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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549  

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2021 

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 0-25150

 

STRATTEC SECURITY CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

Wisconsin

 

39-1804239

(State of Incorporation)

 

(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

 

Trading Symbol

 

Name of exchange on which registered

Common stock, $.01 par value

 

STRT

 

The Nasdaq Global Stock Market

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

 

Non-accelerated filer

 

  

Smaller Reporting Company

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common stock, par value $0.01 per share: 3,886,616 shares outstanding as of March 29, 2021 (which number includes all restricted shares previously awarded that have not vested as of such date).

 

 

 

 

 


 

STRATTEC SECURITY CORPORATION

FORM 10-Q

March 28, 2021

INDEX

 

 

 

Page

Part I - FINANCIAL INFORMATION

 

Item 1

Financial Statements

 

 

Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited)

3

 

Condensed Consolidated Balance Sheets (Unaudited)

4

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

5

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

6-20

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21-29

Item 3

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4

Controls and Procedures

30

 

 

 

Part II - OTHER INFORMATION

 

Item 1

Legal Proceedings

31

Item 1A  

Risk Factors

31

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3

Defaults Upon Senior Securities

31

Item 4

Mine Safety Disclosures

31

Item 5

Other Information

31

Item 6

Exhibits

32

PROSPECTIVE INFORMATION

A number of the matters and subject areas discussed in this Form 10-Q 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 in this Form 10-Q. The discussion of such matters and subject areas contained herein is qualified by the inherent risks and uncertainties surrounding future expectations generally, and also may materially differ from the Company’s actual future experience.

 

The Company’s business, operations and financial performance are subject to certain risks and uncertainties, which could result in material differences in actual results from the Company’s current expectations. These risks and uncertainties include, but are not limited to, general economic conditions, in particular relating to the automotive industry, consumer demand for the Company’s and its customers’ products, competitive and technological developments, customer purchasing actions, changes in warranty provisions and customers’ product recall policies,  work stoppages at the Company or at the location of its key customers as a result of labor disputes, foreign currency fluctuations, uncertainties stemming from U.S. trade policies, tariffs and reactions to same from foreign countries, changes in the costs of operations, changes in the volume and scope of product returns and warranty claims, adverse business and operational issues resulting from the Coronavirus (COVID-19) pandemic, including matters adversely impacting the timing and availability of material component parts and raw materials for the production of our products and the products of our customers, or the continuation or worsening thereof and other matters described in the section titled “Risk Factors” in the Company’s Form 10-K report filed on September 3, 2020 with the Securities and Exchange Commission for the year ended June 28, 2020.

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-Q 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-Q.

 

 

 

 


 

 

Item 1 Financial Statements

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Income and Comprehensive Income (Loss)

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 28,

2021

 

 

March 29,

2020

 

 

March 28,

2021

 

 

March 29,

2020

 

Net sales

 

$

121,644

 

 

$

116,938

 

 

$

375,238

 

 

$

343,183

 

Cost of goods sold

 

 

102,990

 

 

 

99,928

 

 

 

311,832

 

 

 

299,954

 

Gross profit

 

 

18,654

 

 

 

17,010

 

 

 

63,406

 

 

 

43,229

 

Engineering, selling and administrative expenses

 

 

11,927

 

 

 

10,727

 

 

 

33,543

 

 

 

35,775

 

Income from operations

 

 

6,727

 

 

 

6,283

 

 

 

29,863

 

 

 

7,454

 

Equity (loss) earnings of joint ventures

 

 

(56

)

 

 

(921

)

 

 

1,844

 

 

 

55

 

Interest expense

 

 

(63

)

 

 

(204

)

 

 

(259

)

 

 

(792

)

Other income (expense), net

 

 

455

 

 

 

1,049

 

 

 

(1,171

)

 

 

975

 

Income before provision for

      income taxes and non-controlling interest

 

 

7,063

 

 

 

6,207

 

 

 

30,277

 

 

 

7,692

 

Provision for income taxes

 

 

1,153

 

 

 

1,294

 

 

 

4,721

 

 

 

1,194

 

Net income

 

 

5,910

 

 

 

4,913

 

 

 

25,556

 

 

 

6,498

 

Net income attributable to non-controlling

      Interest

 

 

1,425

 

 

 

1,919

 

 

 

5,950

 

 

 

3,601

 

Net income attributable to STRATTEC

      SECURITY CORPORATION

 

$

4,485

 

 

$

2,994

 

 

$

19,606

 

 

$

2,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,910

 

 

$

4,913

 

 

$

25,556

 

 

$

6,498

 

Pension and postretirement plans, net of tax

 

 

69

 

 

 

74

 

 

 

208

 

 

 

220

 

Currency translation adjustments

 

 

(697

)

 

 

(6,245

)

 

 

5,419

 

 

 

(6,059

)

Other comprehensive (loss) income, net of tax

 

 

(628

)

 

 

(6,171

)

 

 

5,627

 

 

 

(5,839

)

Comprehensive income (loss)

 

 

5,282

 

 

 

(1,258

)

 

 

31,183

 

 

 

659

 

Comprehensive income (loss) attributable to

       non-controlling interest

 

 

1,016

 

 

 

(468

)

 

 

7,175

 

 

 

1,464

 

Comprehensive income (loss) attributable to

      STRATTEC SECURITY CORPORATION

 

$

4,266

 

 

$

(790

)

 

$

24,008

 

 

$

(805

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to

      STRATTEC SECURITY CORPORATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.18

 

 

$

0.80

 

 

$

5.18

 

 

$

0.78

 

Diluted

 

$

1.15

 

 

$

0.79

 

 

$

5.11

 

 

$

0.77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

3,797

 

 

 

3,748

 

 

 

3,783

 

 

 

3,733

 

Diluted

 

 

3,886

 

 

 

3,768

 

 

 

3,839

 

 

 

3,752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

 

 

$

0.14

 

 

$

 

 

$

0.42

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

3


 

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Amounts)

(Unaudited)

 

 

 

March 28,

2021

 

 

June 28,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,335

 

 

$

11,774

 

Receivables, net

 

 

81,304

 

 

 

41,955

 

Inventories:

 

 

 

 

 

 

 

 

Finished products

 

 

16,709

 

 

 

13,142

 

Work in process

 

 

13,546

 

 

 

11,815

 

Purchased materials

 

 

33,478

 

 

 

34,333

 

Excess and obsolete reserve

 

 

(5,403

)

 

 

(4,890

)

Inventories, net

 

 

58,330

 

 

 

54,400

 

Other current assets

 

 

18,051

 

 

 

17,239

 

Total current assets

 

 

169,020

 

 

 

125,368

 

Investment in joint ventures

 

 

26,051

 

 

 

22,068

 

Deferred Income Taxes

 

 

6,494

 

 

 

6,490

 

Other long-term assets

 

 

6,896

 

 

 

6,471

 

Property, plant and equipment

 

 

266,346

 

 

 

266,216

 

Less: accumulated depreciation

 

 

(169,083

)

 

 

(161,068

)

Net property, plant and equipment

 

 

97,263

 

 

 

105,148

 

 

 

$

305,724

 

 

$

265,545

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

36,250

 

 

$

18,549

 

Accrued Liabilities:

 

 

 

 

 

 

 

 

Payroll and benefits

 

 

21,474

 

 

 

13,498

 

Environmental

 

 

1,390

 

 

 

1,259

 

Warranty

 

 

8,273

 

 

 

8,500

 

Other

 

 

8,111

 

 

 

6,334

 

Total current liabilities

 

 

75,498

 

 

 

48,140

 

Borrowings under credit facilities

 

 

16,000

 

 

 

35,000

 

Accrued pension obligations

 

 

1,322

 

 

 

1,255

 

Accrued postretirement obligations

 

 

622

 

 

 

701

 

Other long-term liabilities

 

 

4,788

 

 

 

5,008

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, authorized 12,000,000 shares, $.01 par value, 7,411,717

   issued shares at March 28, 2021 and 7,358,812 issued shares at

   June 28, 2020

 

 

74

 

 

 

74

 

Capital in excess of par value

 

 

99,303

 

 

 

97,977

 

Retained earnings

 

 

231,546

 

 

 

211,940

 

Accumulated other comprehensive loss

 

 

(17,711

)

 

 

(22,113

)

Less: treasury stock, at cost (3,607,076 shares at March 28, 2021 and

   3,609,193 shares at June 28, 2020)

 

 

(135,622

)

 

 

(135,656

)

Total STRATTEC SECURITY CORPORATION shareholders’ equity

 

 

177,590

 

 

 

152,222

 

Non-controlling interest

 

 

29,904

 

 

 

23,219

 

Total shareholders’ equity

 

 

207,494

 

 

 

175,441

 

 

 

$

305,724

 

 

$

265,545

 

 

The accompanying notes are an integral part of these Condensed Consolidated Balance Sheets.

 


4


 

 

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

March 28,

2021

 

 

March 29,

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

25,556

 

 

$

6,498

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

14,730

 

 

 

14,349

 

Foreign currency transaction loss (gain)

 

 

1,926

 

 

 

(2,067

)

Loss on disposal of property, plant and equipment

 

 

1,421

 

 

 

270

 

Unrealized (gain) loss on peso forward contracts

 

 

(512

)

 

 

1,048

 

Stock based compensation expense

 

 

775

 

 

 

789

 

Equity earnings of joint ventures

 

 

(1,844

)

 

 

(55

)

Non-cash compensation expense

 

 

 

 

 

4,473

 

Deferred income taxes

 

 

 

 

 

(1,032

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(39,176

)

 

 

11,014

 

Inventories

 

 

(3,930

)

 

 

(11,086

)

Other assets

 

 

(1,119

)

 

 

1,798

 

Accounts payable and accrued liabilities

 

 

27,213

 

 

 

3,683

 

Other, net

 

 

356

 

 

 

252

 

Net cash provided by operating activities

 

 

25,396

 

 

 

29,934

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Investment in VAST LLC

 

 

(100

)

 

 

 

Purchase of property, plant and equipment

 

 

(6,401

)

 

 

(10,307

)

Proceeds received on sale of property, plant and equipment

 

 

8

 

 

 

29

 

Net cash used in investing activities

 

 

(6,493

)

 

 

(10,278

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of borrowings under credit facility

 

 

(19,000

)

 

 

(15,000

)

Dividends paid to non-controlling interests of subsidiaries

 

 

(490

)

 

 

(980

)

Dividends paid

 

 

 

 

 

(1,572

)

Exercise of stock options and employee stock purchases

 

 

585

 

 

 

543

 

Net cash used in financing activities

 

 

(18,905

)

 

 

(17,009

)

Foreign currency impact on cash

 

 

(437

)

 

 

(283

)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

 

(439

)

 

 

2,364

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

 

 

 

 

 

 

 

Beginning of period

 

 

11,774

 

 

 

7,809

 

End of period

 

$

11,335

 

 

$

10,173

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Income taxes

 

$

3,701

 

 

$

768

 

Interest

 

$

276

 

 

$

838

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Change in capital expenditures in accounts payable

 

$

(873

)

 

$

(1,318

)

 

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Statements of Cash Flows.


5


 

 

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Basis of Financial Statements

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 door systems, power tailgate systems, power lift gate systems, power deck lid systems, door handles and related products for primarily North American automotive customers. We also supply global automotive manufacturers through a unique strategic relationship with WITTE Automotive (“WITTE”) of Velbert, Germany, and ADAC Automotive (“ADAC”) of Grand Rapids, Michigan. Under this relationship, STRATTEC, WITTE and ADAC market the products of each company to global customers under the “VAST Automotive Group” brand name (as more fully described herein). STRATTEC products are shipped to customer locations in the United States, Canada, Mexico, Europe, South America, Korea, China and India, and we, along with our VAST LLC partners, provide full service and aftermarket support for each VAST Automotive Group partner’s products.

The accompanying condensed consolidated financial statements reflect the consolidated results of STRATTEC SECURITY CORPORATION, its wholly owned Mexican subsidiary, STRATTEC de Mexico, and its majority owned subsidiaries, ADAC-STRATTEC, LLC and STRATTEC POWER ACCESS LLC. STRATTEC SECURITY CORPORATION is located in Milwaukee, Wisconsin. STRATTEC de Mexico is located in Juarez, Mexico. ADAC-STRATTEC, LLC and STRATTEC POWER ACCESS LLC have operations in El Paso, Texas and Juarez and Leon, Mexico. Equity investments in Vehicle Access Systems Technology LLC (“VAST LLC”), for which we exercise significant influence but do not control and are not variable interest entities of STRATTEC, are accounted for using the equity method. VAST LLC consists primarily of four wholly owned subsidiaries in China, one wholly owned subsidiary in Brazil and one joint venture entity in India. The results of the VAST LLC foreign subsidiaries and joint venture are reported on a one-month lag basis. We have only one reporting segment.

In the opinion of management, the accompanying condensed consolidated balance sheets as of March 28, 2021 and June 28, 2020, which have been derived from our audited financial statements, and the related unaudited interim condensed consolidated financial statements included herein contain all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with Rule 10-01 of Regulation S-X. All significant intercompany transactions have been eliminated.

Interim financial results are not necessarily indicative of operating results for an entire year. The information included in this Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the STRATTEC SECURITY CORPORATION 2020 Form 10-K, which was filed with the Securities and Exchange Commission on September 3, 2020.

 

Risks and Uncertainties

  In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China. The coronavirus has since spread, and infections have been found in multiple countries around the world, including the United States. In March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic based on the global spread of the disease, the severity of illnesses it causes and its effects on society. In response to the COVID-19 outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes. Accordingly, the COVID-19 outbreak has severely restricted the level of economic activity in many countries, and continues to adversely impact global economic activity, including with respect to customer purchasing actions and supply chain continuity and disruption.

STRATTEC’s operating performance is subject to global economic conditions and levels of consumer spending specifically within the automotive industry. During the period from late March 2020 through mid-June 2020, the majority of our OEM customer assembly plant operations were completely closed including most of the supply chain. Additionally, during most of this same period, STRATTEC’s Mexico facilities were closed as a result of the Mexican government’s shutdown of non-essential businesses. Re-opening of our OEM customer facilities and our Mexico facilities began in June 2020, and the automotive industry continued to ramp-up throughout our nine-month fiscal period ended March 28, 2021 resulting in an increase in our net sales for this current fiscal nine-month period compared to our prior year period. While we expect increased sales over our prior year during our fourth fiscal quarter due to our customers’ reduction in production schedules and their assembly plant closures during the period late March 2020 through mid-June 2020, such estimates are dependent on the severity of the ongoing impacts of COVID-19 and any worsening of the impact of the pandemic (including relating to potential restrictive operating measures imposed by governmental authorities) on society and specifically on the automotive industry and are also dependent upon any adverse lingering impact of COVID-19 on the continued sourcing of transponders and other critical supply chain components by us and our customers to meet expected production schedules.

6


 

The extent of the impact of the COVID-19 outbreak on our future operating results will depend on certain developments, including the duration, intensity and continued spread of the outbreak, regulatory and private sector responses, which may be precautionary, and the impact to our customers, workforce and suppliers, in particular our and customer supply chains when meeting production schedules, all of which are uncertain and cannot be predicted. These changing conditions may also affect the estimates and assumptions made by our management. Such estimates and assumptions affect, among other things, our long-lived asset valuations, equity investment valuation, assessment of our annual effective tax rate, valuation of deferred income taxes, assessment of excess and obsolete inventory reserves, and assessment of collectability of trade receivables.

 

 

New Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial instruments – Credit Losses. This 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 with those fiscal years, beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial instruments – Credit Losses, Derivatives and Hedging Activities, and Leases. This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are planning to adopt this standard in the first quarter of our fiscal 2024. We are currently evaluating the potential effects of adopting the new guidance on our consolidated financial statements.

 

In December 2019, the FASB issued an update to accounting for income taxes. The update enhances and simplifies various aspects of income tax accounting including hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, investment ownership changes from a subsidiary to an equity method investment and vice versa, interim-period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim-period tax accounting. This accounting update is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. We do not expect that the adoption of this pronouncement will have a material impact on our consolidated financial statements.

 

 

Derivative Instruments

We own and operate manufacturing operations in Mexico. As a result, a portion of our manufacturing costs are incurred in Mexican pesos, which causes our earnings and cash flows to fluctuate due to changes in the U.S. dollar/Mexican peso exchange rate. We have contracts with Bank of Montreal that provide for monthly Mexican peso currency forward contracts for a portion of our estimated peso denominated operating costs. Our objective in entering into currency forward contracts from time to time 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 condensed consolidated financial statements at fair value and changes in the fair value are reported in current earnings as part of Other Income (Expense), net.

The following table quantifies the outstanding Mexican peso forward contracts as of March 28, 2021 (thousands of dollars, except with respect to the average forward contractual exchange rate):

 

 

 

Effective Dates

 

Notional Amount

 

 

Average Forward Contractual Exchange Rate

 

 

Fair Value

 

Buy MXP/Sell USD

 

April 13, 2021 - December 14, 2021

 

$

5,000

 

 

 

21.05

 

 

$

32

 

 

The fair market value of all outstanding Mexican peso forward contracts in the accompanying Condensed Consolidated Balance Sheets as of the dates specified was as follows (thousands of dollars):

 

 

 

March 28,

2021

 

 

June 28,

2020

 

Not Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

Other Current Assets (Liabilities):

 

 

 

 

 

 

 

 

Mexican Peso Forward Contracts

 

$

32

 

 

$

(480

)

 

7


 

 

The pre-tax effects of the Mexican peso forward contracts are included in Other Income (Expense), net on the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss) and consisted of the following for the periods indicated below (thousands of dollars):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 28,

2021

 

 

March 29,

2020

 

 

March 28,

2021

 

 

March 29,

2020

 

Not Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized Gain

 

$

11

 

 

$

 

 

$

87

 

 

$

 

Unrealized Gain (Loss)

 

$

32

 

 

$

(1,048

)

 

$

512

 

 

$

(1,048

)

 

 

 

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 book value as of March 28, 2021 and June 28, 2020. Fair value is defined as the exchange price that would be received for an asset or paid for a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of March 28, 2021 (in thousands):  

 

 

Fair Value Inputs

 

 

 

Level 1 Assets:

Quoted Prices

In Active Markets

 

 

Level 2 Assets:

Observable

Inputs Other

Than Market

Prices

 

 

Level 3 Assets:

Unobservable

Inputs

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Rabbi Trust Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Stock Index Funds:

 

 

 

 

 

 

 

 

 

 

 

 

Small Cap

 

$

361

 

 

$

 

 

$

 

Mid Cap

 

 

350

 

 

 

 

 

 

 

Large Cap

 

 

700

 

 

 

 

 

 

 

International

 

 

1,039

 

 

 

 

 

 

 

Fixed Income Funds

 

 

953

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

 

 

 

 

4

 

 

 

 

Mexican Peso Forward Contracts

 

 

 

 

 

32

 

 

 

 

Total Assets at Fair Value

 

$

3,403

 

 

$

36

 

 

$

 

 

 

The Rabbi Trust assets fund our Amended and Restated Supplemental Executive Retirement Plan and are included in Other Long-term Assets in the accompanying Condensed Consolidated Balance Sheets.

Investment in Joint Ventures and Majority Owned Subsidiaries

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

The Alliance Agreements include a set of cross-licensing agreements for the manufacture, distribution and sale of WITTE products by STRATTEC and ADAC in North America, and the manufacture, distribution and sale of STRATTEC and ADAC products by WITTE in Europe. Additionally, a joint venture company, Vehicle Access Systems Technology LLC (“VAST LLC”), in which WITTE, STRATTEC and ADAC each hold a one-third interest, exists to seek opportunities to manufacture and sell each company’s products in areas of the world outside of North America and Europe. As a result of these relationships, the entities involved purchase products from each other on an as needed basis to use as components in end products assembled and sold in their respective home markets. STRATTEC currently purchases such component parts from WITTE. These purchases totaled $286,000 and $606,000 during the three and nine month periods ended March 28, 2021, respectively, and $190,000 and $832,000 during the three and nine month periods ended March 29, 2020, respectively.

8


 

VAST LLC has investments in Sistema de Acesso Veicular Ltda, VAST Fuzhou, VAST Great Shanghai, VAST Shanghai Co., VAST Jingzhou Co. Ltd., and Minda-VAST Access Systems. Sistema de Acesso Veicular Ltda is located in Brazil and services customers in South America. VAST Fuzhou, VAST Great Shanghai, VAST Shanghai Co., and VAST Jingzhou Co. Ltd. (collectively known as VAST China), provide a base of operations to service each VAST partner’s automotive customers in the Asian market. Minda-VAST Access Systems is based in Pune, India and is a 50:50 joint venture between VAST LLC and Minda Management Services Limited, an affiliate of both Minda Corporation Limited and Spark Minda, Ashok Minda Group of New Delhi, India (collectively “Minda”). Minda and its affiliates cater to the needs of all major car, motorcycle, commercial vehicle, tractor and off-road vehicle manufacturers in India. They are a leading manufacturer in the Indian marketplace of security & access products, handles, automotive safety, restraint systems, driver information and telematics systems for both OEMs and the aftermarket. VAST LLC also maintains branch offices in South Korea and Japan in support of customer sales and engineering requirements.

The VAST LLC investments are accounted for using the equity method of accounting and the results of the VAST LLC foreign subsidiaries and joint venture are reported on a one-month lag basis. The activities related to the VAST LLC foreign subsidiaries and joint venture resulted in equity earnings of joint ventures to STRATTEC of $1.8 million during the nine month period ended March 28, 2021 and $36,000 during the nine month period ended March 29, 2020. During the nine months ended March 28, 2021, capital contributions totaling $300,000 were made to VAST LLC for purposes of funding operations in Brazil. STRATTEC’s portion of the capital contributions totaled $100,000. During the nine months ended March 29, 2020, no capital contributions were made to VAST LLC by any of the members.

ADAC-STRATTEC LLC, a Delaware limited liability company, was formed in fiscal year 2007 to support injection molding and door handle assembly operations in Mexico. ADAC-STRATTEC LLC was 51 percent owned by STRATTEC and 49 percent owned by ADAC for all periods presented in this report. An additional Mexican entity, ADAC-STRATTEC de Mexico, is wholly owned by ADAC-STRATTEC LLC. ADAC-STRATTEC LLC’s financial results are consolidated with the financial results of STRATTEC and resulted in increased net sales and increased net income to STRATTEC of approximately $98.7 million and $3.4 million, respectively, during the nine month period ended March 28, 2021 and approximately $88.8 million and $2.6 million, respectively, during the nine month period ended March 29, 2020. ADAC charges ADAC STRATTEC LLC an engineering, research and design fee as well as a sales fee. Such fees are calculated as a percentage of net sales, are included in the consolidated results of STRATTEC, and totaled $2.1 million and $6.9 million in the three and nine month periods ended March 28, 2021, respectively, and $2.2 million and $6.2 million in the three and nine month periods ended March 29, 2020, respectively. Additionally, ADAC-STRATTEC LLC sells production parts to ADAC. Sales to ADAC are included in the consolidated results of STRATTEC and totaled $2.7 million and $9.1 million in the three and nine month periods ended March 28, 2021, respectively, and $3.5 million and $9.2 million in the three and nine month periods ended March 29, 2020, respectively.

STRATTEC POWER ACCESS LLC (“SPA”) was formed in fiscal year 2009 to supply the North American portion of the power sliding door, lift gate and deck lid system access control products which were acquired from Delphi Corporation. SPA was 80 percent owned by STRATTEC and 20 percent owned by WITTE for all periods presented in this report. An additional Mexican entity, STRATTEC POWER ACCESS de Mexico, is wholly owned by SPA. The financial results of SPA are consolidated with the financial results of STRATTEC and resulted in increased net sales and increased net income to STRATTEC of approximately $72.0 million and $4.7 million, respectively, during the nine month period ended March 28, 2021 and increased net sales and decreased net income to STRATTEC of approximately $57.0 million and $167,000, respectively, during the nine month period ended March 29, 2020.

 

Equity (Loss) Earnings of Joint Ventures

As discussed above under Investment in Joint Ventures and Majority Owned Subsidiaries, we hold a one-third interest in a joint venture company, VAST LLC. Our investment in VAST LLC, for which we exercise significant influence but do not control and is not a variable interest entity of STRATTEC, is accounted for using the equity method. The results of the VAST LLC foreign subsidiaries and joint venture are reported on a one-month lag basis. We assess the impairment of equity investments whenever events or changes in circumstances indicate that a decrease in value of the investment has occurred that is other than temporary.

9


 

The following are summarized statements of operations for VAST LLC (in thousands):  

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 28,

2021

 

 

March 29,

2020

 

 

March 28,

2021

 

 

March 29,

2020

 

Net Sales

 

$

51,748

 

 

$

30,490

 

 

$

160,511

 

 

$

117,537

 

Cost of Goods Sold

 

 

44,155

 

 

 

25,679

 

 

 

131,345

 

 

 

96,131

 

Gross Profit

 

 

7,593

 

 

 

4,811

 

 

 

29,166

 

 

 

21,406

 

Engineering, Selling and Administrative Expenses

 

 

7,684

 

 

 

7,524

 

 

 

22,936

 

 

 

21,528

 

(Loss) Income From Operations

 

 

(91

)

 

 

(2,713

)

 

 

6,230

 

 

 

(122

)

Other Income (Expense), net

 

 

327

 

 

 

(424

)

 

 

1,363

 

 

 

1,079

 

Income (Loss) before Provision for Income Taxes

 

 

236

 

 

 

(3,137

)

 

 

7,593

 

 

 

957

 

Provision (Benefit) for Income Taxes

 

 

348

 

 

 

(294

)