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What changed in STRATTEC SECURITY CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of STRATTEC SECURITY CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+149 added−161 removedSource: 10-K (2024-09-05) vs 10-K (2022-09-08)

Top changes in STRATTEC SECURITY CORP's 2024 10-K

149 paragraphs added · 161 removed · 92 edited across 5 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

45 edited+12 added−14 removed64 unchanged
Biggest changeRISK FACTORS We recognize we are subject to the following risk factors based on our operations and the nature of the automotive industry in which we operate: RISK RELATED TO CORONAVIRUS AND OTHER HEALTH EPIDEMICS The Coronavirus (COVID-19) pandemic adversely affected, and may continue to adversely affect, our operations and supply chains, in particular related to the sourcing of semiconductor chips, and we have experienced and may continue to experience reductions in demand for certain of our products and services as a result of the pandemic and this supply chain disruption.
Biggest changeFor 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.
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.
Compliance Related to Conflict Minerals Regulations – 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.
While production subsequently increased after the cuts made in 2009 and again in 2021 when plants reopened following the COVID-19 closures, the current Ukraine conflict, semiconductor chip shortage and additional economic slowdowns, pandemics or part supply shortages could bring about new production cuts which could have a material adverse effect on our existing and future revenues, operating results, financial condition and cash flows.
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.
As these operations continue to expand, their success will depend, in part, on our and our partners’ ability to anticipate and effectively manage certain risks inherent in international operations, including: enforcing agreements and collecting receivables through certain foreign legal systems, payment cycles of foreign customers, compliance with foreign tax laws, general economic and political conditions in these countries and compliance with foreign laws and regulations.
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.
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.
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 15 product.
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 13 results of operations.
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 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.
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 14 area. An environmental reserve was established in 1995 for estimated costs to remediate a site at our Milwaukee facility.
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.
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 conflict in the Ukraine, and by a semiconductor chip shortage in 2021 and 2022.
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.
Our success in obtaining these quarterly price adjustments in our customer contracts is dependent on separate negotiations 11 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.
In 2015 and 2018, our increased warranty provision was the result of various known or expected customer warranty issues outstanding and estimated future warranty costs to be incurred as of June 2015 and June 2018, respectively, for which amounts were reasonably estimable.
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.
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.
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.
The site was 15 contaminated from a former above-ground solvent storage tank, located on the east side of the facility. The contamination occurred in 1985 and is being monitored in accordance with Federal, state and local requirements.
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.
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 busine ss, results of operations , financial condition and cash flows. Qualified Personnel – Our business success depends, to a significant degree, on attracting and retaining qualified personnel.
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. Qualified Personnel – Our business success depends, to a significant degree, on attracting and retaining qualified personnel.
Current and future disruption of our ability to manufacture or distribute our products or of the ability of our customers to take orders of our products or our suppliers to deliver key raw materials on a timely basis has had and could continue to have a material adverse effect on our sales levels, pricing for raw materials and components and our operating results.
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.
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. 16
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. UNRESOLV ED STAFF COMMENTS None.
If our major customers cannot fund their operations, we may incur significant write-offs of accounts receivable, incur impairment charges or require restructuring actions.
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.
In addition, the potential for future adverse industry conditions (including from COVID-19, the Ukraine conflict or otherwise) may require us to provide financial assistance or other measures to ensure uninterrupted production. The continuation or renewal of these industry conditions could have a material adverse effect on our existing and future revenues, financial results, financial condition and cash flows.
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.
Because of the COVID-19 pandemic and the recent Ukraine conflict, we have experienced supply chain disruptions in fiscal 2021 and fiscal 2022 in particular with semiconductor chip shortages that impact our OEM customers’ ability to finish assembly of new vehicles and which have adversely impacted orders for our products and, accordingly, our results of operations and cash flows.
Because of the COVID-19 pandemic and the 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 current contract with our Leon unionized associates is effective through April 12, 2023. We may encounter further labor disruption and we may also encounter unionization efforts in our other plants or other types of labor conflicts, any of which could have an adverse effect on our business, financial results, financial condition and cash flows.
The current contract with our Leon unionized associates is effective through April 8, 2025. 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.
This could be caused by a number of factors, including a lack of production line capacity or manpower or working capital constraints. In order to manage and reduce the costs of purchased goods and services, we and others within our industry have been rationalizing and consolidating our supply base.
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.
The potential continuation or renewal of financial distress within the supply base (whether from COVID-19, the Ukraine conflict, the ongoing supply chain and logistics disruptions or otherwise) and our suppliers’ inability to obtain credit from lending institutions could lead to commercial disputes and possible supply chain interruptions.
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 COVID-19 outbreak (or a worsening of this outbreak) and future outbreaks of contagious diseases in the human population has resulted in and could continue to result in a widespread health crisis that adversely affects the economies and financial markets of many countries (including those where we operate or where our products are ultimately used), resulting in an economic downturn that has and could continue to affect demand for our products and impact our operating results.
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.
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 or a rapid increase in production demands, either we or our customers or other suppliers may experience supply shortages of raw materials or components.
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.
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.
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. 10 Highly Competitive Automotive Supply Industry – The automotive component supply industry is highly competitive.
However, we have not been successful in obtaining the adjustments with all of our customers. Foreign Operations – We own and operate manufacturing operations in Mexico.
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.
During fiscal 2021 and 2022, we experienced higher raw material costs on the items listed above including freight costs on both raw material and purchased components.
During recent fiscal years, we experienced higher raw material costs on the items listed above including freight costs on both raw material and purchased components.
As additional information becomes available, actual results may differ from recorded estimates or we may need to record additional warranty provisions, similar to as in 2015 and 2018.
As additional information becomes available, actual results may differ from recorded estimates or we may need to record additional warranty provisions.
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.
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.
Because we manufacture our products in facilities around the world, including in Mexico and through our joint venture partners in Europe, China and India, we have been and may continue to be vulnerable to an outbreak of COVID-19 (or the resurgence of such an outbreak) or other contagious diseases in those regions as well as in the United States.
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.
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. 11 Our major customers also have significant under-funded legacy liabilities related to pension and postretirement health care obligations.
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.
In addition, our competitive position in the North American automotive component supply industry could be adversely affected in the event that we are unsuccessful in making strategic investments, acquisitions or alliances or in establishing joint ventures that would enable us to expand globally, in particular, with the VAST Automotive Group and their ability to fund and service global vehicle platforms.
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.
Labor contracts between General Motors Company, Ford Motor Company and Stellantis (formerly Fiat Chrysler Automobiles) and their unionized associates under the United Auto Workers union expire in September 2023. In addition, their respective labor agreements with the Canadian auto workers union expire in Fall 2023.
Labor contracts between General Motors Company, Ford Motor Company and Stellantis and their unionized associates under the United Auto Workers union expire in April 2028. In addition, their respective labor 12 agreements with the Canadian auto workers union expire in September 2026.
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.
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.
Warranty Claims – We are exposed to warranty claims in the event that our products fail to perform as expected, and we may be required to participate in the repair costs incurred by our customers for such products. Our largest customers have recently extended and/or expanded their warranty protection for their vehicles.
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.
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.
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.
BUSINESS RISKS Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share – Sales to General Motors Company, Ford Motor Company and Stellantis (formerly Fiat Chrysler Automobiles) represented approximately 65 percent of our annual net sales (based on fiscal 2022 results) and, accordingly, these customers account for a significant percentage of our outstanding accounts receivable.
R ISK 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: 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 2024 results) and, accordingly, these customers account for a significant percentage of our outstanding accounts receivable.
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.
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.
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.
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.
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.
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.
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.
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.
Any of the foregoing factors could have a material adverse effect on our business, operating results, financial condition and cash flows.
Any of the foregoing factors could have a material adverse effect on our business, operating results, financial condition and cash flows. 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.
Depending on the nature of and the volume of vehicles involved in the potential warranty claims, these charges could be material to our financial statements. The extended and/or expanded warranty trend may also result in higher cost recovery claims by OEMs from suppliers whose products incur a higher rate of warranty claims above an OEM derived nominal level.
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.
These shortages will most likely continue into our fiscal 2023. Sources of and Fluctuations in Market Prices of Raw Materials – Our primary raw materials are high-grade zinc, brass, nickel silver, aluminum, steel and plastic resins.
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.
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. 14 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.
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. Inflationary Pressures – We continue to experience elevated inflation in the markets in which we operate, with higher commodity, labor, freight and other cost pressure.
These materials are generally available from a limited number of suppliers, but we have chosen to concentrate our sourcing with one primary vendor for each commodity or purchased component. We believe our sources of raw materials are reliable and adequate for our needs.
We believe our sources of raw materials are reliable and adequate for our needs.
Removed
We have been adhering to guidelines and mandates from governmental and health organizations in the territories that we have locations and production facilities, and have implemented various risk mitigation plans to reduce the risk of spreading COVID-19.
Added
Our major customers also have significant under-funded legacy liabilities related to pension and postretirement health care obligations.
Removed
To that end, we have encouraged working remotely where applicable, adopted social distancing where appropriate, implemented travel restrictions, and we are taking actions to ensure that locations and facilities are cleaned and sanitized regularly. All of these actions may impact our operations and profitability.
Added
Labor disruptions encountered by our customers during the contract period could have an adverse effect on our business and our financial results.
Removed
Further, we have complied with and may be required to comply with additional foreign, national, state or local governmental authority recommendations, guidelines, and/or mandates, which have resulted in and may result in additional temporary reduction in or suspension in work at certain of our locations and production facilities.
Added
Climate Change and Environmental, Social, and Governance (ESG) Matters - Natural disasters or extreme weather conditions resulting from global climate change could lead us, our customers or our suppliers to experience disruptions in operations or disruptions in the availability of key components, which could lead to a material adverse impact on our results of operations, financial condition and cash flows.
Removed
All of these additional actions have and may continue to adversely impact our operating results, financial condition and cash flows.
Added
Further, various stakeholders, including customers, suppliers, lenders, regulators and those in the workforce, are increasing their expectations of companies to do their part to combat global climate change and its impact, and to conduct their operations in an environmentally sustainable manner with appropriate oversight by senior leadership.
Removed
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.
Added
A failure to respond to the expectations and initiatives of our stakeholders could result in damage to our reputation and relationships with various stakeholders.
Removed
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. 12 We consider the production capacities and financial condition of suppliers in our selection process, and expect that they will meet our delivery requirements.
Added
We could also experience adverse impacts to our financial condition due to volatility in the cost or availability of capital, difficultly obtaining new business or entering into new supplier relationships, a possible loss of market share on our current product portfolio, fines and penalties or difficulty attracting and retaining a skilled workforce.
Removed
As discussed below under “Investment in Joint Ventures and Majority Owned Subsidiaries” included in Notes to Financial Statements under Item 8 in this Form 10-K, we also have joint venture and majority owned investments in Mexico, Brazil, China and India.
Added
In addition to the increased stakeholder focus on climate change, customer, investor, and employee expectations in ESG have been rapidly evolving and increasing. The enhanced stakeholder focus on ESG requires the continuous monitoring of various and evolving regulations and standards and their associated requirements.
Removed
The success of these joint venture operations may be impacted by our partners’ ability to influence business decisions and therefore the operating results of the joint ventures could be adversely impacted.
Added
Our failure, or that of our supply base, to adequately meet stakeholder expectations may result in, among other things, the loss of business, diluted market valuation, an inability to attract customers or an inability to attract and retain top talent that could adversely affect our business, financial condition or results of operations.
Removed
These influences, as well as conflicts or disagreements with our joint venture partners, could negatively impact the operations, financial results, financial condition and cash flows of our joint venture investments, which could have an adverse impact on our financial results, financial condition and cash flows.
Added
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.
Removed
In addition, failure of our partners to be able to continue to fund their portion of the joint venture operations could have a material adverse effect on the financial condition and financial results of our joint venture investments, which could have a material adverse effect on our financial results.
Added
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.
Removed
The joint venture investments in China generated losses in 2012 and 2013 due to relocation costs associated with moves to a new facility and start-up costs associated with a new product line. These relocation costs and start-up costs have been financed internally and externally by VAST China.
Added
Interest Rates – Higher 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. 13 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.
Removed
Additionally, our VAST LLC joint ventures in Brazil and India continue to report losses or breakeven results due to the weak automotive build in those regions.
Added
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.
Removed
The impact of any future planned capital expenditures or future expansion by VAST LLC in China, Brazil and India, may result in the need for additional future capital contributions to fund the operations of these joint venture investments.
Removed
Other automotive OEMs have similarly extended and/or expanded their warranty programs. We are engaged in ongoing discussions with our customers regarding warranty information and potential claims. The results of these discussions could result in additional warranty charges/claims in future periods.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed1 unchanged
Biggest changeOwned or Leased Milwaukee, Wisconsin Headquarters and General Offices; Component Parts Manufacturing 345,123 Owned Juarez, Chihuahua Mexico Subsidiary Offices and Assembly 169,488 Owned Juarez, Chihuahua Mexico Subsidiary Offices and Assembly 69,900 Owned Juarez, Chihuahua Mexico Subsidiary Offices, Key Finishing, Injection Molding and Assembly Operations 114,877 Owned Leon, Mexico Subsidiary Offices, Door Handle Injecting Molding, Painting and Assembly 129,887 Owned El Paso, Texas Finished Goods and Service Parts Distribution Warehouse 114,715 Leased** Auburn Hills, Michigan Sales and Engineering Office for Detroit Customer Area 62,736 Owned ** Leased unit within a complex.
Biggest changeOwned or Leased Milwaukee, Wisconsin Headquarters and General Offices; Component Parts Manufacturing 345,123 Owned Juarez, Chihuahua Mexico Subsidiary Offices and Assembly 169,926 Owned Juarez, Chihuahua Mexico Subsidiary Offices and Assembly 77,527 Owned Juarez, Chihuahua Mexico Subsidiary Offices, Key Finishing, Injection Molding and Assembly Operations 114,841 Owned Leon, Mexico Subsidiary Offices, Door Handle Injecting Molding, Painting and Assembly 130,532 Owned El Paso, Texas Finished Goods and Service Parts Distribution Warehouse 114,715 Leased ** Auburn Hills, Michigan Sales and Engineering Office for Detroit Customer Area 62,736 Owned ** Leased unit within a complex. 16

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 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. 17 PART II
Biggest changeITEM 3. L EGAL 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.
Added
MINE SAF ETY DISCLOSURES None. 17 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOver the life of the repurchase program through July 3, 2022, a total of 3,655,322 shares have been repurchased at a cost of approximately $136.4 million. No shares were repurchased during the year ended July 3, 2022. ITEM 6. [RESERVED] 18
Biggest changeOver the life of the repurchase program through June 30, 2024, a total of 3,655,322 shares have been repurchased at a cost of approximately $136.4 million. No shares were repurchased during the fiscal year ended June 30, 2024. ITEM 6. [RESERVED] 18
At July 3, 2022, the number of shares of the Company’s common stock authorized for repurchase under the program totaled 3,839,395. The program currently authorizes the repurchase of the Company’s common stock from time to time, directly or through brokers or agents, and has no expiration date.
At June 30, 2024, 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.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NASDAQ Global Market under the symbol “STRT.” Registered shareholders of record at July 3, 2022, were 850.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STO CKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NASDAQ Global Market under the symbol “STRT.” Registered shareholders of record at June 30, 2024, were 800.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

42 edited+44 added−55 removed6 unchanged
Biggest changeEngineering, Selling and Administrative Expenses in the current year and prior year were as follows: Years Ended July 3, 2022 June 27, 2021 Expenses (millions of dollars) $ 47.1 $ 44.7 Expenses as a percentage of net sales 10.4 % 9.2 % Engineering, selling and administrative expenses were impacted by the following: Cost Increases: - Prior year customer reimbursement of engineering development costs, which costs were incurred in periods prior to 2021, decreased costs $1.5 million between years, which reimbursement was agreed to in the prior year. - Customer reimbursement of engineering development costs, in addition to the $1.5 million noted above, decreased $900,000 between years and resulted from the timing of customer reimbursement for development spending on new product programs. 21 - The prior year included temporary wage reductions for our salaried work force, which we implemented to address the impacts of the COVID-19 pandemic on our operations. - The current year includes an additional week of expense as our fiscal 2022 was a 53 week year and our fiscal 2021 was a 52 week year.
Biggest changeEngineering, Selling and Administrative Expenses in the current year and prior year were as follows: Years Ended June 30, 2024 July 2, 2023 Expenses (millions of dollars) $ 47.7 $ 48.2 Expenses as a percentage of net sales 8.9 % 9.8 % Engineering, selling and administrative expenses were impacted by the following: Cost Decrease: - Current year costs decreased $3.2 million in comparison to the prior year due to an increase in customer billings for the reimbursement of engineering development costs.
Warranty Reserve – We have a warranty liability recorded related to our exposure to warranty claims in the event our products fail to perform as expected, and we may be required to participate in the repair costs incurred by our customers for such products. The recorded warranty liability balance involves judgment and estimates.
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.
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. 26
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 QUALIT ATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 26
Therefore, future actual claims experience could result in changes in our estimates of the required liability. Sensitivity of potential warranty or product recall claims is dependent on the respective customer platform, volumes, production years and product content. We have product recall insurance once a recall claim exceeds $5 million with a limit of $35 million.
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.
The investments held in the Trust are considered trading securities. - We entered into the Mexican peso currency forward contracts during fiscal 2022 and 2021 to minimize earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations.
The investments held in the Trust are considered trading securities. - We entered into the Mexican peso currency forward contracts during fiscal 2024 and 2023 to reduce earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations.
Executive Overview Historically, a significant portion of our total net sales have been to domestic automotive OEMs (General Motors, Ford and Stellantis (formerly Fiat Chrysler)). During the past two decades these customers lost North American market share to the New Domestic automotive manufacturers (primarily the Japanese and Korean automotive manufacturers).
Executive Overview Historically, traditional domestic automotive OEMs (General Motors, Ford and Stellantis) have comprised a majority of our total net sales. During the past two decades, these customers have lost North American market share to New Domestic automotive manufacturers (primarily Japanese and Korean automotive manufacturers).
Our liability estimate is based on an analysis of historical warranty data as well as current trends and information, including our customers’ recent extension or expansion of their warranty programs. Actual warranty costs might differ from estimates due to the level of actual claims varying from our claims experience and estimates and final negotiations and settlements reached with our customers.
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.
Cash Requirements Dividends On May 13, 2020, our Board of Directors took action to temporarily suspend payment of our quarterly dividend for the foreseeable future in order to conserve cash as a result of the economic downturn caused by COVID-19. No dividends were paid to shareholders during fiscal 2022 and fiscal 2021.
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 2024 or fiscal 2023.
An increase or decrease in our assessment of the recorded amount of unrecognized benefits by 10 percent would result in an increase or decrease in the reported tax provision, before the impact of interest and penalties, of $100,000 at July 3, 2022 and $110,000 at June 27, 2021.
An increase or decrease in our assessment of the recorded amount of unrecognized benefits by 25 10 percent would result in an increase or decrease in the reported tax provision, before the impact of interest and penalties, of $120,000 at June 30, 2024 and $110,000 at July 2, 2023.
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 August 1, 2024.
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 $20 million secured revolving credit facility (the “ADAC-STRATTEC Credit Facility”) with BMO Harris Bank N.A., which is guaranteed by STRATTEC. The ADAC-STRATTEC Credit Facility borrowing limit decreases to $18 million on August 1, 2025.
At this time, we anticipate minimal or no stock repurchase activity in fiscal year 2023. Other Cash Requirements We 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.
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.
The amount of unrecognized benefits, that if recognized, would affect the effective tax rate was $1.0 million at July 3, 2022 and $1.1 million at June 27, 2021.
The amount of unrecognized benefits, that if recognized, would affect the effective tax rate was $1.2 million at June 30, 2024 and $1.1 million at July 2, 2023.
A summary of our outstanding receivable balances from our major customers as of July 3, 2022 and June 27, 2021 was as follows (millions of dollars): July 3, 2022 June 27, 2021 General Motors Company $ 24.6 $ 22.9 Stellantis $ 12.8 $ 11.9 Ford Motor Company $ 10.6 $ 8.2 $ 48.0 $ 43.0 Cash Balances in Mexico We earn a portion of our operating income in Mexico.
A summary of our outstanding receivable balances from our major customers as of June 30, 2024 and July 2, 2023 was as follows (millions of dollars): June 30, 2024 July 2, 2023 General Motors Company $ 28.6 $ 27.5 Ford Motor Company 24.8 17.4 Stellantis 12.2 14.1 $ 65.6 $ 59.0 22 Cash Balances in Mexico We earn a portion of our operating income in Mexico.
As of July 3, 2022, $2.2 million of our $8.8 million cash and cash equivalents balance was held in Mexico. These funds are available for repatriation as deemed necessary.
As of June 30, 2024, $1.4 million of our $25.4 million cash and cash equivalents balance was held in Mexico. These funds are available for repatriation as deemed necessary.
Labor and overhead costs were further impacted by the following: - Cost Increases: - Mexico wages and benefits increased $5.2 million in the current year as compared to the prior year period as a result of January 1, 2021 and January 1, 2022 government mandated minimum wage increases. - The U.S. dollar value of our Mexican operations was negatively impacted by approximately $1.8 million in the current year as compared to the prior year due to an unfavorable Mexican peso to U.S. dollar exchange rate between years.
The year-over-year increase in labor and overhead costs of $15.4 million was impacted by the following: Cost Increases: - The U.S. dollar value of our Mexican operations was negatively impacted by approximately $8.5 million in the current year as compared to the prior year due to an unfavorable Mexican peso to U.S. dollar exchange rate between years.
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.
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.
Outstanding borrowings under the ADAC-STRATTEC Credit Facility totaled $11 million at July 3, 2022 and $12 million at June 27, 2021. The average outstanding borrowings and weighted average interest rate on the ADAC-STRATTEC Credit Facility loans were approximately $14.2 million and 1.5 percent, respectively, during 2022.
The average outstanding borrowings and weighted average interest rate on the STRATTEC Credit Facility loans were approximately $15.4 million and 5.7 percent, respectively, during 2023. Outstanding borrowings under the ADAC-STRATTEC Credit Facility totaled $13 million at both June 30, 2024 and July 2, 2023.
The ADAC-STRATTEC Credit Facility includes an additional restrictive financial covenant that requires the maintenance of a minimum fixed charge coverage ratio. As of July 3, 2022, we were in compliance with all financial covenants required by these credit facilities. There were no outstanding borrowings under the STRATTEC Credit Facility as of July 3, 2022 or June 27, 2021.
Both credit facilities contain a restrictive financial covenant that requires the applicable borrower to maintain a minimum net worth level. The ADAC-STRATTEC Credit Facility includes an additional restrictive financial covenant that requires the maintenance of a minimum fixed charge coverage ratio. As of June 30, 2024, we were in compliance with all financial covenants required by these credit facilities.
This change between years was the result of decreased sales and increased engineering, selling and administrative expenses, which were partially offset by a decrease in cost of goods sold in the current year as compared to the prior year, all as discussed above.
This change between years was the result of an increase in sales in the current year as compared to the prior year along with a reduction in engineering, selling and administrative expenses partially offset by an increase in cost of goods sold, all as discussed above. Effective June 30, 2023, STRATTEC sold its one-third interest in VAST LLC to WITTE.
The average outstanding borrowings and weighted average interest rate on the STRATTEC Credit Facility loans were approximately $332,000 and 2.0 percent, respectively, during 2022. The average outstanding borrowings and weighted average interest rate on the STRATTEC Credit Facility loans were approximately $8.8 million and 1.2 percent, respectively, during 2021.
The average outstanding borrowings and weighted average interest rate on the ADAC-STRATTEC Credit Facility loans were approximately $13.0 million and 6.8 percent, respectively, during 2024. 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.
Liquidity and Capital Resources Working Capital (millions of dollars) July 3, 2022 June 27, 2021 Current Assets $ 188.2 $ 174.9 Current Liabilities 81.5 77.6 Working Capital $ 106.7 $ 97.3 Outstanding Receivable Balances from Major Customers Our primary source of cash flow is from our major customers, which include Stellantis (formerly Fiat Chrysler Automobiles), General Motors Company and Ford Motor Company.
Liquidity and Capital Resources Working Capital (millions of dollars) June 30, 2024 July 2, 2023 Current Assets $ 253.8 $ 225.8 Current Liabilities 118.3 109.0 Working Capital $ 135.5 $ 116.8 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.
Interest on borrowings under the ADAC-STRATTEC Credit Facility through May 31, 2021 was at varying rates based, at our option, on LIBOR plus 1.25 percent or the bank’s prime rate.
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, SOFR plus 1.35 percent for the period February 23, 2023 through September 5, 2023, and SOFR plus 1.85 percent subsequent to September 5, 2023.
Included in other income (expense), net in the current year and prior year were the following items (thousands of dollars): Years Ended July 3, 2022 June 27, 2021 Foreign currency transaction gain (loss) $ 237 $ (2,445 ) Rabbi Trust Assets (loss) gain (304 ) 865 Unrealized gain on Mexican peso forward contracts 384 723 Realized gain on Mexican peso forward contracts, net 361 164 Pension and postretirement plans cost (488 ) (483 ) Other 233 11 $ 423 $ (1,165 ) - Foreign currency transaction gains and losses resulted from activity associated with foreign denominated assets held by our Mexican subsidiaries. - The Rabbi Trust assets fund our amended and restated supplemental executive retirement plan.
Prior year equity earnings 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. 21 Included in other income (expense), net in the current year and prior year were the following items (thousands of dollars): Years Ended June 30, 2024 July 2, 2023 Foreign currency transaction gain (loss) $ 2,153 $ (2,935 ) Rabbi Trust Assets gain 211 202 Realized and unrealized gain on Mexican peso forward contracts, net 885 1,022 Pension and postretirement plans cost (395 ) (722 ) Other 194 255 $ 3,048 $ (2,178 ) - 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 average outstanding borrowings and weighted average interest rate on the ADAC-STRATTEC Credit Facility loans were approximately $14.3 million and 1.4 percent, respectively, during 2021. We believe that the credit facilities are adequate, along with existing cash flows from operations, to meet our anticipated capital expenditure, working capital, dividend, and operating expenditure requirements.
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.
As sales ramped up during our fiscal 2021, the accounts receivable balance increased accordingly. - The change in inventory reflected an increase in inventory balances during both the current year period and the prior year period.
The increase in accounts receivable balances during 2023 reflects increased sales as of the end of our fiscal 2023 as compared to the end of our fiscal 2022. - The change in inventory levels reflected an increase during the current year and a decrease during the prior year.
Cash Flow Analysis Years Ended July 3, 2022 June 27, 2021 Cash Flows from (millions of dollars): Operating Activities $ 10.4 $ 35.2 Investing Activities $ (14.3 ) $ (9.0 ) Financing Activities $ (1.9 ) $ (22.9 ) $ (5.8 ) $ 3.3 The decrease in cash provided by operating activities between 2021 and 2022 was due to a reduction in operating income as previously discussed.
Cash Flow Analysis Years Ended June 30, 2024 July 2, 2023 Cash Flows from (millions of dollars): Operating Activities $ 12.3 $ 10.1 Investing Activities (7.8 ) 8.9 Financing Activities — (7.4 ) $ 4.5 $ 11.6 Cash flow from operating activities increased $2.2 million between years as the impact of increased profitability between years, as previously discussed, was offset by a net increase in working capital.
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.
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.
Joint Ventures and Majority Owned Subsidiaries Refer to the discussion of Investment in Joint Ventures and Majority Owned Subsidiaries and discussion of Equity Earnings of Joint Ventures included in the Notes to Financial Statements included within this Form 10-K. 25 Critical Accounting Policies We believe the following represents our critical accounting policies: Liability for Uncertain Tax Positions – We are subject to income taxation in many jurisdictions around the world.
Joint Ventures and Majority Owned Subsidiaries Refer to the discussion of Investment in Joint Ventures and Majority Owned Subsidiaries and discussion of Equity (Loss) Earnings of Joint Ventures included in the Notes to Financial Statements included within this Form 10-K.
Net cash used in financing activities of $22.9 million during 2021 included repayments of borrowings under credit facilities of $23.0 million and $490,000 of dividend payments to non-controlling interests in our subsidiaries, partially offset by $604,000 received for the exercise of stock options under our stock incentive plan and purchases under our employee stock purchase plan.
Net cash provided by financing activities of $72,000 during 2024 included additional borrowings under our credit facilities of $2.0 million and $72,000 received for purchases under our employee stock purchase plan. These cash inflows were partially offset by the repayment of borrowings under credit facilities of $2.0 million.
Capital expenditures during each year were made in support of requirements for new product programs and the upgrade and replacement of existing equipment. Net cash used by investing activities during 2022 and 2021 also included an investment in our VAST LLC joint venture of $150,000 and $100,000, respectively.
Net cash used in investing activities of $7.8 million during 2024 included capital expenditures of $9.8 million in support of requirements for new product programs and the upgrade and replacement of existing equipment partially offset by additional proceeds from the sale of our interest in VAST LLC of $2.0.
We currently anticipate no required future capital contributions to Minda-VAST Access Systems for fiscal year 2023. 24 Future Capital Expenditures We anticipate capital expenditures will be approximately $13.0 million in fiscal 2023 in support of requirements for new product programs and the upgrade and replacement of existing equipment.
Future Capital Expenditures We anticipate capital expenditures will be approximately $15.0 million in fiscal 2025 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.
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.
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.
O ur income tax provision for each year 202 2 and 202 1 was affected by the non-controlling interest portion of our pre-tax income , GILTI provisions and R&D tax credit . The non-controlling interest impacts the effective tax rate as our ADAC-STRATTEC LLC and STRATTEC POWER ACCESS LLC entities are taxed as part nerships for U.S. tax purposes.
Our income tax provision for each year 2024 and 2023 was affected by the non-controlling interest portion of our pre-tax income and R&D tax credit.
The decrease in operating income was slightly offset by a net decrease in working capital requirements between these years of $1.3 million, with the net decrease in our working capital requirements being made up of the following working capital changes (millions of dollars): Increase (Decrease) in Working Capital Requirements 2022 2021 Change Accounts Receivable $ 5.9 $ 27.7 $ (21.8 ) Inventories $ 9.6 $ 16.5 $ (6.9 ) Customer Tooling $ 3.3 $ 1.2 $ 2.1 Other Assets $ (0.2 ) $ 1.2 $ (1.4 ) Accounts Payable and Other Liabilities $ (1.8 ) $ (28.5 ) $ 26.7 $ 16.8 $ 18.1 $ (1.3 ) 23 - The increase in accounts receivable balances during the current year was mostly due to payments from a specific customer being made in advance of the payment term due dates in the prior year while current year payments from that customer were made according to payment term due.
The net increase in our working capital included the following working capital changes (millions of dollars): Increase (Decrease) in Working Capital Requirements 2024 2023 Change Accounts Receivable $ 9.4 $ 13.7 $ (4.3 ) Inventories 4.1 (2.9 ) 7.0 Customer Tooling 1.4 10.0 (8.6 ) Other Assets 12.2 0.5 11.7 Accounts Payable and Other Liabilities (10.7 ) (24.0 ) 13.3 $ 16.4 $ (2.7 ) $ 19.1 - Accounts receivable balances increased in both the current and prior year periods.
Borrowings under either credit facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixed assets located in the U.S. Interest on borrowings under the STRATTEC Credit Facility through May 31, 2021 was at varying rates based, at our option, on the London Interbank Offering Rate (“LIBOR”) plus 1.0 percent or the bank’s prime rate.
The credit facilities both expire August 1, 2026. Borrowings under either credit facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixed assets located in the U.S.
A total of 3,655,322 shares have been repurchased over the life of the program through July 3, 2022, at a cost of approximately $136.4 million. No shares were repurchased during fiscal 2022 or 2021. Additional repurchases may occur from time to time and are expected to continue to be funded by cash flow from operations and current cash balances.
Shares authorized for buy back under the program totaled 3,839,395 at June 30, 2024. A total of 3,655,322 shares have been repurchased over the life of the program through June 30, 2024, at a cost of approximately $136.4 million. No shares were repurchased during fiscal 2024 or 2023.
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.
In addition, our financial performance depends in large part on conditions in the North American automotive industry, which in turn, are largely dependent upon the U.S. economy. During fiscal years 2024 and 2023, the traditional domestic automotive OEMs represented 66 percent of our total net sales.
The prior year period increase was due to an inventory build-up as of June 2021 while our OEM customers experienced assembly plant shut-downs and reduced production schedule during late March 2021 through June 2021 due to certain part shortages. - The change in customer tooling balances, which consisted of costs incurred for the development of tooling that will be directly reimbursed by the customer whose parts are produced 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 prior year change in other assets was the result of an increase in the income tax recoverable, which changes were based on the required income tax provision, the timing and amounts of Federal, state and foreign tax payments made, and the timing of the utilization of foreign tax credits and research and development tax credits. - The prior year change in accounts payable and accrued liability balances was primarily the result of an increase in accounts payable balances and accruals under our bonus plans.
The prior 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 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 current year increase in other assets is due to an $11.8 million increase in value added tax ("VAT") recoverable balances related to our Mexican operations.
Years Ended July 3, 2022 June 27, 2021 Gross Profit (millions of dollars) $ 56.0 $ 78.7 Gross Profit as a percentage of net sales 12.4 % 16.2 % The decrease in gross profit dollars in the current year as compared to the prior year was attributed to the decrease in net sales between years, partially offset by the decrease in cost of goods sold as discussed above.
Years Ended June 30, 2024 July 2, 2023 Gross Profit (millions of dollars) $ 65.5 $ 42.2 Gross Profit as a percentage of net sales 12.2 % 8.6 % Gross profit margin improvement between years was driven by pricing relief achieved during the current year as discussed above.
This impact was partially offset by less favorable absorption of our fixed overhead costs in the current year as compared to the prior year resulting from the production volume reduction between years and an additional week of expense in the current year as compared to the prior year as our fiscal 2022 was a 53 week year and our fiscal 2021 was a 52 week year.
The net unfavorable impact of specific labor and overhead costs noted above was partially offset by more favorable absorption of our fixed overhead costs in the current year as compared to the prior year due to higher production volumes driven by an increase in finished goods inventory during the year and increased sales volumes.
Cost Decrease: - Expense provisions under our incentive bonus plans impacting engineering, selling and administrative expenses decreased $2.8 million between years. Income from operations in the current year was $8.9 million compared to income from operations of $33.9 million in the prior year.
Income from operations in the current year was $17.8 million compared to loss from operations of $6.1 million in the prior year.
The investments were made for the purpose of funding general operating expenses for Sistema de Acesso Veicular Ltda, our Brazilian joint venture.
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.
Removed
During fiscal years 2022 and 2021, the above domestic automotive OEMs together represented each year 65 percent and 62 percent, respectively, of our total net sales.
Added
Fiscal 2024 net sales were $537.8 million compared to $492.9 million in fiscal 2023. $32.7 million of the $44.9 million net sales increase was driven by net price increases to our major OEM customers.
Removed
During fiscal years 2022 and 2021, we experienced stronger sales demand for our components from our major North American customers noted above as it relates to light trucks and both sport utility and car based utility vehicles in comparison to passenger cars, which was likely influenced by customer preferences and gas prices.
Added
When excluding this pricing effect, underlying sales increased by $12.2 million, up 2.5% over the prior year, largely reflecting the launch of new customer programs in the latter half of the fiscal year.
Removed
If gas prices continue to rise over the next several years, this consumer buying trend may not continue, which is approximately 80 percent light trucks and sport utility vehicles in comparison to 20 percent passenger car vehicle purchases today.
Added
The $32.7 million of aforementioned net price increase was composed of $9.7 million one-time retroactive pricing that is not expected to recur, and $23.0 million in ongoing increases in current part prices to our customers.
Removed
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.
Added
In addition, we settled negotiations with certain key suppliers and paid $5.7 million in higher prices during the year, of which $1.7 million relates to one-time retroactive pricing with the remaining $4.0 million attributable to higher supplier prices on an ongoing basis.
Removed
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 key customers and will be adopted in this changeover (refer to vehicle list included at page 7 in this Form 10-K).
Added
The net margin result of both customer and supplier changes in price represented a $27.0 million net margin improvement in fiscal 2024, comprised of $8.0 million of nonrecurring one-time pricing and $19.0 million of ongoing pricing.
Removed
Fiscal 2022 net sales were $452 million compared to $485 million in 2021. Both the fiscal 2022 and 2021 net sales were negatively impacted by the global semiconductor chip shortage which caused our OEM customers to temporarily shut down their assembly plants and which ultimately reduced our net sales and profitability during each of these years.
Added
These net margin improvements surpassed the higher end of our target ranges of $6.0 million and $15.0 million for one-time and ongoing net pricing respectively, which were provided in the fiscal 2024 Outlook in our 2023 Form 10-K. During fiscal 2024, our cost of sales performance proved challenging.
Removed
In addition, we see these supply chain shortages continuing into fiscal year 2023. Net income attributable to STRATTEC for fiscal 2022 was $7.0 million and the Net income attributable to STRATTEC in fiscal 2021 was $22.5 million.
Added
Despite favorability in our raw materials costs, which recovered from elevated levels in fiscal 2023, and improved efficiency of our Mexican operations through a salaried staff reduction in the first quarter and production efficiencies implemented throughout the year, our overall cost of sales performance deteriorated.
Removed
In addition, during fiscal years 2022 and 2021 the Company produced additional finished goods inventory in anticipation of our OEM customers coming out of the temporary shutdowns from the impact of the COVID-19 pandemic and other supply chain shortages to fill their dealer pipelines which are at historic low levels.
Added
Factors driving higher costs in our manufacturing operations were primarily: • a weakened U.S. dollar against the Mexican peso, raising the cost of our Mexican operations • higher Mexican labor wages due to government-mandated minimum wage increases • higher shipping costs primarily due to expedited shipments related to the launch of new product programs Sales, engineering and administrative expenses decreased in fiscal 2024, primarily due to historically high engineering cost reimbursements from our customers, offset by expenses related to the company bonus plan and the transition of our Chief Executive Officer position.
Removed
Also impacting profitability in fiscal year 2022 were increased costs for purchased raw materials relating to zinc, steel, nickel silver, brass, aluminum and plastic resins. In most cases we were not able to pass along all these increased costs to our customers through pricing increases. Another factor impacting our profitability is our U.S.
Added
Our improved operating performance enabled us to achieve net income attributable to STRATTEC of $16.3 million in fiscal 2024 compared with a net loss attributable to STRATTEC of $6.7 million in fiscal 2023. Based on July 2024 projections from our third-party forecasting service, S&P Global, North American light vehicle production is forecasted to grow modestly between 2024 and 2028.
Removed
Dollar and Mexican Peso exchange rate that affects our operations in Mexico. In the case of the Mexican Peso, the Company does have certain hedging strategies to offset the impact of the exchange rate effects on profitability.
Added
Model year 2024 preliminary North American vehicle build was 15.8 million. S&P Global currently expects 2025 model year vehicle build to remain at 15.8 million vehicles, growing to 16.2 million vehicles in 2026 and then to 16.4 million vehicles for 2027 and 2028.
Removed
Finally, on each of January 1, 2022 and 2021, the Mexican Government mandated minimum wage increases of 22% and 15%, respectively which also negatively impacted our overall profitability.
Added
The North American vehicle build forecasts for our primary customers (Ford, General Motors and Stellantis) project a modest decline from 6.7 million vehicles in 2024 to 6.5 million vehicles in 2025 and then an increase to 6.9 million vehicles in model year 2026, stabilizing at that level for model years 2027 and 2028.
Removed
As we look out into the future, the July 2022 projections from our third-party forecasting service indicate that North American light vehicle production will show a significant increase in demand in vehicle production build for the next four years from our original 2022 forecast which was originally set lower due to the expected lingering effects of the COVID-19 pandemic and the ongoing global semiconductor chip shortage.
Added
In an effort to increase our sales, we will continue pursuing opportunities to expand our offerings with existing and new customers.
Removed
By model year, based on these projections we are expecting a 2022 vehicle build of 13.4 million vehicles, 15.8 million vehicles for 2023, 16.8 million vehicles for 2024, 16.8 million vehicles for 2025 and 16.5 million vehicles for 2026.
Added
These forecasts are subject to variability based upon a number of factors, including the overall North American economy, current employment levels, availability and cost of consumer credit, home equity values, fuel prices, changes in customer vehicle and option preferences, product quality issues, including those 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. 19 Results of Operations 2024 Compared to 2023 Years Ended June 30, 2024 July 2, 2023 Net Sales (millions of dollars) $ 537.8 $ 492.9 Net Sales to each of our customers or customer groups in the current year and prior year were as follows (millions of dollars): Years Ended June 30, 2024 July 2, 2023 General Motors Company $ 163.1 $ 150.3 Ford Motor Company 114.9 96.6 Stellantis 77.7 78.1 Tier 1 Customers 77.5 73.3 Commercial and Other OEM Customers 58.9 56.3 Hyundai / Kia 45.7 38.3 Total $ 537.8 $ 492.9 The year-over-year sales increase of $44.9 million reflects net price increases from our major OEM customers of $32.7 million of which $23.0 million is attributable to ongoing increases in current part prices and $9.7 million relates to one-time retroactive price increases for parts shipped in the prior year for which the net price increase was agreed to during the current year.
Removed
These vehicle production estimates going forward were significantly increased due to the impact of COVID-19 that lowered vehicle production in late fiscal 2020 and the global semiconductor chip shortage in late fiscal 2021 and 2022 which also continues to negatively impact vehicle production levels.
Added
In addition to the net price increases, the following items specifically impacted sales to the noted customer groups between years: - Sales to General Motors Company were favorably impacted by new door handle business supplied on the Chevrolet Equinox EV. - Sales to Ford Motor Company were positively impacted by added power end gate content we supply on the F-Series Super Duty Pickup and by new tailgate latch content supplied on the F-Series Pickups. - Sales to Stellantis were negatively impacted by reduced customer vehicle production volumes as well as reduced content we supply for the Dodge Ram Pickup and several passenger car programs ending. - Sales to Tier 1 Customers improved in the current year compared to the prior year due to new door hardware content on the F-Series Super Duty Pickup, which is sold to a Tier 1 customer. - 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, were positively impacted by sales for new business awarded from Aston Martin. - Sales to Hyundai / Kia were positively impacted by an overall increase in customer vehicle production volumes between years.
Removed
As part of this third party projection, the Ford Motor Company, General Motors and Stellantis are expected to experience increased vehicle production volumes in their production levels during this time period.
Added
Cost of goods sold in the current year and prior year were as follows (millions of dollars): Years Ended June 30, 2024 July 2, 2023 Millions of Dollars Percent of Net Sales Millions of Dollars Percent of Net Sales Direct Material Costs $ 301.7 56.1 % $ 295.6 60.0 % Labor and Overhead Costs 170.6 31.7 % 155.2 31.5 % Total Cost of Goods Sold $ 472.3 $ 450.8 Prior year reclassifications have been made for consistency with current year presentation.
Removed
Of course, all of these forecasts are subject to variability based on what happens in the overall North American and global economies, especially as it relates to the world wide status of the global semiconductor chip and other supply chain shortages and the lingering impacts of the COVID-19 pandemic that may shut down our customers' assembly facilities and further disrupt supply chains in the foreseeable future, potential tariff enactment by the United States Government or other foreign countries, the current levels of employment, availability of consumer credit, home equity values, 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. 19 Focus and Strategy Going Forward STRATTEC’s long-term strategy is focused on maximizing long-term shareholder value by driving profitable growth.
Added
Total cost of goods sold increased $21.5 million between years. The year-over-year increase in direct material costs of $6.1 million was the result of increases in sales volumes and content we supply, as discussed above, and $5.7 million of negotiated material price increases paid to key suppliers.
Removed
Our management believes productivity improvements and cost reductions are critical to our competitiveness, while enhancing the value we deliver to our customers.
Added
Price increases paid to suppliers attributed to ongoing operations totaled $4.0 million while the remaining $1.7 million related to one-time retroactive price increases. The impact of content and material price increases was partially offset by reduced zinc costs of approximately $3.1 million in the current year as compared to the prior year.
Removed
In order to accomplish this, we have been pursuing, and we intend to continue to pursue over the foreseeable future, the following objectives as summarized below: - Streamline and standardize processes to increase productivity and improve the quality of our products - Maintain a disciplined and flexible cost structure to leverage scale and optimize asset utilization and procurement - Maintain our strong financial position by deploying capital spending targeted for growth and productivity improvement - Leverage the “VAST Automotive Group Brand” with customer relationships to generate organic growth for STRATTEC from global programs - Offer our customers innovative products and technologies, in particular electronics capabilities, along with cost savings solutions to meet their changing demands - Explore and execute targeted mergers and acquisitions or other joint venture opportunities with a disciplined due diligence approach and critical financial analysis to drive shareholder value We use several key performance indicators to gauge progress toward achieving these objectives.
Added
The 20 average U.S. dollar / Mexican peso exchange rate decreased to approximately 17.13 pesos to the dollar for the year from approximately 18.98 pesos to the dollar in the prior year. - Mexico wages and benefits increased $6.6 million in the current year as compared to the prior year as a result of annual wage increases, including January 1, 2024 and January 1, 2023 government mandated minimum wage increases. - Freight costs increased $4.1 million between years due to an increase in shipments from foreign vendors, a change in shipping terms with a major supplier that occurred in June 2023, and an increase in expedited shipments. - The current year includes expense provisions of $2.7 million under our incentive bonus plan.
Removed
These indicators include net sales growth, operating margin improvement, return on capital employed and cash flow from operations.
Added
The prior year includes no bonus expense. - The current year includes severance costs of $220,000 related to a realignment of our Mexican workforce.

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