STRT Strattec Security Corp - 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis should be read in conjunction with the accompanying audited consolidated financial statements and notes.

Business Overview

Strattec Security Corporation is a leading global manufacturer and provider of highly engineered advanced automotive access and security products and solutions. Products include locks & locksets, vehicle start systems, engineered latches, power access solutions, door handles, keys & fobs and other vehicle access products. While the Company serves major automotive OEMs globally, the majority of sales are to the three largest automobile original equipment manufacturers in North America.

Current Business Update

Our financial results for fiscal 2025 represented a significant improvement over prior year and included $565.1 million in sales (+5.1% increase year-over-year) and $18.7 million in net income attributable to Strattec (or $4.58 per share compared to $4.07 per share in the prior year). Cash flow from operations also increased year-over-year from $12.2 million in fiscal 2024 to $71.7 million in fiscal 2025. As we look forward and navigate macroeconomic challenges and fluctuating OEM production volumes, our operational discipline, product portfolio refinement, and cost control measures position us to continue to drive long-term shareholder value.

Market Demand

Volatility in the North American automotive industry is driven by supply chain disruptions, global inflation, thinning labor availability, rising global commodity costs and a changing global trade and geopolitical climate. These macro conditions, coupled with changes in production volumes by OEMs in response to new vehicle consumer demand, impact our sales and profitability levels. We delivered 5% sales growth in fiscal 2025, the result of new program launches, pricing actions and increased volumes on the platforms we serve. However, based on recent third party industry projections, it is expected that North American light vehicle production will be flat over the next several years with fiscal 2026 OEM production levels forecasted to be down approximately 5-6%, with a recovery in fiscal 2027 and 2028. Lower near term North American light vehicle production estimates, which are subject to change, are a result of recent tariff uncertainties and related demand impacts, coupled with a lower number of scheduled new platform launches by our addressable customers.

Trade Environment & Tariffs

In the second half of fiscal 2025 the United States government announced broad tariffs on goods imported into the U.S. from numerous countries, with certain exemptions such as USMCA-compliant imports. In response, multiple nations have countered with reciprocal tariffs and other actions. Since that time, reciprocal tariffs have continued to evolve and the fact pattern remains uncertain. Like other automotive suppliers, we source raw materials and components from a global supply chain with final assembly for our products completed in our Mexico operations. We ship approximately 65% of our sales (the majority of which are USMCA compliant) to customer production sites in the United States, with the balance shipped to other countries. We continue to monitor the dynamic global trade environment and are taking actions to mitigate the cost impact of additional tariffs and understand any associated changes in customer demand and production build schedules. Prior to mitigation efforts, we estimate that the annual impact of the recently enacted tariffs as of August 2025 is a $5 -$7 million increase in our cost of goods sold. We have already mitigated a majority of the cost increase through changes in our global supply chain, pass through of costs to customers and changes in our logistics processes. We will continue to pursue commercial recoveries in an effort to fully offset the cost increase.

Global Conditions

Due to our operations in Mexico, our financial results are impacted by labor inflation, the result of government mandated minimum wages, and we have exposure to changes in foreign currency exchange rates. We strive to mitigate the impact of these cost increases through supply chain and manufacturing efficiencies, strategic pricing and peso forward contracts. During fiscal 2025 we have taken actions to improve our cost structure, including a restructuring of our Milwaukee and Mexico operations. The restructuring activities are expected to generate approximately $5 million of annual cost reductions.

Business Transformation

Our strategic priority is to execute on a business transformation to strengthen the Company’s profitability and deliver sustainable sales growth. We expect to improve our business with upgraded systems and processes, modernization of our support functions and a focus

on productivity and efficiencies in our manufacturing operations. We believe this will result in an optimized cost structure and consistent cash generation through improved working capital velocity and efficient asset utilization. In the short term, cash generated from our operations will be reinvested in our business to fund our transformational efforts and growth initiatives. To drive organic growth, we will leverage our technical engineering expertise, market-leading positions and strong customer relationships to generate innovative solutions and capture more content on current platforms, win new platforms with current customers, gain new customers both domestically and abroad and build opportunities in the broader transportation industry.

Analysis of Results of Operations

Year ended June 29, 2025 (fiscal 2025) compared with the year ended June 30, 2024 (fiscal 2024)

The Company's consolidated results of operations for the years ended June 29, 2025 and June 30, 2024 were as follows:

Years Ended

Change

June 29, 2025

June 30, 2024

Net sales

Direct material costs

Labor and overhead costs

Cost of goods sold

Gross profit

Gross margin

Selling, administrative and engineering expenses

Income from operations

Operating margin

Interest income

Interest expense

Other income, net

Income before income taxes and non-controlling interest

Income tax expense

Net income

Net income attributable to non-controlling interest

Net income attributable to Strattec

Earnings per share attributable to Strattec:

Basic

Diluted

Net sales in fiscal 2025 totaled $565.1 million, representing an increase of $27.3 million, or 5%, compared to fiscal 2024 net sales of $537.8 million. The year-over-year increase was driven by $15.9 million of net new program launches as well as favorable mix. Additionally, higher production volumes on existing platforms and customer inventory builds increased sales by $13.9 million. Sales growth was broad based across most product categories. Sales volume increases more than offset a year-over-year reduction in pricing of $2.6 million. The reduction in pricing is a result of the prior year period including $9.7 million of one-time retroactive pricing recoveries, which was partially offset by current year margin accretive pricing.

Material costs increased $13.7 million on higher production levels while labor and overhead costs declined $5.5 million. Reduced conversion costs reflect a $13.6 million benefit from changes in foreign currency exchange rates a $1.4 million reduction in depreciation expense, $1.5 million of incremental tooling gains and a $1.4 million benefit from completed restructuring actions in the second half of fiscal 2025. These benefits were partially offset by incremental conversion costs due to higher sales volumes, a $6.2 million increase in Mexico labor costs, $2.5 million of tariff costs and additional provisions for annual bonus expense of $1.6 million.

Gross profit was $84.5 million in fiscal 2025, compared to $65.5 million in the comparable prior year period. Gross profit margin improved year-over-year from 12.2% to 15.0% as a result of the strengthening of the U.S. dollar, improved leverage of our fixed cost structure on higher sales volumes and the benefits of pricing and restructuring actions.

Selling, administrative, and engineering expenses increased $14.1 million year-over-year. The prior year included a one-time $4.8 million recovery of engineering, design and development costs. Increased costs in the current year were the result of continued investments in the business, a $5.2 million increase in incremental incentive compensation and $1.0 million in business transformation

related costs. Both fiscal years included non-recurring executive transition expenses related to leadership changes, totaling $2.1 million in fiscal 2025 and $1.1 million in fiscal 2024.

Interest income increased $1.5 million due to increased levels of cash and cash equivalents, which are invested in overnight money market funds.

Other income, net decreased from $2.7 million in fiscal 2024 to $0.8 million in fiscal 2025, the result of changes in foreign currency exchange rates and increased non-service post-employment costs.

The effective income tax rate was 23.2% and 18.7% for fiscal 2025 and 2024, respectively. The effective rate for both periods differs from the statutory rate because of the foreign rate differential, state income taxes, research and development tax credits, limitations on the utilization of foreign tax credits and non-deductible items. Additionally, the 2024 effective tax rate was favorably impacted by changes in the estimate of our 2023 foreign tax credits associated with the sale of our interest in a prior joint venture.

Fiscal 2025 net income attributable to Strattec increased $2.4 million, or 15% from fiscal 2024, driven primarily by net sales growth and gross margin enhancement, partially offset by higher selling, administrative and engineering expenses due to investments in the business, incentive compensation costs and prior year favorable recoveries on engineering, design and development costs.

Liquidity and Capital Resources

At June 29, 2025, we had $84.6 million of cash and cash equivalents, of which $4.8 million was held by our foreign subsidiaries and $79.8 million was held domestically. Excess cash is held in money market funds. The following table summarizes our cash flows provided by (used in) operating, investing and financing activities (in millions):

Years Ended

June 29, 2025

June 30, 2024

Cash flows from:

Operating activities

Investing activities

Financing activities

Effect of exchange rate changes on cash

Net increase in cash and cash equivalents

Cash flow from operations improved to $71.7 million, from $12.3 million in the prior year. The increase in cash provided by operating activities was due to reduced purchasing levels on higher sales, collection of accounts receivable and the recovery of pre-production costs. Net cash used in investing activities was $7.2 million during fiscal 2025 compared to $7.8 million in the prior year period. Capital expenditures to support new product programs and the upgrade and replacement of existing equipment were $7.2 million in the current year period compared to $9.8 million in the prior year period. The prior year also included $2.0 million in proceeds received from the sale of our interest in a previous joint venture. Net cash used in financing activities resulted from the repayment of $5 million under our joint venture revolving credit agreement during fiscal 2025.

Primary Working Capital Management

We use primary working capital as a percentage of sales (PWC %) as a key metric of working capital management. We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three months sales annualized. The following table shows a comparison of primary working capital (dollars in millions):

June 29, 2025

PWC %

June 30, 2024

PWC %

Accounts receivable, net

Inventory, net

Accounts payable

Net primary working capital

Cash Requirements and Contractual Obligations

Future Capital Expenditures

We anticipate capital expenditures will be approximately $13 million in fiscal 2026 in support of requirements for new product programs

and the upgrade and replacement of existing equipment.

Stock Repurchase Program

Our Board of Directors authorized a stock repurchase program on October 16, 1996, to buy back outstanding shares of our common stock. Shares authorized for buyback under the program totaled 3,839,395 at June 29, 2025. A total of 3,655,322 shares have been repurchased over the life of the program through June 29, 2025, at a cost of approximately $136.4 million or an average price of $37.32 per share. Currently, 184,073 shares remain available to be repurchased under the program. No shares were repurchased during fiscal 2025 or 2024. Additional repurchases may occur from time to time and are expected to be funded by cash flow from operations and current cash balances.

Credit Facilities

The Company has a $40 million secured revolving credit facility (the “Strattec Credit Facility”) with BMO Harris Bank N.A., while the joint venture has a $20 million secured revolving credit facility (the “ADAC-Strattec Credit Facility”) with BMO Harris Bank N.A., which is guaranteed by the Company. Availability under the ADAC-Strattec Credit Facility is reduced to $18 million on August 1, 2025.

There were no outstanding borrowings and no interest due on the Strattec Credit Facility and $8 million drawn on the ADAC-Strattec Credit Facility as of June 29, 2025. Any balance drawn on these facilities and the related interest payment obligations are expected to be funded by cash flow from operations and current cash balances.

Income Taxes

We may be required to make cash outlays related to our unrecognized tax benefits, including interest and penalties. As of June 29, 2025, we had unrecognized tax benefits, including interest and penalties, of $1.9 million. However, due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. For further information related to our unrecognized tax benefits, see Note 6, "Income Taxes," for additional information.

Other Cash Requirements

We anticipate payments of $10.0 million to associates in connection with our incentive bonus plan during the first quarter of fiscal 2026 related to bonuses earned in fiscal 2025.

We have an operating lease for our El Paso, Texas distribution warehouse, which has a term in excess of one year. Refer to required future payments under the lease in Note 5, "Leases".

Critical Accounting Estimates

We prepare our consolidated financial statements in conformity with U.S. GAAP. This requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. The following estimates are considered by management to be the most critical in understanding judgments involved in the preparation of our consolidated financial statements and uncertainties that could impact our results of operations, financial position and cash flow.

Revenue Recognition

We enter into contracts with our customers generally at the beginning of a vehicle's lifecycle. Typically, these contracts do not provide for a specified quantity of products, but once entered into, we are often expected to fulfill our customers' purchasing requirements for the life of the vehicle. These contracts may be terminated by our customers at any time. Historically, terminations of these contracts have been infrequent.

Throughout a vehicle's lifecycle, we receive purchase orders from our customers, which provide the commercial terms for a sale transaction. Revenue is typically recognized at a point in time based on the transaction price and the quantity of parts shipped to the customer. Discrete price adjustments may occur during the vehicle production period in order for the Company to remain competitive with market prices or based on changes in product specifications or based on changes in significant input costs for the products. In the event the Company concludes that a portion of the revenue for a given product may vary from the purchase order, the Company records

consideration at the most likely amount to which the Company expects to be entitled based on historical experience and input from customer negotiations.

Warranty

We have a warranty reserve recorded related to our exposure to warranty claims in the event our products fail to perform as expected, and we may be required to participate in the repair costs incurred by our customers for such products. The recorded warranty reserve balance involves judgment and estimates. Our reserve estimate is based on an analysis of historical warranty data as well as current trends and information. Actual warranty costs might differ from estimates due to the level of actual claims varying from our historical claims experience and estimates and final negotiations and settlements reached with our customers. Therefore, future actual claims experience could result in changes in our estimates of the required reserve. Sensitivity of potential warranty claims is dependent on the respective customer platform, volumes, production years and product content.

Income Tax

Judgment is required to determine the annual effective income tax rate, deferred tax assets and liabilities, reserves for unrecognized tax benefits and any valuation allowances recorded against net deferred tax assets. Our effective income tax rate is based on annual income, statutory tax rates, tax planning opportunities available in the various jurisdictions in which we operate and other adjustments. Tax regulations require items to be included in our tax returns at different times than these same items are reflected in our consolidated financial statements.

As a result, these differences and the interplay in tax laws between jurisdictions may cause the Company's estimates of income tax liabilities to differ from actual payments or assessments. Some of these differences are permanent, such as expenses that are not tax deductible, while others are temporary differences, such as amortization and depreciation expenses. Temporary differences create deferred tax assets and liabilities, which are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We establish valuation allowances for our deferred tax assets when the amount of expected future taxable income is not large enough to utilize the entire deduction or credit. Relevant factors in determining the realizability of deferred tax assets include future taxable income, the expected timing of the reversal of temporary differences, tax planning strategies and the expiration dates of the various tax attributes. At June 29, 2025 and June 30, 2024, the valuation allowance related to deferred tax assets was $3.9 million and $2.6 million, respectively.

While the Company has support for the positions it takes on tax returns, taxing authorities may assert different interpretations of laws and facts and may challenge cross-jurisdictional transactions. We assess our income tax positions and record tax liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available at the reporting dates. For those tax positions which do not meet the more-likely-than-not threshold regarding the ultimate realization of the related tax benefit, no tax benefit has been recorded in the financial statements. As of June 29, 2025 and June 30, 2024, our liability for unrecognized tax benefits was $1.9 million and $1.6 million, respectively.

Post-employment Benefits

We have post-employment liabilities, including a supplemental executive retirement plan, termination indemnity plans and seniority premium obligations that are developed from actuarial valuations. These valuations include key assumptions regarding discount rates, expected return on plan assets and rate of compensation increases. We consider current market conditions in selecting these assumptions. While the Company believes that these assumptions are appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Company’s liability or future expense.

ITEM 7A. QUANTITATIVE AND QUALIT ATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEME NTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Strattec Security Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Strattec Security Corporation and subsidiaries (the "Company") as of June 29, 2025 and June 30, 2024, the related consolidated statements of income and comprehensive income, shareholders' equity, and cash flows, for the fiscal years ended June 29, 2025 and June 30, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 29, 2025 and June 30, 2024, and the results of its operations and its cash flows for the fiscal years ended June 29, 2025 and June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 29, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 25, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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

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

Critical Audit Matter

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

Specific Warranty Reserve – Refer to Note 2 to the Financial Statements

Critical Audit Matter Description

The Company records a specific warranty reserve for known warranty claims when its products fail to perform as expected and when it is probable that they will participate in the repair costs incurred by its customers for such products.

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

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

How the Critical Audit Matter Was Addressed in the Audit

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

- We tested the effectiveness of internal controls relating to management’s process for developing the assumptions and inputs used to estimate the certain specific warranty reserve.

- We evaluated the methods and significant assumptions, including the frequency and average cost of warranty claims, used by management to estimate the certain specific warranty reserve by:

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

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

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

o Testing the mathematical accuracy of management’s calculation of the certain specific warranty reserve.

/s/ Deloitte & Touche LLP

Milwaukee, Wisconsin

August 25, 2025

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Strattec Security Corporation

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Strattec Security Corporation and subsidiaries (the "Company") as of June 29, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 29, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 29, 2025 of the Company and our report dated August 25, 2025 expressed an unqualified opinion on those financial statements.

Basis for Opinion

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

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

Definition and Limitations of Internal Control over Financial Reporting

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

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

/s/ Deloitte & Touche LLP

Milwaukee, Wisconsin

August 25, 2025

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

Years Ended

June 29, 2025

June 30, 2024

Net sales

Cost of goods sold

Gross profit

Selling, administrative and engineering expenses

Income from operations

Interest income

Interest expense

Other income, net

Income before income taxes and non-controlling interest

Income tax expense

Net income

Net income attributable to non-controlling interest

Net income attributable to Strattec

Earnings per share attributable to Strattec

Basic

Diluted

The accompanying notes are an integral part of these Consolidated Financial Statements.

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

CONSOLIDATE D STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Years Ended

June 29, 2025

June 30, 2024

Net income

Other comprehensive (loss) income, net of tax:

Currency translation adjustments

Pension and postretirement plans

Total other comprehensive loss, net of tax

Comprehensive income

Comprehensive loss attributable to non-controlling interest

Comprehensive income attributable to Strattec

The accompanying notes are an integral part of these Consolidated Financial Statements.

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

C ONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts and per share amounts)

June 29, 2025

June 30, 2024

ASSETS

Current Assets:

Cash and cash equivalents

Receivables, net

Inventories:

Finished products

Work in process

Purchased materials

Inventories, net

Pre-production costs

Value added tax recoverable

Income tax recoverable

Other current assets

Total current assets

Noncurrent Assets:

Property, plant and equipment:

Land and improvements

Buildings and improvements

Machinery and equipment

Total property, plant and equipment

Less: accumulated depreciation

Property, plant and equipment, net

Deferred income taxes

Other noncurrent assets

Total Assets

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Accounts payable

Accrued payroll and benefits

Value added tax payable

Income tax payable

Warranty reserve

Other current liabilities

Total current liabilities

Noncurrent Liabilities:

Borrowings under credit facilities

Post-employment benefits

Other noncurrent liabilities

Total Liabilities

Shareholders' Equity:

Common stock, authorized 18,000,000  shares, $. 01  par value, 7,635,883

issued shares at June 29, 2025 and 7,586,920  issued shares at June 30, 2024

Capital in excess of par value

Retained earnings

Accumulated other comprehensive loss

Less: treasury stock, at cost ( 3,596,549  shares at June 29, 2025 and

3,598,126  shares at June 30, 2024)

Total Strattec shareholders’ equity

Non-controlling interest

Total Shareholders' Equity

Total Liabilities and Shareholders' Equity

The accompanying notes are an integral part of these Consolidated Financial Statements.

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except per share amounts)

Common Stock

Capital in Excess of Par Value

Retained Earnings

Accumulated Other Comprehensive Loss

Treasury Stock

Non-controlling interest

Total Shareholders' Equity

Balance -- July 2, 2023

Net income

Currency translation adjustments

Pension and postretirement funded status adjustment, net of tax of $ 59

Purchase of former joint venture non-controlling interest

Stock-based compensation

Employee stock purchases

Balance -- June 30, 2024

Net income

Currency translation adjustments

Pension and postretirement funded status adjustment, net of tax of $ 82

Stock-based compensation

Employee stock purchases

Balance -- June 29, 2025

The accompanying notes are an integral part of these Consolidated Financial Statements.

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEM ENTS OF CASH FLOWS

(in thousands)

Years Ended

June 29, 2025

June 30, 2024

OPERATING ACTIVITIES:

Net income

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation

Foreign currency transaction loss (gain)

Deferred income taxes

Stock-based compensation expense

Unrealized gain on peso contracts

Change in operating assets and liabilities:

Receivables

Inventories

Other assets

Accounts payable

Accrued liabilities

Other, net

Net cash provided by operating activities

INVESTING ACTIVITIES:

Proceeds from sale of interest in joint ventures

Purchase of property, plant and equipment

Net cash used in investing activities

FINANCING ACTIVITIES:

Borrowings under credit facilities

Repayments under credit facilities

Employee stock purchases

Net cash (used in) provided by financing activities

Foreign currency impact on cash

NET INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS:

Beginning of year

End of year

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the period for:

Income taxes

Interest

Non-cash investing activities:

Change in capital expenditures in accounts payable

The accompanying notes are an integral part of these Consolidated Financial Statements.

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANC IAL STATEMENTS

NOTE 1. ORGANIZATION AND NATURE OF BUSINESS

Strattec Security Corporation ("the Company," "Strattec," "we," or "us") , headquartered in Milwaukee, Wisconsin, is a leading global provider of advanced automotive security, access and user interface solutions. While the Company serves major automotive OEMs globally, the majority of sales are to the three largest automobile original equipment manufacturers (“OEMs”) in North America.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements of the Company h ave been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) and reflect the consolidated results of Strattec. All significant intercompany transactions and balances have been eliminated in consolidation. The Company's fiscal year ends on the Sunday nearest June 30. The years ended June 29, 2025 and June 30, 2024 are each comprised of 52 weeks.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses for the periods presented. These estimates and assumptions could also affect the disclosure of contingencies. Actual results and outcomes may differ from management’s estimates and assumptions.

Recently Issued Accounting Standards

In fiscal 2025, we adopted the guidance in Accounting Standards Codification (ASC) 280-10 as updated by Accounting Standards Update (ASU) 2023-07 , Improvements to Reportable Segment Disclosures, which requires companies -- even for entities with a single reportable segment -- to disclose their significant segment expenses that are regularly provided to the Chief Operating Decision Maker (CODM), details of the composition of other segment items, and the title and position of the CODM along with an explanation of how the CODM uses the reported measures in assessing performance. Refer to Note 14, "Segment Information" for additional information.

In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU is intended to enhance the transparency and decision usefulness of income tax disclosures to provide information to better assess how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. For the Company, this ASU is effective for annual periods beginning after December 15, 2024 (fiscal 2026). The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, intangible asset amortization and depletion) included in certain expense captions presented on the face of the income statement. The ASU is effective for fiscal years beginning after December 15, 2026 (fiscal 2028) and for interim periods beginning after December 15, 2027 (fiscal 2029). The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

Cash and Cash Equivalents

Cash and cash equivalents include all short-term investments with an original maturity of three months or less due to the short-term nature of the instruments. Excess cash balances are invested in money market funds.

Receivables

Receivables are stated net of an allowance for credit losses. The collectability of receivables is evaluated on an ongoing basis. An allowance for credit losses is recorded for estimated amounts of receivables not expected to be collected based upon factors such as age of the outstanding receivables, historical payment experience, customer creditworthiness and general economic conditions.

Inventories

Inventories are comprised of material, direct labor and manufacturing overhead, and are stated at lower of cost or market, with market determined based on estimated net realizable value using the first-in, first-out (“FIFO”) cost method.

Excess and obsolete inventory reserves are recorded based on historical and estimated future demand and market conditions. The reserve level is determined by comparing inventory levels of individual raw materials, components and finished goods to historical usage and assessing the age of the inventory and likelihood of future sales. Technical obsolescence and other known factors are also considered in evaluating the reserve level. The increase in the reserve in fiscal 2025 was driven by changes in the inventory profile and resulting revisions to estimates of excess and obsolete inventory. The excess and obsolete reserve balance was $ 11.2 million at June 29, 2025 compared with $ 7.8 million at June 30, 2024.

Pre-production Costs

The Company incurs costs related to tooling used in the manufacture of products sold to its customers and engineering development. In some cases, the Company enters into contracts with its customers whereby the Company incurs the costs to design, develop and purchase tooling and is then reimbursed by the customer under a reimbursement contract. In addition, certain customer contracts include reimbursement of engineering development costs. Tooling costs and engineering development costs that will be reimbursed by customers are included in other Pre-production Costs in the accompanying consolidated balance sheets at lower of accumulated cost or the customer reimbursable amount. To the extent that costs incurred exceed the contractual reimbursement, amounts are recognized as expense in the accompanying consolidated income statement when incurred.

Value-Added Tax

The Company's Mexican subsidiaries are subject to value-added tax (“VAT”). VAT is paid on goods and services and collected on sales. A VAT certification generally allows for relief from VAT tax for temporarily imported goods. A temporary suspension of the Company's VAT tax certification during fiscal 2024 resulted in an increase in the value-added tax recoverable balance. During fiscal 2025, a portion of the value-added tax recoverable was collected. Remaining amounts are subject to an audit by the Mexican tax authority before VAT refunds will be received.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets. Land improvements have an estimated useful life of 20 years, while buildings and improvements range from 15 to 35 years, and machinery and equipment range from 3 to 15 years.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such indicators are present, the recoverability of assets is assessed by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If an asset is determined to not be recoverable, the impairment recognized is calculated as the excess of the carrying amount of the asset over the fair value of the asset.

Leases

The Company determines whether a contractual arrangement is or contains a lease at contract inception. A lease liability and corresponding right-of-use asset are measured and recognized based on the present value of lease payments. To determine the present value of lease payments, the Company uses its incremental borrowing rate as of the lease commencement date, unless there is a rate implicit in the lease agreement. The incremental borrowing rate is based on the Company's credit rating, determined on a fully collateralized loan basis from information available at commencement date, and the duration of the lease term.

Operating lease assets are included in operating lease right-of-use assets and the related liabilities are included in current lease liabilities and non-current lease liabilities in the accompanying consolidated balance sheets. For all classes of underlying assets, the Company accounts for leases that contain separate lease and non-lease components as containing a single lease component. The Company does not recognize lease right-of-use assets and lease liabilities from leases with an original lease term of twelve months or less and, instead, recognizes rent payments on a straight-line basis over the lease term in the consolidated statements of income. Refer to Note 5, "Leases," for additional information.

Research and Development Costs

Expenditures relating to the development of new products and processes, including significant impro vements and refinements to existing products, are expensed as incurred. Research and development expenditures were $ 21.7 million in 2025 and $ 14.8 million in 2024.

Derivative Instruments

Derivative financial instruments are recognized as either assets or liabilities at fair value. The accounting for changes in the fair value of each derivative financial instrument depends on whether it has been designated and qualifies as an accounting hedge, as well as the type of hedging relationship identified. Cash flows for all derivative financial instruments are typically classified in cash flows from operating activities. Derivative instruments are not used for trading or speculative purposes.

During both fiscal 2025 and 2024, the Company entered into currency forward contracts covering a portion of peso denominated operating costs. The objective in entering into these contracts was to minimize earnings volatility resulting from changes in foreign currency exchange rates, specifically the Mexican peso / U.S. dollar exchange rate. These currency forward contracts are not designated as hedges and changes in fair value are recognized in Other income, net on the consolidated income statement.

Fair Value

The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy:

Level 1 -- Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date.

Level 2 -- Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities.

Level 3 -- Unobservable inputs that include management’s own judgments about the assumptions market participants would use in pricing an asset or liability.

The fair value of the Company's cash and cash equivalents, accounts receivable, post-employment plan assets, accounts payable and variable rate borrowings under revolving credit agreements approximated the book value at June 29, 2025 and June 30 2024, due to their short-term nature and the fact that the interest rates, as applicable, approximated market rates. The fair value of all derivative instruments were based on quoted inactive market prices and therefore are classified as Level 2 within the valuation hierarchy.

Warranty Reserve

The Company generally offers its customers an assurance warranty on products sold, although warranty periods may vary by product type and application. The Company has a warranty reserve related to known and potential exposure to warranty claims in the event products fail to perform as expected and in the event the Company may be required to participate in the repair costs incurred by customers for such products. The estimation of the warranty reserve involves judgment and assumptions and is based on an analysis of historical warranty data as well as current trends and information. Changes in estimates related to pre-existing warranties are included in provision charged to expense in the table below. Changes in the warranty reserve were as follows (in thousands):

Years Ended

June 29, 2025

June 30, 2024

Balance, beginning of period

Provision charged to expense

Payments

Balance, end of period

Revenue from Contracts with Customers

The Company enters into contracts with customers to provide production parts generally at the beginning of a vehicle's lifecycle. Typically, these contracts do not provide for a specified quantity of products, but once entered into, the Company is often expected to fulfill our customers' purchasing requirements for the production life of the vehicle. Many of these contracts may be terminated by our customers at any time. However, terminations of these contracts have been infrequent, historically.

Revenue is recognized at a point in time when control of the product is transferred to the customer under the terms of the contract, which is when parts are shipped or delivered. The amount of revenue recognized is based on the transaction price and the quantity of parts specified in the contract. Discrete price adjustments may occur during the vehicle production period in order for the Company to remain competitive with market prices or based on changes in product specifications. Some of these price adjustments require estimation. In the event the Company concludes that a portion of the revenue for a given part may vary from the purchase order, the Company records consideration at the most likely amount to which the Company expects to be entitled based on historical experience and input from customer negotiations. The Company's customers pay for products received in accordance with payment terms that are customary within the industry.

Income Taxes

The Company records income tax expense using the liability method which specifies that deferred tax assets and liabilities be measured each year based on the difference between the financial statement and tax base of assets and liabilities at the applicable enacted tax rates. A valuation allowance is provided for deferred tax assets when management considers it more likely than not that the asset will not be realized. At June 29, 2025 and June 30, 2024, a valuation allowance has been provided for certain deferred tax assets which the Company has concluded are more likely than not to not be realized. If future annual taxable income were to be significantly less than current and projected levels, there is a risk that certain of our deferred tax assets not already provided for by the valuation allowance would expire prior to utilization.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes the interest and penalties related to income tax matters in income tax expense.

Foreign Currency Translation

The financial statements of the Company's foreign subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the average exchange rate for each applicable period for sales, costs and expenses. Foreign currency translation adjustments are included as a component of accumulated other comprehensive loss.

Stock-Based Compensation

The Company recognizes the cost of equity-based compensation awards based on the fair value estimated in accordance with ASC 718, Stock Based Compensation . The Company records equity compensation expense for awards with only a service vesting condition based on the fair value of such awards at the grant date and recognizes compensation expense on a straight-line basis over the requisite service period. Equity compensation expense for awards with performance vesting conditions is recorded based on the probable outcome of those performance conditions over the requisite service period.

Earnings per Share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of the Company's common stock, ("Common Stock") outstanding during the respective period. The Company's diluted earnings per share gives effect to all potential shares of Common Stock outstanding during a period that do not have an anti-dilutive impact to the calculation. In computing the number of diluted shares outstanding, the treasury stock method is used in order to arrive at a net number of shares assumed issued upon the conversion of Common Stock equivalents.

NOTE 3. CRED IT FACILITIES

The Company has a $ 40 million secured revolving credit facility (the “Strattec Credit Facility”) with BMO Harris Bank N.A., while its joint venture has a $ 20 million secured revolving credit facility (the “ADAC-Strattec Credit Facility”) with BMO Harris Bank N.A., which is guaranteed by Strattec. Availability under the ADAC-Strattec Credit Facility is reduced to $ 18 million on August 1, 2025. The credit facilities both expire August 1, 2026 and are secured by U.S. cash balances, accounts receivable, inventory, and fixed assets located in the U.S.

Interest on borrowings under the Strattec Credit Facility were at varying rates based, at our option, on the bank's prime rate or SOFR plus 1.35 % prior to September 5, 2023 and SOFR plus 1.85 % subsequent to September 5, 2023 . Interest on borrowings under the ADAC-Strattec Credit Facility were at varying rates based, at our option, on the bank's prime rate with a 2 % interest rate margin or SOFR plus 1.35 % prior to May 30, 2024 and SOFR plus 3.10 % subsequent to May 30, 2024 . 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 29, 2025, we were in compliance with all financial covenants.

Outstanding borrowings under the credit facilities were as follows (in thousands):

Strattec

Credit Facility

ADAC-Strattec

Credit Facility

June 29, 2025

June 30, 2024

June 29, 2025

June 30, 2024

Outstanding borrowings

Average outstanding borrowings and the weighted average interest rate under each such credit facility were as follows (in thousands, except percentages):

Strattec

Credit Facility

ADAC-Strattec

Credit Facility

Years Ended

Years Ended

June 29, 2025

June 30, 2024

June 29, 2025

June 30, 2024

Average outstanding borrowings

Weighted average interest rate

NOTE 4. DERIVATIVE INSTRUMENTS

A portion of the Company's manufacturing costs are incurred in Mexican pesos, which causes earnings and cash flows to fluctuate with changes in the U.S. dollar/Mexican peso exchange rate. During both fiscal 2025 and 2024, the Company entered into contracts with a creditworthy counterparty that provide for monthly Mexican peso currency forward contracts for a portion of peso denominated operating costs. The following table quantifies the outstanding forward contracts as of June 29, 2025 (in thousands, except with respect to the average forward contractual exchange rate):

Effective Dates

Notional Amount

Average Forward Contractual Exchange Rate

Fair Market Value

Buy MXP/Sell USD

July 7, 2025  - June 15, 2026

NOTE 5. L EASES

As of June 29, 2025, the Company has one operating lease for its El Paso, Texas finished goods and service parts distribution warehouse. Operating lease expense totaled $ 951,000 for the year ended June 29, 2025 and $ 989,000 for the year ended June 30, 2024. The operating lease asset and obligation related to our operating lease included in the accompanying consolidated balance sheets are presented below (in thousands):

June 29, 2025

June 30, 2024

Right-of-use asset:

Other noncurrent assets

Lease liability:

Other current liabilities

Other noncurrent liabilities

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

Years Ended

June 29, 2025

June 30, 2024

Operating Cash Flows:

Cash paid related to operating lease obligation

The weighted average remaining lease term and discount rate for our operating lease are shown below:

June 29, 2025

June 30, 2024

Weighted average remaining lease term, (in years)

Weighted average discount rate

Future minimum lease payments, by fiscal year, including options to extend that are reasonably certain to be exercised, under our non-cancelable lease are as follows as of June 29, 2025 (in thousands):

Thereafter

Total future minimum lease payments

Less: imputed interest

Total lease obligations

NOTE 6. INCO ME TAXES

Income tax expense is summarized as following (in thousands):

Years Ended

June 29, 2025

June 30, 2024

Current:

Federal

State

Foreign

Deferred:

Federal

State

Foreign

Total income tax expense

Income tax expense recognized in the accompanying consolidated statements of income differs from the amounts computed by applying the federal income tax rate to earnings before income tax expense. A reconciliation at the federal statutory rate to the effective tax rate is summarized in the following table:

Years Ended

June 29, 2025

June 30, 2024

Federal statutory rate

State taxes, net of federal tax benefit

Foreign subsidiaries

China non-resident capital gain tax

Valuation allowance

Return to provision adjustment

Research and development tax credit

Non-controlling interest

Stock-based compensation

Other

Effective income tax rate

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

June 29, 2025

June 30, 2024

Deferred tax assets:

Research and development costs

Compensation and employee benefits

Other accrued expenses

Capital loss and credit carryforwards

Lease liabilities

Other

Gross deferred tax assets

Valuation allowance

Net deferred tax assets

Deferred tax liabilities:

Property, plant and equipment

Lease right of use assets

Other

Gross deferred tax liabilities

Net deferred tax assets

The Company has foreign tax credit carryforwards of $ 2.5 million (expiring between 2031 and 2044 ), $ 647,000 of state tax credit carryforward (expiring between 2026 and 2039 ) and $ 1.8 million of net capital loss carryforward. The Company has established a full valuation allowance against the capital loss carryforward and a partial valuation allowance against deferred tax assets associated with other credit carryforward and deductions, based on its assessment of future realization.

The total liability for unrecognized tax benefits was $ 1.9 million as of June 29, 2025 and $ 1.6 million as of June 30, 2024 and was included in Other noncurrent liabilities in the accompanying consolidated balance sheets. Substantially all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense.

Income tax returns are filed in the United States, Wisconsin, Michigan and various other states, as well as Mexico and other foreign jurisdictions. Tax years open to examination by tax authorities under the statute of limitations include fiscal 2022 through 2025 for federal, fiscal 2021 through 2025 for most states and calendar 2020 through 2024 for foreign jurisdictions.

On July 4, 2025, the One Big Beautiful Bill Act (the Act) was signed into law. Key provisions that may impact the Company include the ability to immediately expense qualifying research and development costs and permanent extensions of certain provisions within the 2017 Tax Cuts and Jobs Act. The Company is currently evaluating the future impact of the Act on its financial position, results of operations and cash flows.

NOTE 7. RETIREMENT PL ANS AND OTHER POST-EMPLOYMENT BENEFITS

Supplemental Executive Retirement Plan

The Company has a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified plan that provides certain executives with a supplemental benefit upon retirement. The plan provides an annual 8 % contribution based on a participant's base salary and cash bonus. The projected benefit obligation under the SERP was $ 1.6 million at June 29, 2025 and $ 2.6 million at June 30, 2024. The Company holds assets in a Rabbi Trust related to this retirement obligation. The Rabbi Trust assets do not qualify as plan assets. The assets had a value of $ 1.6 million at June 29, 2025, $ 531,000 of which were included in Other current assets due to planned retirements and $ 1.1 million were included in Other noncurrent assets in the accompanying consolidated balance sheets at June 29, 2025. The assets had a value of $ 1.6 million at June 30, 2024 and were included in Other noncurrent assets in the accompanying consolidated balance sheets.

Postretirement Health and Postretirement Life Plans

The Company also sponsors a postretirement health care plan for eligible U.S. retirees hired prior to June 1, 2001. The expected cost of retiree health care benefits is recognized during the years employees render service. The postretirement health care plan is unfunded. The projected benefit obligation for this plan was $ 0.3 million at June 29, 2025 and June 30, 2024. Additionally, the Company sponsors a postretirement life insurance plan for U.S. salaried employees who retired prior to October 1, 2001 and U.S. hourly employees who were hired prior to June 27, 2005 and retired prior to January 1, 2010. The postretirement life plan is unfunded. The projected benefit obligation for this plan was $ 0.8 million at June 29, 2025 and June 30, 2024.

The current and long-term portions of the funded status of the SERP and postretirement plans are included in Accrued payroll and benefits and post-employment benefits, respectively, in the accompanying consolidated balance sheets.

Mexico Post-employment Benefits

The Company is obligated to pay seniority premiums and legal indemnities at the time of separation of an employee in our Mexico operations (collectively, "Mexico post-employment benefits"), in accordance with Mexican Federal Labor Laws. The benefit formula is based on an employee's seniority, age and salary. The following tables summarize the Mexico post-employment benefits net periodic benefit cost (credit), funded status and actuarial assumptions (in thousands):

Years Ended

June 29, 2025

June 30, 2024

Components of net periodic benefit cost:

Service cost

Interest cost

Return on plan assets

Plan settlements

Actuarial (gain) loss

Net periodic benefit cost

Weighted-average assumptions:

Benefit obligations:

Discount rate

Expected return on plan assets

Rate of compensation increases

Net periodic benefit cost:

Discount rate

Expected return on plan assets

Rate of compensation increases

Benefit obligation at beginning of year

Service cost

Interest cost

Benefits paid

Plan settlements

Actuarial (gain) loss

Currency translation adjustment

Benefit obligation at end of year

Fair value of plan assets at beginning of year

Actual return

Employer contribution

Benefits paid

Currency translation adjustment

Fair value of plan assets at end of year

Funded status – accrued benefit obligations

Amounts recognized in consolidated balance sheets:

Accrued payroll and benefits (current liabilities)

Post-employment benefits (noncurrent liabilities)

Net amount recognized

The accumulated benefit obligation for our Mexico post-employment benefits was $ 6.7 million at June 29, 2025 and $ 6.9 million at June 30, 2024.

We expect to contribute $ 956,000 to our Mexico post-employment benefit plan assets in fiscal 2026. The following benefit payments, which reflect expected years of future service, as appropriate, are expected to be paid during the fiscal years noted below (in thousands):

Mexico Post-employment Benefits

Other Plans

The Company maintains a 401(k) plan for substantially all U.S. employees. Under plan provisions, the Company matches 100 % of participant contributions to the plan, up to 5 % of the employee's eligible base pay. Contributions to the 401(k) Plan were $ 2.0 million in fiscal 2025 compared with $ 1.9 million in fiscal 2024.

NOTE 8. SHAREHOLDE RS’ EQUITY

The following table summarizes changes to our common stock for the years ended June 29, 2025 and June 30, 2024:

Years Ended

June 29, 2025

June 30, 2024

Outstanding at beginning of period

Shares issued under employee stock purchase plan

Shares issued under equity incentive plans

Outstanding at end of period

The Company's Board of Directors previously authorized a stock repurchase program. As of June 29, 2025, 184,073 shares remain available for repurchase under the original 3,839,395 shares authorized. No shares were repurchased under this program during fiscal 2025 or 2024.

NOTE 9. EARNING S PER SHARE

A reconciliation of the components of the basic and diluted per-share computations follows (in thousands, except per share amounts):

Years Ended

June 29, 2025

June 30, 2024

Net income attributable to Strattec

Basic weighted-average shares outstanding

Effect of dilutive securities - employee stock compensation plan

Diluted weighted-average shares outstanding

Earnings per share attributable to Strattec

Basic

Diluted

NOTE 10. STOCK-BAS ED COMPENSATION

The Company has granted service-based restricted stock awards ("RSAs") and performance stock units ("PSUs") to employees and non-employee directors under the Strattec Security Corporation 2024 Equity Incentive Plan ("2024 Equity Incentive Plan"). Prior to October 2024, stock options and RSAs were granted under the Amended and Restated Strattec Security Corporation Stock Incentive Plan ("Stock Incentive Plan"). Awards granted under the 2024 Equity Incentive Plan that expire or are canceled without delivery of shares become available for re-issuance. No additional grants will be made under the Stock Incentive Plan.

The number of shares of the Company's common stock authorized under the 2024 Equity Incentive Plan is 550,000 . As of June 29, 2025, there were 435,742 shares available for future awards.

Shares of restricted stock granted under approved plans have voting rights, earn dividends and vest over a pre-determined period of time, up to three years from the date of the grant. The fair value of restricted stock awards are based on the closing stock price on the date of grant.

As of June 29, 2025, 16,878 PSUs were outstanding which may be earned based on the achievement of certain financial metrics over the three-year period ending June 27, 2027 . The PSUs will vest ranging from 0 % (for performance below threshold) to 200 % (for performance above target) and continued employment. The fair value of PSUs was based on the closing stock price on the date of grant. The PSUs earn dividend equivalents during the vesting period while compensation expense is recognized over the service period when it is probable that the performance criteria will be met. As of June 29, 2025, there was $ 567,000 of unrecognized compensation cost

related to non-vested PSUs and $ 2.6 million of unrecognized compensation cost related to non-vested RSAs, which will be expensed over the remaining vesting period of approximately 2 years.

A summary of restricted stock award and performance stock unit activity was as follows:

RSAs

PSUs

Weighted

Average

Weighted

Average

Grant Date

Grant Date

Shares

Fair Value

Shares

Fair Value

Nonvested Balance at July 2, 2023

Granted

Vested

Forfeited

Nonvested Balance at June 30, 2024

Granted

Vested

Forfeited

Nonvested Balance at June 29, 2025

The Company also has an Employee Stock Purchase Plan which provides substantially all U.S. full-time associates an opportunity to purchase shares of Strattec common stock through payroll deductions. A total of 100,000 shares may be issued under the plan. Shares issued from treasury stock under the plan totaled 1,577 at an average price of $ 37.84 during fiscal 2025 and 2,998 at an average price of $ 24.08 during fiscal 2024. A total of 41,227 shares remain available for purchase under the plan as of June 29, 2025.

NOTE 11. OTHER INCOME , NET

The following table summarizes the components of Other income, net included in the accompanying consolidated statements of income (in thousands):

Years Ended

June 29, 2025

June 30, 2024

Foreign currency transaction (loss) gain

Rabbi Trust assets gain

Realized and unrealized gain on Mexican peso forward contracts, net

Non-service pension and postemployment expense

Other

NOTE 12. ACCUMULATED OT HER COMPREHENSIVE LOSS

The following tables summarize the changes in accumulated other comprehensive loss ("AOCL") (in thousands):

Year Ended June 29, 2025

Foreign

Currency

Translation

Adjustments

Retirement

and

Postretirement

Plans

Total

Balance as of June 30, 2024

Other comprehensive loss before reclassifications

Income Tax

Net other comprehensive loss before reclassifications

Reclassifications:

Actuarial losses

Total reclassifications before tax

Income Tax

Net reclassifications

Other comprehensive loss (income)

Other comprehensive loss attributable to non-controlling interest

Balance as of June 29, 2025

Year Ended June 30, 2024

Foreign

Currency

Translation

Adjustments

Retirement

and

Postretirement

Plans

Total

Balance as of July 2, 2023

Other comprehensive loss (income) before reclassifications

Income Tax

Net other comprehensive loss (income) before reclassifications

Reclassifications:

Actuarial losses

Total reclassifications before tax

Income Tax

Net reclassifications

Other comprehensive loss (income)

Other comprehensive loss attributable to non-controlling interest

Balance as of June 30, 2024

NOTE 13. R ELATED PARTY

The Company owns 51 % of a joint venture, which was formed in fiscal 2007 to support customers with painted door handle and exterior trim products from operations in Mexico. The following tables summarize the related party transactions that arise as a result of the joint venture operating agreement (in thousands):

Years Ended

June 29, 2025

June 30, 2024

Management fee expense

Net sales to joint venture partner

June 29, 2025

June 30, 2024

Accounts receivable from joint venture partner

Accounts payable to joint venture partner

NOTE 14. SEGMENT I NFORMATION

The Company operates within the automotive industry, offering a range of closely related products with shared production processes, distribution channels, and customers. These business activities are managed collectively, and the Company is organized and operates as a single business unit. As such, the Company has one reportable segment. The financial results for this reportable segment are equal to consolidated results as reported in the accompanying consolidated statements of income and comprehensive income and consolidated balance sheets.

Financial results, forecasts and budget to actual variances for the Company's reportable segment are provided to and regularly reviewed by the Chief Operating Decision Maker ("CODM"), which is the Company's Chief Executive Officer . The primary measure of segment profit or loss that the CODM uses to evaluate performance and allocate resources is Net income attributable to Strattec.

The CODM considers the impact of significant segment expenses on this measure to assess profitability and guide strategic decision making including entering into significant contracts, expanding into new markets or launching new products, making significant capital expenditures, hiring and terminating key personnel and approving operating budgets.

The significant expenses that are regularly provided to the CODM are disclosed in the consolidated statements of income as a part of Net income attributable to Strattec and were as follows (in thousands):

Years Ended

June 29, 2025

June 30, 2024

Net sales

Significant expenses:

Direct material costs

Labor and overhead costs

Selling costs

Administrative costs

Engineering costs

Interest income

Interest expense

Other income, net

Income tax expense

Net income

Net income attributable to non-controlling interest

Net income attributable to Strattec

Sales and net tangible long-lived assets (property, plant and equipment, net and right-of-use assets) are presented by country; sales are attributed based on the location to which products were shipped (in thousands):

Net Sales

Tangible Long-Lived Assets, Net

Years Ended

June 29, 2025

June 30, 2024

June 29, 2025

June 30, 2024

United States

Mexico

Canada

Korea

Other

Total Foreign

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

Years Ended

June 29, 2025

June 30, 2024

Net Sales

Net Sales

Power access solutions

Door handles & exterior trim

Keys & locksets

Latches

User interface controls

Aftermarket and service

Other

Sales to and receivables from customers that individually accounted for 10% or more of the Company's total net sales were as follows (in thousands and percent of total):

Years Ended

June 29, 2025

June 30, 2024

Net Sales

Net Sales

General Motors Company

Ford Motor Company

Stellantis

June 29, 2025

June 30, 2024

Receivables

Receivables

General Motors Company

Ford Motor Company

Stellantis

NOTE 15. COMMITME NTS AND CONTINGENCIES

From time to time the Company is subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, alleged breaches of contracts, product warranties, intellectual property matters and employment related matters. The Company believes that the outcome of such matters will not have a material adverse impact on the consolidated financial position, results of operations or cash flows.

The Company maintains an environmental reserve reflecting the estimated costs of remediation of a solvent spill which occurred at the Milwaukee facility in 1985. Based on findings to date and known environmental regulations, the Company believes that the $ 1.4 million environmental reserve included in Other current liabilities in the accompanying consolidated balance sheets as of June 29, 2025 is adequate.

We do not currently anticipate any materially adverse impact on our financial statements or competitive position as a result of compliance with federal, state, local and foreign environmental laws or other legal requirements. However, risk of further environmental liability and charges associated with maintaining compliance with environmental laws is inherent in the nature of our business and there is no assurance that material liabilities or charges could not arise.