2023......................................................................................................... $
2022......................................................................................................... $

Cash Received
from
Stock Option
Exercises

Income Tax
Benefit

109
827

$
$

—
74

The intrinsic value of stock options exercised and the fair value of options vested were as follows (thousands of dollars):

Intrinsic value of options exercised .......................................................... $
Fair value of stock options vested............................................................. $

31
$
— $

451
—

Years Ended

July 2, 2023

July 3, 2022

The range of options outstanding as of July 3, 2022 was as follows:

$38.71 ................................................................................
$79.73 ................................................................................

Number of
Options
Outstanding and
Exercisable

Weighted
Average
Exercise Price
Outstanding and
Exercisable

24,491
8,070
32,561

$
$
$

38.71
79.73
48.88

Weighted
Average
Remaining
Contractual
Life Outstanding
(In Years)
0.13
1.13

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 differences between the financial statement carrying amounts of assets and
liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered,
settled or utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax
benefit will not be realized. We recognize the benefit of an income tax position only if it is more likely than not (greater than 50
percent) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position.
Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50
percent likelihood of being realized upon ultimate settlement. Additionally, we accrue interest and related penalties, if applicable, on
all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest and penalties on uncertain
tax positions are classified in the (Benefit) Provision for Income Taxes in the accompanying Consolidated Statements of (Loss)
Income and Comprehensive (Loss) Income.

INVESTMENT IN JOINT VENTURES AND MAJORITY OWNED SUBSIDIARIES

Prior to June 30, 2023, we participated in certain Alliance Agreements with WITTE Automotive (“WITTE”) and ADAC

Automotive (“ADAC”). WITTE, of Velbert, Germany, is a privately held automotive supplier. WITTE designs, manufactures and
markets automotive components, including locks and keys, hood latches, rear compartment latches, seat back latches, door handles
and specialty fasteners. WITTE’s primary market for these products has been Europe. ADAC, of Grand Rapids, Michigan, is a
privately held automotive supplier and manufactures engineered products, including door handles and other automotive trim parts,
utilizing plastic injection molding, automated painting and various assembly processes.

The Alliance Agreements included 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 held a one-third equity interest, existed to seek opportunities to manufacture and sell
each company’s products in areas of the world outside of North America and Europe. As a result of these relationships, the entities
involved purchased component products from each other for use in end products assembled and sold in their respective home markets.
STRATTEC purchased such component parts from WITTE. These purchases totaled $839,000 in 2023 and $918,000 in 2022.
STRATTEC also paid WITTE a royalty related to certain latch product sales. Such royalties incurred totaled $528,000 in 2023 and

47

$889,000 in 2022. The outstanding payable balance to WITTE was $459,000 as of July 3, 2022. WITTE was no longer a related party
as of July 2, 2023 as a result of the Equity Restructuring Agreement discussed below.

VAST LLC had investments in Sistema de Acesso Veicular Ltda, VAST China (Taicang), VAST Jingzhou Co. Ltd., VAST

Shanghai Co., VAST Fuzhou and Minda-VAST Access Systems. The operations under VAST Fuzhou closed during our fiscal 2021
and the related land and building were held for sale. Sistema de Acesso Veicular Ltda was located in Brazil and serviced customers in
South America. VAST LLC disposed of Sistema de Acesso Veicular Ltda in June 2023. VAST China (Taicang), VAST Jingzhou Co.
Ltd, and VAST Shanghai Co. (collectively known as VAST China), provided 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. VAST LLC also maintained branch offices in South Korea
and Japan in support of customer sales and engineering requirements.

Effective June 30, 2023, we entered into and completed transactions contemplated by an Equity Restructuring Agreement
("Restructuring Agreement") between STRATTEC and WITTE. Pursuant to the terms of the Restructuring Agreement, STRATTEC
sold its one-third interest in VAST LLC to WITTE and STRATTEC purchased WITTE's 20 percent non-controlling interest in
STRATTEC POWER ACCESS LLC ("SPA") along with the net assets of VAST LLC's Korea branch office. The total net purchase
price payable from WITTE to STRATTEC was $18.5 million, of which $16.5 million was paid on June 30, 2023 and $2 million was
paid in July 2023. The $2 million paid in July 2023 was included in other current assets in the accompanying Consolidated Balance
Sheet as of July 2, 2023. The allocation of the $18.5 million net purchase price was as follows (millions of dollars):

Sale of STRATTEC's one-third ownership interest in VAST LLC........................... $
Purchase of 20 percent non-controlling interest in SPA ............................................
Purchase of net assets of VAST LLC's Korean branch office ...................................
Net purchase price received by STRATTEC ............................................................. $

28.2
(9.0)
(0.7)
18.5

Cash Received (Paid)

As of June 30, 2023, the Korean branch office is wholly owned by STRATTEC and its subsequent financial results are
consolidated with the financial results of STRATTEC. The Restructuring Agreement will position STRATTEC to redeploy assets,
both financial and technical, to create greater focus on STRATTEC-specific strategic growth opportunities in North America and
around the world. This transaction will allow STRATTEC to be well-positioned to take advantage of new opportunities, including
more of our product applications on Electric Vehicles, growing consumer demand for Power Access products, expansion of
electronics capabilities and other new automotive products. It will also give us greater resources to further explore diversification of
markets, complimentary technology and regions outside of North America. As part of the Restructuring Agreement, STRATTEC also
entered into a cooperation framework agreement with WITTE related to VAST LLC which provides a framework for the parties to
collaborate on global programs related to product development and manufacturing.

Prior to the restructuring agreement, VAST LLC investments were accounted for using the equity method of accounting. Results

of the VAST LLC foreign subsidiaries and joint venture were reported on a one-month lag basis. The activities of the VAST LLC
foreign subsidiaries and joint ventures resulted in equity earnings of joint ventures to STRATTEC of approximately $1.6 million
during 2023 and $177,000 during 2022. STRATTEC's 2023 equity earnings includes STRATTEC's one-third of a loss on disposal of
Brazil of $531,000 and a gain on sale of STRATTEC's one-third share of VAST LLC of $110,000. During 2023, capital contributions
totaling $834,000 were made to VAST LLC for purposes of funding operations in Brazil with STRATTEC's portion of such capital
contributions totaling $278,000. During 2022, capital contributions totaling $450,000 were made to VAST LLC for purposes of
funding operations in Brazil with STRATTEC’s portion of such capital contribution totaling $150,000. As of June 30, 2023,
STRATTEC has no continuing involvement in VAST LLC other than under the cooperation framework agreement described above.

STRATTEC POWER ACCESS LLC (“SPA”) was formed in fiscal year 2009 to supply the North American portion of the
power sliding door, lift gate, tail gate and deck lid system access control products which were acquired from Delphi Corporation. Prior
to the Restructuring Agreement, SPA was 80 percent owned by STRATTEC and 20 percent owned by WITTE. As a result of the
Restructuring Agreement, STRATTEC purchased the remaining 20 percent interest in SPA, and SPA became a wholly owned
subsidiary of STRATTEC. An additional Mexican entity, STRATTEC POWER ACCESS de Mexico, is wholly owned by SPA.
STRATTEC's purchase of WITTE's 20 percent noncontrolling interest in SPA was accounted for as an equity transaction. No gain or
loss was recognized in the Consolidated Statement of (Loss) Income and Comprehensive (Loss) Income. The difference between the
fair value of the consideration paid and the amount by which the non-controlling interest was adjusted was recognized in equity
attributable to STRATTEC. The financial results of SPA are consolidated with the financial results of STRATTEC. SPA net sales and
net income to STRATTEC totaled approximately $114.1 million and $2.5 million, respectively, in 2023 and $95.7 million and $5.3
million, respectively, in 2022.

48

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. ADAC-STRATTEC LLC net sales and net loss to STRATTEC totaled approximately $121.9 million and $2.1 million,
respectively, in 2023 and approximately $111.8 million and $100,000, respectively, in 2022. ADAC charges ADAC-STRATTEC
LLC an engineering, research and design fee as well as a sales fee. Such fees are calculated as a percentage of ADAC-STRATTEC
LLC net sales, are included in the consolidated results of STRATTEC, and totaled $8.5 million in 2023 and $7.8 million in 2022. The
related outstanding payable balance to ADAC was $4.9 million as of July 2, 2023 and $1.9 million as of July 3, 2022. Effective
January 1, 2023, ADAC and STRATTEC agreed to suspend the payment of these fees as needed to comply with debt covenant
provisions included in the ADAC-STRATTEC LLC credit facility described in greater detail under Credit Facilities below.
Additionally, ADAC-STRATTEC LLC sells production parts to ADAC. Sales to ADAC are included in the consolidated results of
STRATTEC and totaled $12.2 million in 2023 and $9.1 million in 2022. The related outstanding receivable balance from ADAC was
$3.9 million and $1.6 million as of July 2, 2023 and July 3, 2022, respectively.

See further discussion under Equity Earnings of Joint Ventures included in Notes to Financial Statements herein.

EQUITY EARNINGS OF JOINT VENTURES

As discussed above within Investment in Joint Ventures and Majority Owned Subsidiaries, effective June 30, 2023, we sold our

one-third ownership interest in VAST LLC, for which we exercised significant influence but did not control. VAST LLC was not a
variable interest entity of STRATTEC. Until the effective date of the sale, our investment in VAST LLC was accounted for using the
equity method. The results of the VAST LLC foreign subsidiaries and joint venture were reported on a one-month lag basis.

During the quarter ended March 27, 2022, VAST China experienced a fire at their Taicang facility. As a result, certain door
handle and painting operations were subsequently transferred to their new Jingzhou facility and to another supplier. The transfer of
production negatively impacted VAST China’s fiscal 2022 profitability.

As a result of the Restructuring Agreement, STRATTEC no longer holds an ownership interest in VAST LLC as of July 2,
2023. The following are summarized statements of operations and summarized balance sheet data for VAST LLC (thousands of
dollars):

Years Ended

July 2, 2023

July 3, 2022

Net sales .................................................................................................... $
Cost of goods sold.....................................................................................
Gross profit ...........................................................................................
Engineering, selling and administrative expense......................................
Income (Loss) from operations .............................................................
Other income, net......................................................................................
Loss on disposal of investment in Brazil ..................................................
Income (Loss) before provision for income taxes ................................
Provision (benefit) for income taxes.........................................................

Net income ............................................................................................ $

STRATTEC’s share of VAST LLC net

income................................................................................................... $

Intercompany profit eliminations..............................................................
STRATTEC’s equity earnings of VAST LLC

prior to loss on sale ...............................................................................
Gain on sale of VAST LLC..................................................................
STRATTEC's equity earnings of VAST LLC ................................... $

207,362
171,851
35,511
31,302
4,209
2,304
(1,592)
4,921
672
4,249

1,416
33

1,449
110
1,559

$

$

$

$

191,642
160,886
30,756
31,887
(1,131)
902
—
(229)
(754)
525

175
2

177
—
177

49

Cash and cash equivalents ........................................................................ $
Receivables, net ........................................................................................
Inventories, net..........................................................................................
Other current assets...................................................................................
Total current assets ...............................................................................
Property, plant and equipment, net ...........................................................
Other long-term assets ..............................................................................

Total assets............................................................................................ $
Current debt .............................................................................................. $
Other current liabilities .............................................................................
Long-term debt..........................................................................................
Other long-term liabilities.........................................................................

Total liabilities ...................................................................................... $
Net assets .................................................................................................. $
STRATTEC’s share of VAST LLC net assets ......................................... $

July 2, 2023

July 3, 2022

— $
—
—
—
—
—
—
— $
— $
—
—
—
— $
— $
— $

21,694
39,467
26,881
14,574
102,616
70,096
16,686
189,398
388
86,364
20,079
2,258
109,089
80,309
26,770

We had sales of component parts to VAST LLC, purchases of component parts from VAST LLC, expenses charged to VAST

LLC for engineering and accounting services and expenses charged from VAST LLC to STRATTEC for general headquarter
expenses. As a result of the Restructuring Agreement, STRATTEC no longer holds an ownership interest in VAST LLC as of July, 2,
2023. The following tables summarize the related party transactions with VAST LLC for the periods indicated (thousands of dollars):

Years Ended

July 2, 2023

July 3, 2022

Sales to VAST LLC .................................................................................. $
Purchases from VAST LLC ...................................................................... $
Expenses charged to VAST LLC.............................................................. $
Expenses charged from VAST LLC ......................................................... $

64
49
382
761

$
$
$
$

1,805
169
593
784

Accounts receivable from VAST LLC ..................................................... $
Accounts payable to VAST LLC.............................................................. $

— $
— $

63
23

July 2, 2023

July 3, 2022

CREDIT FACILITIES

STRATTEC has a $40 million secured revolving credit facility (the “STRATTEC Credit Facility”) with BMO Harris Bank N.A.

ADAC-STRATTEC LLC has a $25 million secured revolving credit facility (the “ADAC-STRATTEC Credit Facility”) with BMO
Harris Bank N.A., which is guaranteed by STRATTEC. The credit facilities expire on August 1, 2024. Borrowings under either credit
facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixed assets located in the U.S. Interest on
borrowings under the STRATTEC Credit Facility were at varying rates based, at our option, on LIBOR plus 1.25 percent or the bank’s
prime rate through February 22, 2023. Interest on borrowings under the ADAC-STRATTEC Credit Facility were at varying rates
based, at our option, on LIBOR plus 1.25 percent or the bank’s prime rate through February 6, 2023. Subsequent to these dates,
interest on borrowings under both credit facilities were at varying rates based, at our option, on SOFR plus 1.35 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 2, 2023, we were in compliance with all financial covenants
required by these credit facilities. Refer to further discussion under Subsequent Events included herein.

Outstanding borrowings under the credit facilities referenced in the above paragraph as of the end of 2023 and 2022 were as

follows (thousands of dollars):

STRATTEC Credit Facility ...................................................................... $
ADAC-STRATTEC Credit Facility .........................................................

$

July 2, 2023

July 3, 2022

— $

13,000
13,000

$

—
11,000
11,000

50

Average outstanding borrowings and the weighted average interest rate under each such credit facility during 2023 and 2022

were as follows (thousands of dollars):

Average Outstanding
Borrowings
Years Ended

Weighted Average
Interest Rate
Years Ended

STRATTEC Credit Facility ................................................... $
ADAC-STRATTEC Credit Facility ...................................... $

July 2, 2023
5,365
12,426

July 3, 2022
332
$
14,248
$

July 2, 2023

July 3, 2022

5.7%
5.3%

2.0%
1.5%

We believe that the credit facilities referenced above are adequate, along with existing cash balances and cash flow from

operations, to meet our anticipated capital expenditure, working capital, dividend and operating expenditure requirements.

COMMITMENTS AND CONTINGENCIES

We are from time to time subject to various legal actions and claims incidental to our business, including those arising out of

alleged defects, alleged breaches of contracts, product warranties, intellectual property matters and employment related matters. It is
our opinion that the outcome of such matters will not have a material adverse impact on the consolidated financial position, results of
operations or cash flows of STRATTEC. With respect to warranty matters, although we cannot ensure that the future costs of warranty
claims by customers will not be material, we believe our established reserves are adequate to cover potential warranty settlements.

In 1995, we recorded a provision for estimated costs to remediate an environmental contamination site at our Milwaukee

facility. The facility was contaminated by a solvent spill, which occurred in 1985, from a former above ground solvent storage tank
located on the east side of the facility. The reserve was originally established based on third party estimates to adequately cover the
cost for active remediation of the contamination. Due to changing technology and related costs associated with active remediation of
the contamination, in fiscal years 2010, 2016, and 2021, we obtained updated third party estimates of projected costs to adequately
cover the cost for active remediation of this contamination and adjusted the reserve as needed. We monitor and evaluate the site with
the use of these groundwater monitoring wells. An environmental consultant samples these wells one or two times a year to determine
the status of the contamination and the potential for remediation of the contamination by natural attenuation, the dissipation of the
contamination over time to concentrations below applicable standards. If such sampling evidences a sufficient degree of and trend
toward natural attenuation of the contamination at the site, we may be able to obtain a closure letter from the regulatory authorities
resolving the issue without the need for active remediation. If a sufficient degree and trend toward natural attenuation is not evidenced
by sampling, a more active form of remediation beyond natural attenuation may be required. The sampling has not yet satisfied all of
the requirements for closure by natural attenuation. As a result, sampling continues and the reserve remains at an amount to reflect our
estimated cost of active remediation. The reserve is not measured on a discounted basis. We believe, based on findings-to-date and
known environmental regulations, that the environmental reserve of $1.4 million at July 2, 2023 is adequate.

At July 2, 2023, we had purchase commitments related to zinc. We also had minimum rental commitments under non-

cancelable operating leases with a term in excess of one year. The purchase and minimum rental commitments are payable as follows
(thousands of dollars):

Fiscal Year
2024.......................................................................................................... $
2025.......................................................................................................... $
2026.......................................................................................................... $
2027.......................................................................................................... $
Thereafter ................................................................................................. $

Purchase
Commitments

Minimum Rental
Commitments

5,766

$
— $
— $
— $
— $

730
941
988
1,037
1,647

51

INCOME TAXES

The provision for income taxes consisted of the following (thousands of dollars):

Currently payable (recoverable):

Federal................................................................................................... $
State.......................................................................................................
Foreign ..................................................................................................

Deferred tax provision ..............................................................................

$

Years Ended

July 2, 2023

July 3, 2022

1,035
401
4,782
6,218
(4,937)
1,281

$

$

(691)
161
2,931
2,401
(1,986)
415

The current Federal provision for income taxes excludes a deduction for $22.0 million in research and development costs that

are deductible in future periods and $6.0 million of capital losses on the sale of our interest in VAST LLC, which losses are not
currently deductible. The current foreign provision for income taxes includes $2.2 million of China non-resident capital gain tax
related to the sale of our interest in VAST LLC. The deferred tax provision includes the $22.0 million in research and development
costs that are deductible in future periods.

The items accounting for the difference between income taxes computed at the Federal statutory tax rate and the provision for

income taxes were as follows:

U.S. statutory rate .................................................................................
State taxes, net of Federal tax benefit.....................................................
Foreign subsidiaries ..............................................................................
China non-resident capital gain tax ........................................................
U.S. tax impact on sale of VAST LLC..................................................
Valuation allowance..............................................................................
Return to provision adjustment ..............................................................
Global intangible low-taxed income ......................................................
Research and development tax credit .....................................................
Solar investment tax credit ....................................................................
Non-controlling interest.........................................................................
Uncertain tax positions..........................................................................
Stock based compensation.....................................................................
Other ....................................................................................................

Years Ended

July 2, 2023

July 3, 2022

21.0%
4.7
—
(28.7)
(9.7)
(18.8)
2.1
(8.0)
19.4
—
4.0
(1.7)
0.3
(1.3)
(16.7%)

21.0%
0.4
8.4
—
—
—
(11.1)
0.5
(9.7)
(0.8)
(1.8)
(1.4)
(1.3)
0.3
4.5%

Impacts of the sale of our one-third interest in VAST LLC on our 2023 effective rate include the China non-resident capital gain
tax, the U.S. tax impact on the sale of VAST LLC, and the valuation allowance. As discussed above, the current foreign provision for
income taxes includes $2.2 million of China non-resident capital gain tax related to the sale of our interest in VAST LLC. The U.S.
tax impact of the sale of VAST LLC is the result of the tax gain recognized. The valuation allowance, as discussed further below, is
generated by our current assessment of the future realization of the capital losses realized on the VAST LLC sale. The change in the
research and development tax credit on the effective rate between periods is due to an estimated increase in the available credit in
2023 as compared to 2022 on a book pre-tax loss in the current year as compared to book pre-tax income in the prior year.

The return to provision adjustment related to adjustments we made to our fiscal 2021 estimated foreign tax credits and estimated

tax impacts associated with our investment in VAST LLC. These true-up adjustments resulted from the filing of our US income tax
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.

52

The components of deferred tax (liabilities) assets were as follows (thousands of dollars):

July 2, 2023

July 3, 2022

Unrecognized pension and postretirement benefit

plan liabilities......................................................................................... $

Accrued warranty......................................................................................
Payroll-related accruals.............................................................................
Research and development costs ..............................................................
Capital loss carryforward related to sale of interest in VAST LLC .........
Stock-based compensation........................................................................
Inventory reserve ......................................................................................
Environmental reserve ..............................................................................
Repair and maintenance supply parts reserve ...........................................
Allowance for doubtful accounts ..............................................................
Lease Liability ..........................................................................................
Right of Use Assets...................................................................................
Credit carry-forwards................................................................................
Postretirement obligations ........................................................................
Accumulated depreciation ........................................................................
Accrued pension obligations.....................................................................
Joint ventures ............................................................................................
Other .........................................................................................................

Valuation allowance..................................................................................
Net deferred tax assets .............................................................................. $

368
2,255
4,094
5,541
1,403
414
1,633
327
222
118
1,049
(1,049)
1,628
64
(4,387)
415
47
1,078
15,220
(1,601)
13,619

$

$

579
423
3,085
—
—
360
1,010
327
222
118
710
(710)
2,986
8
(3,886)
504
899
604
7,239
(158)
7,081

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 2, 2023 resulted in future benefits of approximately $1.4 million and expire between 2031

and 2041. We currently anticipate having sufficient Federal taxable income to utilize these credit carry-forwards. State credit carry-
forwards at July 2, 2023 resulted in future benefits of approximately $196,000 and expire at varying times between 2025 and 2031. A
valuation allowance of $1.4 million has been recorded as of July 2, 2023, due to our assessment of the future realization of the capital
loss carryforward. We do not currently anticipate having capital gains in future taxable years to offset the capital loss carryforward. A
valuation allowance of $172,000 has been recorded as of July 2, 2023, due to our assessment of the future realization of certain state
credit carry-forward benefits. We do not currently anticipate having sufficient state taxable income to offset these credit carry-
forwards. Foreign income before the provision for income taxes was $3.1 million in 2023 and $8.6 million in 2022.

The total liability for unrecognized tax benefits was $1.6 million as of July 2, 2023 and $1.5 million as of July 3, 2022 and was
included in Other Long-term Liabilities in the accompanying Consolidated Balance Sheets. This liability includes approximately $1.4
million and $1.3 million of unrecognized tax benefits at July 2, 2023 and July 3, 2022, respectively, and approximately $162,000 of
accrued interest at July 2, 2023 and $137,000 at July 3, 2022. This liability does not include an amount for accrued penalties. The
amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was approximately $1.1 million at July 2,
2023 and $1.0 million at July 3, 2022. We recognize interest and penalties related to unrecognized tax benefits in the provision for
income taxes.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended July 2, 2023

and July 3, 2022 (thousands of dollars):

Unrecognized tax benefits, beginning of year .......................................... $
Gross increases – tax positions in prior years ...........................................
Gross decreases – tax positions in prior years ..........................................
Gross increases – current period tax positions..........................................
Tax years closed........................................................................................
Unrecognized tax benefits, end of year..................................................... $

1,314
50
—
385
(354)
1,395

$

$

1,458
13
(19)
241
(379)
1,314

Years Ended

July 2, 2023

July 3, 2022

53

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 2020 through 2023 for Federal, fiscal 2019 through 2023 for most states and calendar 2018 through 2022 for
foreign jurisdictions.

RETIREMENT PLANS AND POSTRETIREMENT COSTS

We have a noncontributory Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified defined benefit plan.

The SERP is funded through a Rabbi Trust with TMI Trust Company. Under the SERP, as amended December 31, 2013, participants
received an accrued lump-sum benefit as of December 31, 2013 which was credited to each participant’s account. Subsequent to
December 31, 2013, each eligible participant receives a supplemental retirement benefit equal to the foregoing lump-sum benefit, plus
an annual benefit accrual equal to 8 percent of the participant’s base salary and cash bonus, plus annual credited interest on the
participant’s account balance. All then current participants as of December 31, 2013 are fully vested in their account balances with any
new individuals participating in the SERP effective on or after January 1, 2014 being subject to a five year vesting period. The SERP,
which is considered a nonqualified defined benefit plan under applicable rules and regulations of the Internal Revenue Code, will
continue to be funded through use of a Rabbi Trust to hold investment assets to be used in part to fund any future required lump sum
benefit payments to participants. During 2023, SERP benefits of $863,000 were cash settled using Rabbi trust assets. We incurred a
related settlement charge to operations of $217,000 pre-tax in 2023 as a result of the requirement to expense a portion of the
unrealized actuarial losses due to the settlement of the SERP obligation. The Rabbi Trust assets had a value of $2.6 million at July 2,
2023 and $3.3 million at July 3, 2022, respectively. At July 2, 2023, the Rabbi Trust asset balance was included in Other Long-Term
Assets in the accompanying Consolidated Balance Sheets. At July 3, 2022, $863,000 of the Rabbi Trust asset balance was included in
Other Current Assets and the remaining balance was included in Other Long-Term Assets in the accompany Consolidated Balance
Sheets. Refer to Fair Value of Financial Instruments discussion included in Notes to Financial Statements herein for further discussion
of Rabbi Trust assets. The Rabbi Trust assets are excluded from the SERP tables below as they do not qualify as plan assets. The
projected benefit obligation under the SERP, which is included in the SERP tables below, was $2.3 million at July 2, 2023 and $3.2
million at July 3, 2022. 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 differs from the projected benefit obligation in that
it includes no assumptions about future compensation levels. The accumulated benefit obligation under the SERP was $2.2 million at
July 2, 2023 and $2.8 million at July 3, 2022.

We also sponsor a postretirement health care plan for all current and future eligible U.S. retirees hired prior to June 1, 2001. The

expected cost of retiree health care benefits is recognized during the years the associates who are covered under the plan render
service. Effective January 1, 2010, an amendment to the postretirement health care plan limited the benefit for future eligible retirees
to $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. Additionally, we sponsor a postretirement life plan for all U.S. salaried
retirees who retired prior to October 1, 2001 and all U.S. hourly retirees who were hired prior to June 27, 2005 and retired prior to
January 1, 2010. The benefit provides for a death benefit of $8,000, which is increased to $70,000 for disability retirees until reaching
the age of 65, in which case the death benefit decreased to $8,000. The postretirement life plan is unfunded. See "Organization and
Summary of Significant Accounting Policies" above for additional information regarding certain matters related to recording a
liability adjustment for the death benefit owed to eligible participants under the postretirement life plan.

Amounts included in accumulated other comprehensive loss, net of tax, at July 2, 2023, which have not yet been recognized in

net periodic benefit cost were as follows (thousands of dollars):

Net actuarial loss..................................................................................... $

410

$

756

SERP

Postretirement

Unrecognized net actuarial losses included in accumulated other comprehensive loss at July 2, 2023 which are expected to be

recognized in net periodic benefit cost (credit) in fiscal 2024, net of tax, for the SERP and postretirement plans are as follows
(thousands of dollars):

Net actuarial loss .................................................................................... $

35

$

150

SERP

Postretirement

54

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

July 2, 2023

July 3, 2022

July 2, 2023

July 3, 2022

COMPONENTS OF NET PERIODIC BENEFIT

COST (CREDIT):

Service cost ............................................................................. $
Interest cost .............................................................................
Plan settlements.......................................................................
Amortization of unrecognized net loss....................................
Net periodic benefit cost (credit)............................................. $

80
101
217
99
497

$

$

63
53
—
86
202

$

$

10
62
—
243
315

$

$

12
43
—
323
378

4.57%
4.23%
n/a

2.64%
2.01%
n/a

1,868
12
43
(347)
—
(99)
1,477

—
99
(99)
—
(1,477)

(148)
(1,329)
(1,477)

378
(347)
—
(323)

(670)

5.07%

4.61%

4.26%

4.0%

3,164
80
101
(163)
(863)
(14)
2,305

$

$

— $
877
(877)

— $
$

(2,305)

$

$

(1,100)
(1,206)
(2,306)

497
(163)
(217)
(99)

(479)

4.26%

4.0%

2.06%

3.0%

2,797
63
53
265
—
(14)
3,164

$

$

— $
14
(14)
— $
$

(3,164)

$

$

(1,905)
(1,259)
(3,164)

202
265
—
(86)

179

5.2%
5.06%
n/a

4.57%
4.23%
n/a

1,477
10
62
(179)
—
(74)
1,296

$

$

— $
74
(74)
— $
$

(1,296)

$

$

(140)
(1,157)
(1,297)

315
(179)
—
(243)

(422)

18

$

381

$

(107)

$

(292)

WEIGHTED-AVERAGE ASSUMPTIONS:
Benefit Obligations:
Discount rate (SERP / postretirement life) ........................
Discount rate (postretirement health).................................
Rate of compensation increases .........................................
Net Periodic Benefit Cost: ...................................................
Discount rate (SERP / postretirement life) ........................
Discount rate (postretirement health).................................
Rate of compensation increases .........................................
CHANGE IN PROJECTED BENEFIT

OBLIGATION:

Benefit obligation at beginning of year................................ $
Service cost ........................................................................
Interest cost ........................................................................
Actuarial loss (gain) ...........................................................
Plan settlements..................................................................
Benefits paid ......................................................................
Benefit obligation at end of year.......................................... $
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year ...................... $
Employer contribution .......................................................
Benefits paid ......................................................................
Fair value of plan assets at end of year ................................ $
Funded status – accrued benefit obligations ........................ $
AMOUNTS RECOGNIZED IN CONSOLIDATED

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 cost .....................................................................
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........................................................................... $

55

For measurement purposes as it pertains to the estimated postretirement health 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 benefits was assumed for fiscal 2023;
the rate is not applicable thereafter as all eligible retirees will be limited to $4,000 per plan year subject to a maximum five-year
coverage period as of June 2024. The health care cost trend assumption has a minimal effect on our postretirement benefit amounts
reported.

We expect to contribute $1.1 million to our SERP and $140,000 to our postretirement health care and life plans in fiscal 2024.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the fiscal years
noted below (thousands of dollars):

2024 ........................................................................................................ $
2025 ........................................................................................................ $
2026 ........................................................................................................ $
2027 ........................................................................................................ $
2028 ........................................................................................................ $
2029-2033 ............................................................................................... $

1,100
14
14
14
17
2,492

$
$
$
$
$
$

140
117
92
93
94
531

SERP
Benefits

Postretirement
Benefits

All U.S. associates may participate in our 401(k) Plan. We contribute 100 percent up to the first 5 percent of eligible

compensation that a participant contributes to the plan. Our contributions to the 401(k) Plan were as follows (thousands of dollars):

Company contributions ............................................................................. $

1,829

$

1,964

Years Ended

July 2, 2023

July 3, 2022

SHAREHOLDERS’ EQUITY

We had 18,000,000 shares of authorized common stock, par value $.01 per share, with 3,929,046 and 3,876,703 shares
outstanding at July 2, 2023 and July 3, 2022, 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 2, 2023. As of July 2, 2023, 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 2023 or 2022.

(LOSS) EARNINGS PER SHARE

Basic (loss) earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding

during the applicable period. Diluted (loss) 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):

Years Ended

July 2, 2023

July 3, 2022

Net (loss) income attributable to STRATTEC.......................................... $

(6,670) $

Weighted average shares of common stock outstanding ..........................
Incremental shares – stock based compensation.......................................
Diluted weighted average shares of common stock

outstanding .............................................................................................
Basic (loss) earnings per share.................................................................. $
Diluted (loss) earnings per share............................................................... $

3,921
—

3,921
(1.70) $
(1.70) $

7,016

3,861
49

3,910
1.82
1.79

Potentially dilutive common shares that were excluded from the calculation of diluted earnings per share because their inclusion

would have been antidilutive were as follows:

Years Ended
July 2, 2023 ......................................................................................................................
July 3, 2022 ......................................................................................................................

Number of Options
Excluded

63,061
36,921

56

STOCK OPTION AND PURCHASE PLANS

A summary of stock option activity under our stock incentive plan was as follows:

Balance at June 27, 2021.......................................................
Exercised ...............................................................................
Balance at July 3, 2022 .........................................................
Exercised ...............................................................................
Forfeited ................................................................................
Balance at July 2, 2023 .........................................................
Exercisable as of:
July 2, 2023 ...........................................................................
July 3, 2022 ...........................................................................

No options were granted during fiscal 2023 or 2022.

Shares

Weighted Ave
rage
Exercise Price
37.65
72,624
$
26.28
(31,452) $
46.34
$
41,172
25.64
(4,251) $
47.55
(4,360) $
48.88
$
32,561

32,561
41,172

$
$

48.88
46.34

Weighted Aver
age
Remaining
Contractual
Term (in years)

Aggregate
Intrinsic
Value
(in thousands)

0.4

0.4
1.2

$

$
$

—

—
31

A summary of restricted stock activity under our stock incentive plan was as follows:

Nonvested Balance at June 27, 2021 ........................................................
Granted......................................................................................................
Vested .......................................................................................................
Forfeited....................................................................................................
Nonvested Balance at July 3, 2022 ...........................................................
Granted......................................................................................................
Vested .......................................................................................................
Forfeited....................................................................................................
Nonvested Balance at July 2, 2023 ...........................................................

Weighted Average
Grant Date
Fair Value

Shares

$
81,975
43,875
$
(38,000) $
(2,750) $
$
85,100
49,050
$
(44,750) $
(1,500) $
$
87,900

23.31
42.50
25.56
32.70
31.89
29.91
29.00
32.03
32.09

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 3,342 at an average price of $22.24 during 2023 and 2,186 at an average
price of $37.32 during 2022. A total of 45,802 shares remain available for purchase under the plan as of July 2, 2023.

EXPORT SALES

Total export sales, sales from the United States to locations outside of the United States, are summarized as follows (thousands

of dollars and percent of total net sales):

Export sales ............................................................................. $

135,637

July 2, 2023

Net Sales

Years Ended

July 3, 2022

%
28%

Net Sales

$

122,293

%
27%

During the year ended July 2, 2023, sales to Canada totaled $51.3 million or 10 percent of total net sales. During the year ended

July 3, 2022, no countries accounted for ten percent or more of total net sales.

57

PRODUCT SALES

Sales by product group were as follows (thousands of dollars and percent of total net sales):

Years Ended

July 2, 2023

July 3, 2022

Net Sales

%

Net Sales

%

Door handles & exterior trim................................................. $
Power access ..........................................................................
Keys & locksets .....................................................................
Latches ...................................................................................
Aftermarket & OE service .....................................................
User Interface Controls (formerly Driver controls) ...............
Other ......................................................................................

$

121,908
114,053
108,878
57,797
43,131
38,437
8,742
492,946

25% $
23
22
11
9
8
2
100% $

111,805
95,662
107,274
48,947
44,826
34,442
9,309
452,265

SALES AND RECEIVABLE CONCENTRATION

Sales to our largest customers were as follows (thousands of dollars and percent of total net sales):

General Motors Company...................................................... $
Ford Motor Company ............................................................
Stellantis.................................................................................

$

Years Ended

July 2, 2023

July 3, 2022

Net Sales

%

Net Sales

%

150,331
96,593
78,061
324,985

30% $
20
16
66% $

130,184
79,735
83,255
293,174

Receivables from our largest customers were as follows (thousands of dollars and percent of gross receivables):

General Motors Company ..................................................... $
Ford Motor Company ............................................................
Stellantis ................................................................................

$

July 2, 2023

July 3, 2022

Receivables

%

Receivables

%

27,532
17,371
14,103
59,006

30% $
19
16
65% $

24,594
10,602
12,845
48,041

25%
21
24
11
10
7
2
100%

29%
18
18
65%

32%
14
17
63%

58

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange

Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed by STRATTEC
in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods
specified in the U.S. Securities and Exchange Commission’s rules and forms, and that the information required to be disclosed by
STRATTEC in reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including
its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We
carried out an evaluation as of the end of the period covered by this report, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of
STRATTEC’s disclosure controls and procedures. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report at reaching a
level of reasonable assurance.
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,

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the

Exchange Act) that occurred during the quarter ended July 2, 2023 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

59

Management’s Annual Report on Internal Controls over Financial Reporting

STRATTEC SECURITY CORPORATION is responsible for the preparation, integrity, and fair presentation of the consolidated
financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have
been prepared in conformity with accounting principles generally accepted in the United States of America and necessarily include
some amounts that are based on management’s best estimates and judgments.

We, as management of STRATTEC SECURITY CORPORATION, are responsible for establishing and maintaining effective

internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States
generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial
statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are
taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent
limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may
occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly,
even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

The Audit Committee of the Company’s Board of Directors, consisting entirely of independent directors, meets regularly with

management and the independent registered public accounting firm, and reviews audit plans and results, as well as management’s
actions taken in discharging responsibilities for accounting, financial reporting, and internal control. Deloitte & Touche LLP,
independent registered public accounting firm, has direct and confidential access to the Audit Committee at all times to discuss the
results of their audits.

Management assessed the Corporation’s system of internal control over financial reporting as of July 2, 2023, in relation to

criteria for effective internal control over financial reporting as described in Internal Control – Integrated Framework (2013), issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management
concluded that, as of July 2, 2023, its system of internal control over financial reporting was effective and met the criteria of the
Internal Control – Integrated Framework. Deloitte & Touche LLP, independent registered public accounting firm, has issued an
attestation report on the Corporation’s internal control over financial reporting, which is included herein.

/s/ Frank J. Krejci
Frank J. Krejci
President and Chief Executive Officer

/s/ Dennis Bowe
Dennis Bowe
Vice President and Chief Financial Officer

60

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of STRATTEC SECURITY CORPORATION

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of STRATTEC SECURITY CORPORATION and subsidiaries (the
“Company”) as of July 2, 2023, 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 2, 2023, based on criteria established in Internal Control
— Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended July 2, 2023, of the Company and our report dated
September 7, 2023, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal
Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Milwaukee, Wisconsin
September 7, 2023

61

ITEM 9B. OTHER INFORMATION

Not applicable.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

62

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information included in our Proxy Statement, dated on or about September 7, 2023, under “Proposal 1: Election of

Directors,” “Corporate Governance Matters-Code of Business Ethics,” “Audit Committee Matters-Audit Committee Financial
Expert,” “Executive Officers,” “Delinquent Section 16(a) Reports,” “Director’s Meetings and Committees – Nominating and
Corporate Governance Committee,” and “Corporate Governance Matters-Director Nominations” is incorporated herein by reference.

The Audit Committee of our Board of Directors is an “audit committee” for purposes of Section 3(a)(58)(A) of the Securities

Exchange Act of 1934. The members of the Audit Committee consist of four outside independent directors, David R. Zimmer, Audit
Committee Chairman, Thomas W. Florsheim, Jr., Michael J. Koss, and Tina Chang.

ITEM 11. EXECUTIVE COMPENSATION

The information included in our Proxy Statement, dated on or about September 7, 2023, under “Director Compensation” and

“Executive Compensation” is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

SHAREHOLDER MATTERS

The information included in our Proxy Statement, dated on or about September 7, 2023, under “Security Ownership” is

incorporated herein by reference.

Equity Compensation Plan Information

The following table summarizes share information, as of July 2, 2023, 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

32,561

$

—
32,561

$

48.88

—
48.88

134,769

—
134,769

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information included in our Proxy Statement, dated on or about September 7, 2023, under “Transactions With Related

Persons” and “Corporate Governance Matters-Director Independence” is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information included in our Proxy Statement, dated on or about September 7, 2023, under “Audit Committee Matters-Fees

of Independent Registered Public Accounting Firm” is incorporated herein by reference.

63

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

PART IV

10

(a) Financial Statements

See Item 8 for the Consolidated Financial Statements included in this Form 10-K

(b)

Exhibits
See the following List of Exhibits:

Exhibit
3.1 (13)
3.2 (19)
3.3 (26)
3.4 (1)
4.1 (20)
4.2 (2)

4.3 (12)

4.4 (13)

4.5 (5)

4.6 (6)

4.7 (10)

4.8 (12)

4.9 (15)

4.10 (18)

4.11 (24)

4.12 (27)

4.13 (31)

4.14 (6)
4.15 (6)

4.16 (6)

4.17 (9)

4.18 (12)

4.19 (14)

4.20 (16)

4.21 (18)

4.22 (24)

4.23 (28)

10.1 (21)**

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 favor of BMO Harris Bank N.A., as lender
Amendment No. 1 to Credit Agreement, dated as of December 27, 2013, between STRATTEC SECURITY
CORPORATION and BMO Harris Bank N.A., as lender
Amendment No. 2 to Credit Agreement, dated as of June 25, 2015, between STRATTEC SECURITY CORPORATION
and BMO Harris Bank N.A., as lender
Amendment No. 3 to Credit Agreement, dated as of June 24, 2016, between STRATTEC SECURITY CORPORATION
and BMO Harris Bank N.A., as lender
Amendment No. 4 to Credit Agreement, dated as of June 26, 2017, between STRATTEC SECURITY CORPORATION
and BMO Harris Bank N.A., as lender
Amendment No. 5 to Credit Agreement, dated as of September 28, 2018, between STRATTEC SECURITY
CORPORATION and BMO Harris Bank N.A., as lender
Amendment No. 6 to Credit Agreement, dated as of October 28, 2019, between STRATTEC SECURITY
CORPORATION and BMO Harris Bank N.A., as lender
Amendment No. 7 to Credit Agreement, dated as of June 1, 2021, between STRATTEC SECURITY CORPORATION
and BMO Harris Bank N.A., as lender
Amendment No. 8 to Credit Agreement, dated as of February 22, 2023, between STRATTEC SECURITY
CORPORATION and BMO Harris Bank N.A., as lender
Amendment No. 9 to Credit Agreement, dated as of August 22, 2023 and effective as of September 6, 2023,
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
Amendment No. 9 to Credit Agreement, dated as of February 6, 2023, between ADAC-STRATTEC LLC and
BMO Harris Bank N.A., as lender
Amended and Restated STRATTEC SECURITY CORPORATION Stock Incentive Plan (Incorporated by reference from
Appendix B to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on
September 3, 2020.)

*
*
*
*
*

*

*

*

*

*

*

*

*

*

*

*

*
*

*

*

*

*

*

*

*

*

*

*

64

10.2 (22)**

10.3 (30)**

10.4 (17)**

10.5 (17)**

10.6 (7) **
10.7 (3)**
10.8 (3)**
10.9 (3)**
10.10 (3)**
10.11 (13) **
10.12 (29)**

10.13 (11) **
10.14 (11) **
10.15 (11) **
10.16 (11) **
10.17 (13)**
10.18 (29)**

10.19 (8)**
10.20 (23)**

10.21 (4)**
10.22
16.1 (25)
21
23.1
23.2
31.1
31.2
32 (32)
101

104

Form of Restricted Stock Grant Agreement with Employees to be used under the Amended and Restated STRATTEC
SECURITY CORPORATION Stock Incentive Plan
STRATTEC SECURITY CORPORATION Team Incentive Plan for STRATTEC: Bonus Plan for Executive Officers and
Senior Managers
STRATTEC SECURITY CORPORATION Team Incentive Plan for STRATTEC: Bonus Plan for Non-employee
Members of the Board of Directors
STRATTEC SECURITY CORPORATION Team Incentive Plan for STRATTEC: Bonus Plan for Salaried Employees
and Represented Employees
Amended and Restated STRATTEC SECURITY CORPORATION Supplemental Executive Retirement Plan
Employment Agreement between the Company and Frank J. Krejci made as of May 5, 2010
Employment Agreement between the Company and Patrick J. Hansen made as of May 5, 2010
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
Employment Agreement between the Company and Dennis Bowe entered into on May 5, 2023 and made effective as of
September 9, 2022
Change of Control Employment Agreement between the Company and Frank J. Krejci made as of July 1, 2016
Change of Control Employment Agreement between the Company and Patrick J. Hansen made as of July 1, 2016
Change of Control Employment Agreement between the Company and Rolando J. Guillot made as of July 1, 2016
Change of Control Employment Agreement between the Company and Richard P. Messina made as of July 1, 2016
Change of Control Employment Agreement between the Company and Al Hamdan made as of May 4, 2017
Change of Control Employment Agreement between the Company and Dennis Bowe entered into on May 5, 2023 and
made effective as of September 9, 2022
Form of Restricted Stock Grant Agreement with non-employee directors
STRATTEC SECURITY CORPORATION EMPLOYEE STOCK PURCHASE PLAN (Amended effective as of
February 22, 2021)
Letter Agreement between the Company and Harold M. Stratton II made as of September 1, 2012
Equity Restructuring Agreement between the Company and WITTE Automotive GmbH dated as of June 29, 2023
Letter regarding Change in Auditors
Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm dated September 7, 2023
Consent of Independent Registered Public Accounting Firm dated September 7, 2023
Rule 13a-14(a) Certification for Frank J. Krejci, Chief Executive Officer
Rule 13a-14(a) Certification for Dennis Bowe, Chief Financial Officer
18 U.S.C. Section 1350 Certifications
Interactive Data Files pursuant to Rule 405 of Regulation S-T. XBRL Instance Document – the XBRL Instance
Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL
document.
The cover page from the Company’s Annual Report on Form 10-K for the year ended July 2, 2023 has been formatted in
Inline XBRL.

*

*

*

*
*
*
*
*
*
*

*
*
*
*
*
*

*
*

*
*

*

* Previously filed
** Management contract or compensatory plan or arrangement

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

(21)

(22)

Incorporated by reference from the exhibit to the Form 8-K filed on October 7, 2005.
Incorporated by reference from the exhibit to the Form 8-K filed on August 4, 2011.
Incorporated by reference from the exhibit to the March 28, 2010 Form 10-Q filed on May 6, 2010.
Incorporated by reference from the exhibit to the July 1, 2012 Form 10-K filed on September 6, 2012.
Incorporated by reference from the exhibit to the Form 8-K filed on December 27, 2013.
Incorporated by reference from the exhibit to the Form 8-K filed on June 25, 2015.
Incorporated by reference from the exhibit to the Form 8-K filed on October 10, 2013.
Incorporated by reference from the exhibit to the Form 10-K filed on September 5, 2014.
Incorporated by reference from the exhibit to the Form 8-K filed on April 29, 2016.
Incorporated by reference from the exhibit to the Form 8-K filed on June 24, 2016.
Incorporated by reference from the exhibit to the Form 10-K filed on September 8, 2016.
Incorporated by reference from the exhibit to the Form 8-K filed on June 27, 2017.
Incorporated by reference from the exhibit to the Form 10-K filed on September 7, 2017.
Incorporated by reference from the exhibit to the Form 8-K filed on March 27, 2018.
Incorporated by reference from the exhibit to the Form 8-K filed on September 28, 2018.
Incorporated by reference from the exhibit to the Form 8-K filed on December 31, 2018.
Incorporated by reference from the exhibit to the Form 10-K filed on September 5, 2019.
Incorporated by reference from the exhibit to the Form 8-K filed on October 28, 2019.
Incorporated by reference from the exhibit to the Form 10-Q filed on November 7, 2019.
Incorporated by reference from the exhibit to the Form 10-K filed on September 3, 2020.
Incorporated by reference from Appendix B to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange
Commission on September 3, 2020.
Incorporated by reference from the exhibit to the Form 10-Q filed on November 5, 2020.

65

(23)

(24)

(25)

(26)

(27)

(28)

(29)

(30)

(31)

(32)

Incorporated by reference from the exhibit to the Form 10-Q filed on May 6, 2021.
Incorporated by reference from the exhibit to the Form 8-K filed on June 2, 2021.
Incorporated by reference from the exhibit to the Form 8-K filed on December 13, 2022.
Incorporated by reference from the exhibit to the Form 8-K filed on October 21, 2021.
Incorporated by reference from the exhibit to the Form 8-K filed on February 27, 2023.
Incorporated by reference from the exhibit to the Form 8-K filed on February 7, 2023.
Incorporated by reference from the exhibit to the Form 8-K filed on May 8, 2023.
Incorporated by reference from the exhibit to the Form 10-Q filed on October 2, 2022.
Incorporated by reference from the exhibit to the Form 8-K filed on August 25, 2023.
This certification is not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference
into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

ITEM 16. FORM 10-K SUMMARY

None

66

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

STRATTEC SECURITY CORPORATION

By: /s/ Frank J. Krejci
Frank J. Krejci
President and Chief Executive Officer

Date: September 7, 2023

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

Signature

Title

President, Chief Executive Officer,
and Director
(Principal Executive Officer)

Date

September 7, 2023

/s/ Frank J. Krejci

Frank J. Krejci

/s/ Harold M. Stratton II

Harold M. Stratton II

/s/ Michael J. Koss

Michael J. Koss

/s/ Thomas W. Florsheim, Jr.

Thomas W. Florsheim, Jr.

/s/ David R. Zimmer

David R. Zimmer

/s/ Tina Chang

Tina Chang

/s/ Dennis Bowe

Dennis Bowe

Chairman and Director

August 22, 2023

August 22, 2023

August 22, 2023

August 22, 2023

August 22, 2023

September 7, 2023

Director

Director

Director

Director

Vice President, Chief
Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)

67

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