The accompanying notes are an integral part of these Condensed Consolidated Statements of Income (Loss) and Comprehensive (Loss) Income.
The accompanying notes are an integral part of these Condensed Consolidated Balance Sheets.
The accompanying notes are an integral part of these Condensed Consolidated Statements of Cash Flows.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Basis of Financial Statements
STRATTEC SECURITY CORPORATION designs, develops, manufactures and markets automotive access control products including mechanical locks and keys, electronically enhanced locks and keys, steering column and instrument panel ignition lock housings, latches, power sliding door systems, power lift gate systems, power deck lid systems, door handles and related products for primarily North American automotive customers. We also supply global automotive manufacturers through a unique strategic relationship with WITTE Automotive (“WITTE”) of Velbert, Germany, and ADAC Automotive (“ADAC”) of Grand Rapids, Michigan. Under this relationship, STRATTEC, WITTE and ADAC market the products of each company to global customers under the “VAST Automotive Group” brand name (as more fully described herein). STRATTEC products are shipped to customer locations in the United States, Canada, Mexico, Europe, South America, Korea, China and India, and we provide full service and aftermarket support for each VAST Automotive Group partner’s products. We also maintain a 51 percent interest in a joint venture, STRATTEC Advanced Logic, LLC (“SAL LLC”), which exists to introduce a new generation of biometric security products based on the designs of Actuator Systems, our partner and the owner of the remaining ownership interest. The business of SAL LLC has been wound down to sell only commercial biometric locks.
The accompanying condensed consolidated financial statements reflect the consolidated results of STRATTEC SECURITY CORPORATION, its wholly owned Mexican subsidiary, STRATTEC de Mexico, and its majority owned subsidiaries, ADAC-STRATTEC, LLC and STRATTEC POWER ACCESS LLC. STRATTEC SECURITY CORPORATION is located in Milwaukee, Wisconsin. STRATTEC de Mexico is located in Juarez, Mexico. ADAC-STRATTEC, LLC and STRATTEC POWER ACCESS LLC have operations in El Paso, Texas and Juarez and Leon, Mexico. Equity investments in Vehicle Access Systems Technology LLC (“VAST LLC”) and SAL LLC, for which we exercise significant influence but do not control and are not the primary beneficiary, are accounted for using the equity method. VAST LLC consists primarily of four wholly owned subsidiaries in China, one wholly owned subsidiary in Brazil and one joint venture entity in India. The results of the VAST LLC foreign subsidiaries and joint venture are reported on a one-month lag basis. SAL LLC is located in El Paso, Texas. We have only one reporting segment.
In the opinion of management, the accompanying condensed consolidated balance sheets as of March 29, 2020 and June 30, 2019, which have been derived from our audited financial statements, and the related unaudited interim condensed consolidated financial statements included herein contain all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with Rule 10-01 of Regulation S-X. All significant intercompany transactions have been eliminated.
Interim financial results are not necessarily indicative of operating results for an entire year. The information included in this Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the STRATTEC SECURITY CORPORATION 2019 Form 10-K, which was filed with the Securities and Exchange Commission on September 5, 2019.
Risks and Uncertainties
In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China. The coronavirus has since spread, and infections have been found in multiple countries around the world, including the United States. In March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic based on the global spread of the disease, the severity of illnesses it causes and its effects on society. In response to the COVID-19 outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes. Accordingly, the COVID-19 outbreak has severely restricted the level of economic activity in many countries, and continues to adversely impact global economic activity.
STRATTEC’s operating performance is subject to global economic conditions and levels of consumer spending specifically within the automotive industry. During the three months ended March 29, 2020, the impact of the COVID-19 outbreak on our operating results has not been significant. However, the extent of the impact of the COVID-19 outbreak on our future operating results will depend on certain developments, including the duration, intensity and continued spread of the outbreak, regulatory and private sector responses, which may be precautionary, and the impact to our customers, workforce and suppliers, all of which are uncertain and cannot be predicted. These changing conditions may also affect the estimates and assumptions made by management. Such estimates and assumptions affect, among other things, our long-lived asset valuations, equity investment valuation, assessment of our annual effective tax rate, valuation of deferred income taxes, assessment of excess and obsolete inventory reserves, and assessment of collectability of trade receivables. Events and changes in circumstances arising after March 29, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.
6
During April 2020, the majority of our OEM customer assembly plant operations were completely closed including the majority of the supply chain. Additionally, during April 2020, STRATTEC’s Mexico facilities were closed as a result of the Mexico government’s shutdown of non-essential businesses. Initial re-opening of our OEM customer facilities for operations is scheduled to begin in May 2020, but there is no certainty this will occur on that timeline. Timing of the reopening of our Mexico facilities and the potential for designation of our Mexico facilities as essential is also uncertain. Based on information available, our current estimates indicate our net sales for the upcoming fourth fiscal quarter could be down 50 percent or more compared to our quarter ended March 29, 2020 depending on how long the COVID-19 virus will require the industry to remain idle. Fourth fiscal quarter sales could be more severely impacted if the initial re-opening of our customer facilities is delayed past May 2020. We anticipate our fourth fiscal quarter of 2020 will be the worst or trough quarter and that thereafter the automotive industry can restart and ramp back up production again during our fiscal 2021. The impact on our overall cash liquidity will most likely occur at the beginning of our fiscal year 2021 with a reduction in payments from customers resulting from lower fourth quarter fiscal 2020 net sales as previously discussed. The lower cash liquidity will cause us to utilize our credit facilities to fund our increased working capital requirements.
Subsequent Event
As a result of the impacts of the COVID-19 outbreak, during our fiscal 2020 fourth quarter, we are adjusting the cost structure of our business with temporary and permanent layoffs at our U.S. and Mexico locations, reductions in pay for our officers, reductions in working hours for most salaried associates, and a reduction in our U.S. salaried workforce. We expect the cost structure changes for U.S. salaried associates will save approximately $4.0 million in salary and benefit costs on an annualized pre-tax basis. However, these savings will be partially offset during our fourth fiscal 2020 quarter with a pre-tax charge to earnings of approximately $250,000 for severance and outplacement costs.
New Accounting Standards
In February 2016, the FASB issued an update to the accounting guidance for leases. The update increases the transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements. We implemented the new guidance effective July 1, 2019, the first day of our 2020 fiscal year, by applying the modified retrospective method without restatement of comparative periods’ financial information, as permitted by the transition guidance. The adoption of the new guidance had an impact on our balance sheet, but did not have an impact on either our consolidated operating results or our cash flows. Adoption of the new guidance resulted in the recognition of a right-of-use asset of $4.1 million and related lease obligation of $4.1 million for an operating lease as of July 1, 2019. We had no finance leases as of July 1, 2019. As noted above, the adoption of the new guidance did not have a significant impact on our operating results or cash flows. See “Leases” below for additional information.
In August 2017, the FASB issued an update to the accounting for hedging activities. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness, due to a difference between economic terms of the hedge instrument and the underlying transaction, and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same line as the hedged item in the consolidated statement of income. The standard also modifies the accounting for components excluded from the assessment of hedge effectiveness and simplifies the application of hedge accounting in certain situations. Our July 1, 2019 adoption of the new guidance had no impact to our financial statements.
In June 2018, the FASB issued an update to the accounting for nonemployee share-based payment accounting. The update aligns measurement and classification guidance for share-based payments to nonemployees with the guidance applicable to employees. Under the new guidance, the measurement of equity-classified nonemployee awards is fixed at the date of grant. Our July 1, 2019 adoption of the new guidance had no impact to our financial statements.
In December 2019, the FASB issued an update to accounting for income taxes. The update enhances and simplifies various aspects of income tax accounting including hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, investment ownership changes from a subsidiary to an equity method investment and vice versa, interim-period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim-period tax accounting. This accounting update is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. We do not expect that the adoption of this pronouncement will have a material impact on our consolidated financial statements.
7
Derivative Instruments
We own and operate manufacturing operations in Mexico. As a result, a portion of our manufacturing costs are incurred in Mexican pesos, which causes our earnings and cash flows to fluctuate due to changes in the U.S. dollar/Mexican peso exchange rate. We have contracts with Bank of Montreal that provide for monthly Mexican peso currency forward contracts for a portion of our estimated peso denominated operating costs. Our objective in entering into currency forward contracts is to minimize our earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. The Mexican peso forward contracts are not used for speculative purposes and are not designated as hedges. As a result, all currency forward contracts are recognized in our accompanying condensed consolidated financial statements at fair value and changes in the fair value are reported in current earnings as part of Other Income (Expense), net.
The following table quantifies the outstanding Mexican peso forward contracts as of March 29, 2020 (thousands of dollars, except with respect to the average forward contractual exchange rate):
|
|
Effective Dates
|
|
Notional Amount
|
|
|
Average Forward Contractual Exchange Rate
|
|
|
Fair Value
|
|
Buy MXP/Sell USD
|
|
April 15, 2020 - June 17, 2020
|
|
$
|
4,500
|
|
|
|
21.30
|
|
|
$
|
(414
|
)
|
Buy MXP/Sell USD
|
|
July 15, 2020 - December 16, 2020
|
|
$
|
6,000
|
|
|
|
21.40
|
|
|
$
|
(634
|
)
|
The fair market value of all outstanding Mexican peso forward contracts in the accompanying Condensed Consolidated Balance Sheets as of the dates specified was as follows (thousands of dollars):
|
|
March 29,
2020
|
|
|
June 30,
2019
|
|
Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
Other Current Liabilities:
|
|
|
|
|
|
|
|
|
Mexican Peso Forward Contracts
|
|
$
|
1,048
|
|
|
$
|
—
|
|
The pre-tax effects of the Mexican peso forward contracts are included in Other Income (Expense), net on the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive (Loss) Income and consisted of the following for the periods indicated below (thousands of dollars):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized Gain
|
|
$
|
—
|
|
|
$
|
122
|
|
|
$
|
—
|
|
|
$
|
344
|
|
Unrealized (Loss) Gain
|
|
$
|
(1,048
|
)
|
|
$
|
23
|
|
|
$
|
(1,048
|
)
|
|
$
|
116
|
|
Fair Value of Financial Instruments
The fair value of our cash and cash equivalents, accounts receivable, accounts payable and borrowings under our credit facilities approximated book value as of March 29, 2020 and June 30, 2019. Fair value is defined as the exchange price that would be received for an asset or paid for a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.
8
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of March 29, 2020 (in thousands):
|
|
Fair Value Inputs
|
|
|
|
Level 1 Assets:
Quoted Prices
In Active Markets
|
|
|
Level 2 Assets:
Observable
Inputs Other
Than Market
Prices
|
|
|
Level 3 Assets:
Unobservable
Inputs
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi Trust Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Index Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Cap
|
|
$
|
204
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mid Cap
|
|
|
234
|
|
|
|
—
|
|
|
|
—
|
|
Large Cap
|
|
|
517
|
|
|
|
—
|
|
|
|
—
|
|
International
|
|
|
694
|
|
|
|
—
|
|
|
|
—
|
|
Fixed Income Funds
|
|
|
920
|
|
|
|
—
|
|
|
|
—
|
|
Cash and Cash Equivalents
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
Total Assets at Fair Value
|
|
$
|
2,569
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican Peso Forward Contracts
|
|
$
|
—
|
|
|
$
|
(1,048
|
)
|
|
$
|
—
|
|
The Rabbi Trust assets fund our amended and restated supplemental executive retirement plan and are included in Other Long-term Assets in the accompanying Condensed Consolidated Balance Sheets. Refer to discussion of Mexican peso forward contracts under Derivative Instruments above. The fair value of the Mexican peso forward contracts considers the remaining term, current exchange rate, and interest rate differentials between the Mexican peso and the U.S. dollar.
Equity (Loss) Earnings of Joint Ventures
We hold a one-third interest in a joint venture company, VAST LLC. VAST LLC exists to seek opportunities to manufacture and sell all three companies’ products in areas of the world outside of North America and Europe. Our investment in VAST LLC, for which we exercise significant influence but do not control and are not the primary beneficiary, is accounted for using the equity method. We assess the impairment of equity investments whenever events or changes in circumstances indicate that a decrease in value of the investment has occurred that is other than temporary.
The following are summarized statements of operations for VAST LLC (in thousands):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
Net Sales
|
|
$
|
30,490
|
|
|
$
|
35,771
|
|
|
$
|
117,537
|
|
|
$
|
123,546
|
|
Cost of Goods Sold
|
|
|
25,679
|
|
|
|
29,303
|
|
|
|
96,131
|
|
|
|
98,173
|
|
Gross Profit
|
|
|
4,811
|
|
|
|
6,468
|
|
|
|
21,406
|
|
|
|
25,373
|
|
Engineering, Selling and Administrative Expenses
|
|
|
7,524
|
|
|
|
7,377
|
|
|
|
21,528
|
|
|
|
20,246
|
|
(Loss) Income From Operations
|
|
|
(2,713
|
)
|
|
|
(909
|
)
|
|
|
(122
|
)
|
|
|
5,127
|
|
Other (Expense) Income, net
|
|
|
(424
|
)
|
|
|
882
|
|
|
|
1,079
|
|
|
|
3,186
|
|
(Loss) Income before Provision for Income Taxes
|
|
|
(3,137
|
)
|
|
|
(27
|
)
|
|
|
957
|
|
|
|
8,313
|
|
Provision (Benefit) for Income Taxes
|
|
|
(294
|
)
|
|
|
(64
|
)
|
|
|
851
|
|
|
|
1,061
|
|
Net (Loss) Income
|
|
$
|
(2,843
|
)
|
|
$
|
37
|
|
|
$
|
106
|
|
|
$
|
7,252
|
|
STRATTEC’s Share of VAST LLC Net (Loss) Income
|
|
$
|
(947
|
)
|
|
$
|
12
|
|
|
$
|
36
|
|
|
$
|
2,417
|
|
Intercompany Profit Elimination
|
|
|
—
|
|
|
|
13
|
|
|
|
—
|
|
|
|
10
|
|
STRATTEC’s Equity (Loss) Earnings of VAST LLC
|
|
$
|
(947
|
)
|
|
$
|
25
|
|
|
$
|
36
|
|
|
$
|
2,427
|
|
The business of our joint venture company, SAL LLC, has been wound down to sell only commercial biometric locks. STRATTEC’s equity income of SAL LLC totaled $26,000 and $19,000 for the three and nine month periods ended March 29, 2020, respectively. STRATTEC’s equity earnings of SAL LLC totaled $41,000 and $24,000 for the three and nine month periods ended March 31, 2019, respectively.
9
We have sales of component parts to VAST LLC, purchases of component parts from VAST LLC, expenses charged to VAST LLC for engineering and accounting services and expenses charged to us from VAST LLC for general headquarters expenses. The following table summarizes these related party transactions with VAST LLC for the periods indicated below (in thousands):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
Sales to VAST LLC
|
|
$
|
483
|
|
|
$
|
878
|
|
|
$
|
3,035
|
|
|
$
|
2,751
|
|
|
Purchases from VAST LLC
|
|
$
|
172
|
|
|
$
|
36
|
|
|
$
|
351
|
|
|
$
|
164
|
|
|
Expenses Charged to VAST LLC
|
|
$
|
686
|
|
|
$
|
317
|
|
|
$
|
2,036
|
|
|
$
|
1,096
|
|
|
Expenses Charged from VAST LLC
|
|
$
|
192
|
|
|
$
|
192
|
|
|
$
|
636
|
|
|
$
|
628
|
|
|
Leases
We have an operating lease for our El Paso, Texas finished goods and service parts distribution warehouse that has a current lease term through October 2023. This lease includes renewal terms that can extend the lease term for five additional years. For purposes of calculating operating lease obligations, we included the option to extend the lease as it is reasonably certain that we will exercise such option. The lease does not contain material residual value guarantees or restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease term.
As the lease does not provide an implicit rate, we used our incremental borrowing rate at lease commencement to determine the present value of our lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest we would pay to borrow over a similar term with similar payments.
The operating lease asset and obligation related to our El Paso warehouse lease included in the accompanying Condensed Consolidated Balance Sheet are presented below (in thousands):
|
|
March 29,
2020
|
|
Right-of Use Asset Under Operating Lease:
|
|
|
|
|
Other Long-Term Assets
|
|
$
|
3,838
|
|
Lease Obligation Under Operating Lease:
|
|
|
|
|
Current Liabilities: Accrued Liabilities: Other
|
|
$
|
343
|
|
Other Long-Term Liabilities
|
|
|
3,495
|
|
|
|
$
|
3,838
|
|
Future minimum lease payments, by our fiscal year, including options to extend that are reasonably certain to be exercised, under the non-cancelable lease are as follows as of March 29, 2020 (in thousands):
2020 (for the remaining three months)
|
|
$
|
116
|
|
2021
|
|
|
473
|
|
2022
|
|
|
484
|
|
2023
|
|
|
497
|
|
2024
|
|
|
509
|
|
Thereafter
|
|
|
2,356
|
|
Total Future Minimum Lease Payments
|
|
|
4,435
|
|
Less: Imputed Interest
|
|
|
(597
|
)
|
Total Lease Obligations
|
|
$
|
3,838
|
|
10
Future minimum lease payments, by our fiscal year, excluding options to extend that are reasonably certain to be exercised, prior to the adoption of the new accounting guidance on leases were as follows as of June 30, 2019 (in thousands):
2020
|
|
$
|
539
|
|
2021
|
|
|
504
|
|
2022
|
|
|
495
|
|
2023
|
|
|
498
|
|
2024
|
|
|
168
|
|
Thereafter
|
|
|
—
|
|
Total Future Minimum Lease Payments
|
|
$
|
2,204
|
|
Cash flow information related to the operating lease is shown below (in thousands):
|
|
Nine Months Ended
|
|
|
|
March 29,
2020
|
|
Operating Cash Flows:
|
|
|
|
|
Cash Paid Related to Operating Lease Obligation
|
|
$
|
345
|
|
Non-Cash Activity:
|
|
|
|
|
Right-of-Use Asset Obtained in Exchange for Operating Lease Obligation
|
|
$
|
—
|
|
The weighted average lease term and discount rate for the El Paso, Texas operating lease are shown below:
|
|
March 29,
2020
|
|
Weighted Average Remaining Lease Term (in years)
|
|
|
8.6
|
|
Weighted Average Discount Rate
|
|
|
3.3
|
%
|
Operating lease expense for the three and nine month periods ended March 29, 2020 totaled $116,000 and $345,000, respectively.
Credit Facilities
STRATTEC has a $40 million secured revolving credit facility (the “STRATTEC Credit Facility”) with BMO Harris Bank. 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 both expire August 1, 2022. Borrowings under either credit facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixed assets. Interest on borrowings under the STRATTEC Credit Facility and interest on borrowings under the ADAC-STRATTEC Credit Facility prior to December 31, 2018 were at varying rates based, at our option, on the London Interbank Offering Rate (“LIBOR”) plus 1.0 percent or the bank’s prime rate. Effective December 31, 2018, and thereafter, interest on borrowings under the ADAC-STRATTEC Credit Facility is at varying rates based, at our option, on LIBOR plus 1.25 percent or the bank’s prime rate. Both credit facilities contain a restrictive financial covenant that requires the applicable borrower to maintain a minimum net worth level. The ADAC-STRATTEC Credit Facility includes an additional restrictive financial covenant that requires the maintenance of a minimum fixed charge coverage ratio. As of March 29, 2020, we were in compliance with all financial covenants required by these credit facilities.
Outstanding borrowings under the credit facilities were as follows (in thousands):
|
|
March 29,
2020
|
|
|
June 30,
2019
|
|
STRATTEC Credit Facility
|
|
$
|
12,000
|
|
|
$
|
18,000
|
|
ADAC-STRATTEC Credit Facility
|
|
|
15,000
|
|
|
|
24,000
|
|
|
|
$
|
27,000
|
|
|
$
|
42,000
|
|
11
Average outstanding borrowings and the weighted average interest rate under each credit facility referenced above were as follows for each period presented (in thousands):
|
|
Nine Months Ended
|
|
|
|
Average Outstanding Borrowings
|
|
|
Weighted Average Interest Rate
|
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
STRATTEC Credit Facility
|
|
$
|
13,799
|
|
|
$
|
22,212
|
|
|
|
2.9
|
%
|
|
|
3.3
|
%
|
ADAC-STRATTEC Credit Facility
|
|
$
|
20,062
|
|
|
$
|
26,286
|
|
|
|
3.2
|
%
|
|
|
3.4
|
%
|
Commitments and Contingencies
We are from time to time subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, alleged breaches of contracts, product warranties, intellectual property matters and employment related matters. It is our opinion that the outcome of such matters will not have a material adverse impact on our consolidated financial position, results of operations or cash flows. With respect to warranty matters, although we cannot ensure that future costs of warranty claims by customers will not be material, we believe our established reserves are adequate to cover potential warranty settlements.
In 1995, we recorded a provision of $3 million for estimated costs to remediate an environmental contamination site at our Milwaukee facility. The facility was contaminated by a solvent spill, which occurred in 1985, from a former above ground solvent storage tank located on the east side of the facility. The reserve was originally established based on third party estimates to adequately cover the cost for active remediation of the contamination. Due to changing technology and related costs associated with active remediation of the contamination, in fiscal 2010, the reserve was adjusted based on updated third party estimates to adequately cover the cost for active remediation of the contamination. Additionally, in fiscal 2016, we obtained updated third party estimates for adequately covering the cost for active remediation of this contamination. Based upon the updated estimates, no further adjustment to the reserve was required. From 1995 through March 29, 2020, costs of approximately $612,000 have been incurred related to the installation of monitoring wells on the property and ongoing monitoring costs. We monitor and evaluate the site with the use of these groundwater monitoring wells. An environmental consultant samples these wells one or two times a year to determine the status of the contamination and the potential for remediation of the contamination by natural attenuation, the dissipation of the contamination over time to concentrations below applicable standards. If such sampling evidences a sufficient degree of and trend toward natural attenuation of the contamination at the site, we may be able to obtain a closure letter from the regulatory authorities resolving the issue without the need for active remediation. If a sufficient degree and trend toward natural attenuation is not evidenced by sampling, a more active form of remediation beyond natural attenuation may be required. The sampling has not yet satisfied all of the requirements for closure by natural attenuation. As a result, sampling continues and the reserve remains at an amount to reflect our estimated cost of active remediation. The reserve is not measured on a discounted basis. We believe, based on findings-to-date and known environmental regulations, that the remaining environmental reserve of $1.3 million at March 29, 2020 is adequate.
12
Shareholders’ Equity
A summary of activity impacting shareholders’ equity for the three and nine month periods ended March 29, 2020 and March 31, 2019 were as follows (in thousands):
|
|
Three Months Ended March 29, 2020
|
|
|
|
Total
Shareholders’
Equity
|
|
|
Common Stock
|
|
|
Capital in Excess of Par Value
|
|
|
Retained Earnings
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
Treasury Stock
|
|
|
Non-Controlling Interest
|
|
Balance, December 29, 2019
|
|
$
|
188,849
|
|
|
$
|
74
|
|
|
$
|
97,601
|
|
|
$
|
219,973
|
|
|
$
|
(18,486
|
)
|
|
$
|
(135,693
|
)
|
|
$
|
25,380
|
|
Net Income
|
|
|
4,913
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,994
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,919
|
|
Dividend Declared
|
|
|
(525
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(525
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Dividend Declared – Non-
controlling Interests of
Subsidiaries
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Translation Adjustments
|
|
|
(6,245
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,858
|
)
|
|
|
—
|
|
|
|
(2,387
|
)
|
Stock Based Compensation
|
|
|
165
|
|
|
|
—
|
|
|
|
165
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Pension and Postretirement
Adjustment, Net of
Tax
|
|
|
74
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
74
|
|
|
|
—
|
|
|
|
—
|
|
Stock Option Exercises
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Employee Stock Purchases
|
|
|
24
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
Balance, March 29, 2020
|
|
$
|
187,255
|
|
|
$
|
74
|
|
|
$
|
97,773
|
|
|
$
|
222,442
|
|
|
$
|
(22,270
|
)
|
|
$
|
(135,676
|
)
|
|
$
|
24,912
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
Total
Shareholders’
Equity
|
|
|
Common Stock
|
|
|
Capital in Excess of Par Value
|
|
|
Retained Earnings
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
Treasury Stock
|
|
|
Non-Controlling Interest
|
|
Balance, December 30, 2018
|
|
$
|
183,757
|
|
|
$
|
73
|
|
|
$
|
95,818
|
|
|
$
|
220,483
|
|
|
$
|
(18,648
|
)
|
|
$
|
(135,758
|
)
|
|
$
|
21,789
|
|
Net Loss
|
|
|
3,037
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,730
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,307
|
|
Dividend Declared
|
|
|
(517
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(517
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Dividend Declared – Non-
controlling Interests of
Subsidiaries
|
|
|
(400
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(400
|
)
|
Translation Adjustments
|
|
|
1,037
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
912
|
|
|
|
—
|
|
|
|
125
|
|
Stock Based Compensation
|
|
|
241
|
|
|
|
—
|
|
|
|
241
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Pension and Postretirement
Adjustment, Net of
Tax
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
Stock Option Exercises
|
|
|
140
|
|
|
|
—
|
|
|
|
140
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Employee Stock Purchases
|
|
|
32
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
Balance, March 31, 2019
|
|
$
|
187,326
|
|
|
$
|
73
|
|
|
$
|
96,215
|
|
|
$
|
221,696
|
|
|
$
|
(17,737
|
)
|
|
$
|
(135,742
|
)
|
|
$
|
22,821
|
|
13
|
|
Nine Months Ended March 29, 2020
|
|
|
|
Total
Shareholders’
Equity
|
|
|
Common Stock
|
|
|
Capital in Excess of Par Value
|
|
|
Retained Earnings
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
Treasury Stock
|
|
|
Non-Controlling Interest
|
|
Balance, June 30, 2019
|
|
$
|
187,816
|
|
|
$
|
73
|
|
|
$
|
96,491
|
|
|
$
|
221,117
|
|
|
$
|
(18,568
|
)
|
|
$
|
(135,725
|
)
|
|
$
|
24,428
|
|
Net Income
|
|
|
6,498
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,897
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,601
|
|
Dividend Declared
|
|
|
(1,572
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,572
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Dividend Declared – Non-
controlling Interests of
Subsidiaries
|
|
|
(980
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(980
|
)
|
Translation Adjustments
|
|
|
(6,059
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,922
|
)
|
|
|
—
|
|
|
|
(2,137
|
)
|
Stock Based Compensation
|
|
|
789
|
|
|
|
—
|
|
|
|
789
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Pension and Postretirement
Adjustment, Net of
Tax
|
|
|
220
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
220
|
|
|
|
—
|
|
|
|
—
|
|
Stock Option Exercises
|
|
|
478
|
|
|
|
1
|
|
|
|
477
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Employee Stock Purchases
|
|
|
65
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49
|
|
|
|
—
|
|
Balance, March 29, 2020
|
|
$
|
187,255
|
|
|
$
|
74
|
|
|
$
|
97,773
|
|
|
$
|
222,442
|
|
|
$
|
(22,270
|
)
|
|
$
|
(135,676
|
)
|
|
$
|
24,912
|
|
|
|
Nine Months Ended March 31, 2019
|
|
|
|
Total
Shareholders’
Equity
|
|
|
Common Stock
|
|
|
Capital in Excess of Par Value
|
|
|
Retained Earnings
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
Treasury Stock
|
|
|
Non-Controlling Interest
|
|
Balance, July 1, 2018
|
|
$
|
183,246
|
|
|
$
|
73
|
|
|
$
|
95,140
|
|
|
$
|
236,162
|
|
|
$
|
(33,439
|
)
|
|
$
|
(135,778
|
)
|
|
$
|
21,088
|
|
Net Loss
|
|
|
(14,132
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,967
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,835
|
|
Dividend Declared
|
|
|
(1,546
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,546
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Dividend Declared – Non-
controlling Interests of
Subsidiaries
|
|
|
(1,384
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,384
|
)
|
Translation Adjustments
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(243
|
)
|
|
|
—
|
|
|
|
282
|
|
Stock Based Compensation
|
|
|
867
|
|
|
|
—
|
|
|
|
867
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Pension and Postretirement
Adjustment, Net of
Tax
|
|
|
19,992
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,992
|
|
|
|
—
|
|
|
|
—
|
|
Reclassification of
Stranded Tax Effects
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,047
|
|
|
|
(4,047
|
)
|
|
|
—
|
|
|
|
—
|
|
Stock Option Exercises
|
|
|
172
|
|
|
|
—
|
|
|
|
172
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Employee Stock Purchases
|
|
|
72
|
|
|
|
—
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36
|
|
|
|
—
|
|
Balance, March 31, 2019
|
|
$
|
187,326
|
|
|
$
|
73
|
|
|
$
|
96,215
|
|
|
$
|
221,696
|
|
|
$
|
(17,737
|
)
|
|
$
|
(135,742
|
)
|
|
$
|
22,821
|
|
Revenue from Contracts with Customers
We generate revenue from the production of parts sold to automotive and light-truck Original Equipment Manufacturers (“OEMs”), or Tier 1 suppliers at the direction of the OEM, under long-term supply agreements supporting new vehicle production. Such agreements also require related production of service parts subsequent to the initial vehicle production periods. Additionally, we generate revenue from the production of parts sold in aftermarket service channels and to non-automotive commercial customers.
14
Contract Balances:
We have no material contract assets as of March 29, 2020. Contract liability balances primarily include discounts recognized as a reduction in sales at the point of revenue recognition, but which will be applied by the customer agreement after the end of the reporting period. The activity related to contract liability balances during the nine month period ended March 29, 2020 was as follows (thousands of dollars):
Balance, June 30, 2019
|
|
$
|
932
|
|
Discounts Recorded as a Reduction in Sales
|
|
|
985
|
|
Payments of Discounts to Customers
|
|
|
(915
|
)
|
Other
|
|
|
29
|
|
Balance, March 29, 2020
|
|
$
|
1,031
|
|
Revenue by Product Group and Customer:
Revenue by product group for the periods presented was as follows (thousands of dollars):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
Keys & Locksets
|
|
$
|
30,186
|
|
|
$
|
34,677
|
|
|
$
|
91,832
|
|
|
$
|
101,722
|
|
|
Door Handles & Exterior Trim
|
|
|
31,296
|
|
|
|
32,212
|
|
|
|
88,818
|
|
|
|
83,973
|
|
|
Power Access
|
|
|
21,259
|
|
|
|
25,398
|
|
|
|
56,979
|
|
|
|
68,193
|
|
|
Latches
|
|
|
13,685
|
|
|
|
12,602
|
|
|
|
40,656
|
|
|
|
35,366
|
|
|
Aftermarket & OE Service
|
|
|
11,141
|
|
|
|
10,839
|
|
|
|
34,189
|
|
|
|
32,599
|
|
|
Driver Controls
|
|
|
7,549
|
|
|
|
10,532
|
|
|
|
25,310
|
|
|
|
31,370
|
|
|
Other
|
|
|
1,822
|
|
|
|
1,970
|
|
|
|
5,399
|
|
|
|
5,079
|
|
|
|
|
$
|
116,938
|
|
|
$
|
128,230
|
|
|
$
|
343,183
|
|
|
$
|
358,302
|
|
|
Revenue by customer or customer group for the periods presented was as follows (thousands of dollars):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
Fiat Chrysler Automobiles
|
|
$
|
26,050
|
|
|
$
|
29,917
|
|
|
$
|
78,686
|
|
|
$
|
85,824
|
|
|
General Motors Company
|
|
|
31,656
|
|
|
|
30,969
|
|
|
|
90,899
|
|
|
|
80,111
|
|
|
Ford Motor Company
|
|
|
15,462
|
|
|
|
15,942
|
|
|
|
46,527
|
|
|
|
47,579
|
|
|
Tier 1 Customers
|
|
|
17,495
|
|
|
|
20,078
|
|
|
|
50,026
|
|
|
|
56,357
|
|
|
Commercial and Other OEM
Customers
|
|
|
20,184
|
|
|
|
22,794
|
|
|
|
62,950
|
|
|
|
65,190
|
|
|
Hyundai / Kia
|
|
|
6,091
|
|
|
|
8,530
|
|
|
|
14,095
|
|
|
|
23,241
|
|
|
|
|
$
|
116,938
|
|
|
$
|
128,230
|
|
|
$
|
343,183
|
|
|
$
|
358,302
|
|
|
Other Income (Expense), net
Net other income (expense) included in the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive (Loss) Income primarily included foreign currency transaction gains and losses, realized and unrealized losses on our Mexican peso currency forward contracts, net periodic pension and postretirement benefit costs, other than the service cost component, related to our pension and postretirement plans and Rabbi Trust gains and losses. Foreign currency transaction gains and losses resulted from activity associated with foreign denominated assets held by our Mexican subsidiaries. We entered into the Mexican Peso currency forward contracts described above to minimize earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. Unrealized gains and losses on the peso forward contracts recognized as a result of mark-to-market adjustments as of March 29, 2020 may or may not be realized in future periods, depending on the actual Mexican peso to U.S. dollar exchange rates experienced during the balance of the contract period. The Rabbi Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in this Trust are considered trading securities.
15
The impact of these items for each of the periods presented was as follows (in thousands):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
Foreign Currency Transaction Gain (Loss)
|
|
$
|
2,515
|
|
|
$
|
(192
|
)
|
|
$
|
2,067
|
|
|
$
|
(261
|
)
|
|
Unrealized (Loss) Gain on Peso Forward
Contracts
|
|
|
(1,048
|
)
|
|
|
23
|
|
|
|
(1,048
|
)
|
|
|
116
|
|
|
Realized Gain on Peso Forward Contracts
|
|
|
—
|
|
|
|
122
|
|
|
|
—
|
|
|
|
344
|
|
|
Pension and Postretirement Plans Cost
|
|
|
(118
|
)
|
|
|
(27
|
)
|
|
|
(352
|
)
|
|
|
(662
|
)
|
|
Rabbi Trust (Loss) Gain
|
|
|
(550
|
)
|
|
|
257
|
|
|
|
(365
|
)
|
|
|
57
|
|
|
Other
|
|
|
250
|
|
|
|
26
|
|
|
|
673
|
|
|
|
108
|
|
|
|
|
$
|
1,049
|
|
|
$
|
209
|
|
|
$
|
975
|
|
|
$
|
(298
|
)
|
|
Income Taxes
Our effective tax rate was 20.8% and 20.6% for the three months ended March 29, 2020 and March 31, 2019, respectively. Our effective tax rate was 15.5% and 33.1% for the nine months ended March 29, 2020 and March 31, 2019, respectively. During the nine month period ended March 29, 2020, our effective tax rate was impacted by the discrete impact of the non-cash compensation expense, as discussed under Pension and Postretirement Benefits below. During the nine month period ended March 31, 2019, our effective tax rate was impacted by the discrete impact of the pension termination settlement charge, as discussed under Pension and Postretirement Benefits below, and by a discrete tax benefit of $372,000, which represents measurement period adjustments to the one-time transition tax on non-previously taxed post 1986 accumulated foreign earnings occurring as a result of the enactment of the Tax Cuts and Jobs Act of 2017. Our effective tax rate prior to discrete impacts increased from 10.7 percent for the nine month period ended March 31, 2019 to 18.3 percent for the nine month period ended March 29, 2020 due to a larger tax benefit in the nine month period ended March 31, 2020 resulting from the carry-back of forecasted losses for our fiscal 2020, which are the result of forecasted losses in our fiscal 2020 fourth quarter resulting from the COVID-19 outbreak, to tax years with a higher statutory rate. Our effective tax rate differs from the statutory tax rate due to the GILTI provisions, our available R&D tax credit, the forecasted carry-back of losses to tax years with a higher statutory rate and the non-controlling interest portion of our pre-tax income. The non-controlling interest impacts the effective tax rate as ADAC-STRATTEC LLC and STRATTEC POWER ACCESS LLC entities are taxed as partnerships for U.S. tax purposes.
STRATTEC is currently subject to state income tax examinations in our Wisconsin jurisdiction for fiscal years 2015, 2016, 2017, and 2018. The audit is currently in process and preliminary results are not yet available.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed on the basis of the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the potential dilutive common shares outstanding during the applicable period using the treasury stock method. Potential dilutive common shares include outstanding stock options and unvested restricted stock awards.
A reconciliation of the components of the basic and diluted per-share computations follows (in thousands, except per share amounts):
|
|
Three Months Ended
|
|
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
Per-Share Amount
|
|
|
Net Income
|
|
|
Shares
|
|
|
Per-Share Amount
|
|
|
Basic Earnings Per Share
|
|
$
|
2,994
|
|
|
|
3,748
|
|
|
$
|
0.80
|
|
|
$
|
1,730
|
|
|
|
3,684
|
|
|
$
|
0.47
|
|
|
Stock Option and Restricted
Stock Awards
|
|
|
—
|
|
|
|
20
|
|
|
|
|
|
|
|
—
|
|
|
|
44
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
$
|
2,994
|
|
|
|
3,768
|
|
|
$
|
0.79
|
|
|
$
|
1,730
|
|
|
|
3,728
|
|
|
$
|
0.46
|
|
|
16
|
Nine Months Ended
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
Net Loss
|
|
|
Shares
|
|
|
Per-Share Amount
|
|
|
Net Loss
|
|
|
Shares
|
|
|
Per-Share Amount
|
|
Basic Earnings (Loss) Per Share
|
$
|
2,897
|
|
|
|
3,733
|
|
|
$
|
0.78
|
|
|
$
|
(16,967
|
)
|
|
|
3,670
|
|
|
$
|
(4.62
|
)
|
Stock Option and Restricted
Stock Awards
|
|
—
|
|
|
|
19
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share
|
$
|
2,897
|
|
|
|
3,752
|
|
|
$
|
0.77
|
|
|
$
|
(16,967
|
)
|
|
|
3,670
|
|
|
$
|
(4.62
|
)
|
The calculation of loss per share excluded 111,060 and 41,200 share-based payment awards for the quarters ended March 29, 2020 and March 31, 2019, respectively, because their inclusion would have been anti-dilutive. The calculation of earnings (loss) per share excluded 111,060 and 181,867 share-based payment awards for the nine month periods ended March 29, 2020 and March 31, 2019, respectively, because their inclusion would have been anti-dilutive.
Stock-based Compensation
We maintain an omnibus stock incentive plan. This plan provides for the granting of stock options, shares of restricted stock and stock appreciation rights. As of March 29, 2020, the Board of Directors had designated 1,850,000 shares of common stock available for the grant of awards under the plan. Remaining shares available to be granted under the plan as of March 29, 2020 were 115,609. Awards that expire or are canceled without delivery of shares become available for re-issuance under the plan. We issue new shares of common stock to satisfy stock option exercises.
Nonqualified and incentive stock options and shares of restricted stock have been granted to our officers, outside directors and specified associates under our stock incentive plan. Stock options granted under the plan may not be issued with an exercise price less than the fair market value of the common stock on the date the option is granted. Stock options become exercisable as determined at the date of grant by the Compensation Committee of the Board of Directors. The options expire 10 years after the grant date unless an earlier expiration date is set at the time of grant. The options vest 1 to 4 years after the date of grant as determined by the Compensation Committee of the Board of Directors. Shares of restricted stock granted under the plan are subject to vesting criteria determined by the Compensation Committee of the Board of Directors at the time the shares are granted and have a minimum vesting period of one year from the date of grant. Unvested restricted shares granted have voting rights, regardless of whether the shares are vested or unvested, but only have the right to receive cash dividends after such shares become vested. Restricted stock grants vest 1 to 5 years after the date of grant as determined by the Compensation Committee of the Board of Directors.
The fair value of each stock option grant was estimated as of the date of grant using the Black-Scholes pricing model. The fair value of each restricted stock grant was based on the market price of the underlying common stock as of the date of grant. The resulting compensation cost for fixed awards with graded vesting schedules is amortized on a straight line basis over the vesting period for the entire award.
A summary of stock option activity under our stock incentive plan for the nine months ended March 29, 2020 was as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding, June 30, 2019
|
|
|
117,360
|
|
|
$
|
31.85
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(26,500
|
)
|
|
$
|
18.00
|
|
|
|
|
|
|
|
|
|
Outstanding, March 29, 2020
|
|
|
90,860
|
|
|
$
|
35.88
|
|
|
|
2.7
|
|
|
$
|
—
|
|
Exercisable, March 29, 2020
|
|
|
90,860
|
|
|
$
|
35.88
|
|
|
|
2.7
|
|
|
$
|
—
|
|
17
The intrinsic value of stock options exercised and the fair value of stock options that vested during the three and nine month periods presented below were as follows (in thousands):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
Intrinsic Value of Options Exercised
|
|
$
|
—
|
|
|
$
|
269
|
|
|
$
|
120
|
|
|
$
|
324
|
|
|
Fair Value of Stock Options Vesting
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
No options were granted during the nine month periods ended March 29, 2020 or March 31, 2019.
A summary of restricted stock activity under our omnibus stock incentive plan for the nine months ended March 29, 2020 was as follows:
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Nonvested Balance, June 30, 2019
|
|
|
63,757
|
|
|
$
|
39.47
|
|
Granted
|
|
|
39,150
|
|
|
$
|
21.80
|
|
Vested
|
|
|
(27,318
|
)
|
|
$
|
37.86
|
|
Forfeited
|
|
|
(5,470
|
)
|
|
$
|
35.13
|
|
Nonvested Balance, March 29, 2020
|
|
|
70,119
|
|
|
$
|
30.57
|
|
As of March 29, 2020, all compensation cost related to outstanding stock options granted under our omnibus stock incentive plan has been recognized. As of March 29, 2020, there was approximately $1.1 million of total unrecognized compensation cost related to unvested restricted stock grants outstanding under the plan. This cost is expected to be recognized over a remaining weighted average period of 0.9 years. Total unrecognized compensation cost will be adjusted for any future changes in estimated and actual forfeitures of awards granted under our omnibus stock incentive plan.
Pension and Postretirement Benefits
We have a qualified, noncontributory defined benefit pension plan (“Qualified Pension Plan”) covering substantially all U.S. associates employed by us prior to January 1, 2010. Effective December 31, 2009, the Board of Directors amended the Qualified Pension Plan to freeze benefit accruals and future eligibility. The Board of Directors subsequently approved to proceed with the termination of the Qualified Pension Plan. During the quarter ended December 30, 2018, we completed a substantial portion of terminating the Qualified Pension Plan. In connection with the termination of the Qualified Pension Plan, distributions from the Qualified Pension Plan trust were made during the three month period ended December 30, 2018 to participants who elected lump-sum distributions. Additionally, during the three months ended December 30, 2018, we entered into an agreement with an insurance company to purchase from us, through a series of annuity contracts, our remaining obligations under the Qualified Pension Plan and, as a result, we settled the remaining obligations under the plan for the remaining participants utilizing funds available in the Qualified Pension Plan trust. No additional cash contributions to the trust were required to settle the pension obligations. As a result of these actions, a non-cash pre-tax settlement charge of $31.9 million was recorded during fiscal 2019. A non-cash compensation expense charge of $4.2 million was also recorded during fiscal 2019 related to the future transfer of the excess assets in the Qualified Pension Plan to a STRATTEC defined contribution plan for subsequent pay-out to eligible STRATTEC employees based on a plan approved by the Board of Directors in June 2019. An additional $4.5 million non-cash compensation expense charge related to the final transfer and pay-out of the excess Qualified Pension Plan assets was recorded during the six month period ended December 29, 2019. As of December 29, 2019, the excess Qualified Pension Plan assets were transferred to our defined contribution plan and distributed to eligible STRATTEC employees, which completed the full termination of the Qualified Pension Plan.
18
We have historically had in place a noncontributory supplemental executive retirement plan (“SERP”), which prior to January 1, 2014 was a nonqualified defined benefit plan that essentially mirrored the Qualified Pension Plan, but provided benefits in excess of certain limits placed on our Qualified Pension Plan by the Internal Revenue Code. As noted above, we froze our Qualified Pension Plan effective as of December 31, 2009 and the SERP provided benefits to participants as if the Qualified Pension Plan had not been frozen. Because the Qualified Pension Plan was frozen and because new employees were not eligible to participate in the Qualified Pension Plan, our Board of Directors adopted amendments to the SERP on October 8, 2013 that were effective as of December 31, 2013 to simplify the SERP calculation. The SERP is funded through a Rabbi Trust with TMI Trust Company. Under the amended SERP, participants received an accrued lump-sum benefit as of December 31, 2013, which was credited to each participant’s account. Subsequent to December 31, 2013, each eligible participant received, and currently receives, a supplemental retirement benefit equal to the foregoing lump sum benefit, plus an annual benefit accrual equal to 8 percent of the participant’s base salary and cash bonus, plus annual credited interest on the participant’s account balance. All then current participants as of December 31, 2013 are fully vested in their account balances with any new individuals participating in the SERP effective on or after January 1, 2014 being subject to a five year vesting period. The SERP, which is considered a nonqualified defined benefit plan under applicable rules and regulations of the Internal Revenue Code, will continue to be funded through use of a Rabbi Trust to hold investment assets to be used in part to fund any future required lump sum benefit payments to participants. The Rabbi Trust assets had a value of $2.6 million at March 29, 2020 and $2.9 million at June 30, 2019 and are included in Other Long-Term Assets in the accompanying Condensed Consolidated Balance Sheets.
We also sponsor a postretirement health care plan for all U.S. associates hired prior to June 1, 2001. The expected cost of retiree health care benefits is recognized during the years the associates who are covered under the plan render service. Effective January 1, 2010, an amendment to the postretirement health care plan limited the benefit for future eligible retirees to $4,000 per plan year and the benefit is further subject to a maximum five year coverage period based on the associate’s retirement date and age. The postretirement health care plan is unfunded.
The service cost component of the net periodic benefit costs under these plans is allocated between Cost of Goods Sold and Engineering, Selling and Administrative Expenses while the remaining components of the net periodic benefit costs are included in Other Income (Expense), net in the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive (Loss) Income.
The following table summarizes the net periodic benefit cost recognized for each of the periods indicated under these plans (in thousands):
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
Service Cost
|
|
$
|
19
|
|
|
$
|
15
|
|
|
$
|
3
|
|
|
$
|
2
|
|
Interest Cost
|
|
|
16
|
|
|
|
19
|
|
|
6
|
|
|
|
8
|
|
Amortization of Prior Service Credit
|
|
|
—
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
(109
|
)
|
Amortization of Unrecognized Net Loss
|
|
|
4
|
|
|
|
—
|
|
|
99
|
|
|
|
109
|
|
Net Periodic Benefit Cost
|
|
$
|
39
|
|
|
$
|
34
|
|
|
$
|
101
|
|
|
$
|
10
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
|
March 29,
2020
|
|
|
March 31,
2019
|
|
Service Cost
|
|
$
|
56
|
|
|
$
|
46
|
|
|
$
|
9
|
|
|
$
|
8
|
|
Interest Cost
|
|
|
46
|
|
|
|
2,083
|
|
|
19
|
|
|
|
30
|
|
Expected Return on Plan Assets
|
|
|
—
|
|
|
|
(2,276
|
)
|
|
|
—
|
|
|
|
—
|
|
Plan Settlements
|
|
|
—
|
|
|
|
32,434
|
|
|
|
—
|
|
|
|
—
|
|
Amortization of Prior Service Credit
|
|
|
—
|
|
|
|
—
|
|
|
|
(22
|
)
|
|
|
(329
|
)
|
Amortization of Unrecognized Net Loss
|
|
11
|
|
|
|
832
|
|
|
298
|
|
|
|
323
|
|
Net Periodic Benefit Cost
|
|
$
|
113
|
|
|
$
|
33,119
|
|
|
$
|
304
|
|
|
$
|
32
|
|
Within the tables above, we have revised the plan settlement charge and net periodic benefit cost for the nine months ended March 31, 2019 that was previously disclosed in our March 31, 2019 financial statements. This revision is not material to the financial statements.
No voluntary contributions were made to the Qualified Pension Plan during the three or nine month periods ended March 29, 2020 and March 31, 2019. No additional future contributions will be made to the Qualified Pension Plan.
19
Accumulated Other Comprehensive Loss
The following tables summarize the changes in accumulated other comprehensive loss (“AOCL”) for each period presented (in thousands):
|
|
Three Months Ended March 29, 2020
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Retirement
and
Postretirement
Benefit Plans
|
|
|
Total
|
|
Balance, December 29, 2019
|
|
$
|
16,381
|
|
|
$
|
2,105
|
|
|
$
|
18,486
|
|
Other Comprehensive Income Before Reclassifications
|
|
|
6,245
|
|
|
|
—
|
|
|
|
6,245
|
|
Income Tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net Other Comprehensive Income Before
Reclassifications
|
|
|
6,245
|
|
|
|
—
|
|
|
|
6,245
|
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior Service Credits (A)
|
|
|
—
|
|
|
|
7
|
|
|
|
7
|
|
Unrecognized Net Loss (A)
|
|
|
—
|
|
|
|
(103
|
)
|
|
|
(103
|
)
|
Total Reclassifications Before Tax
|
|
|
—
|
|
|
|
(96
|
)
|
|
|
(96
|
)
|
Income Tax
|
|
|
—
|
|
|
|
22
|
|
|
|
22
|
|
Net Reclassifications
|
|
|
—
|
|
|
|
(74
|
)
|
|
|
(74
|
)
|
Other Comprehensive Income
|
|
|
6,245
|
|
|
|
(74
|
)
|
|
|
6,171
|
|
Other Comprehensive Income Attributable to Non-
Controlling Interest
|
|
|
2,387
|
|
|
|
—
|
|
|
|
2,387
|
|
Balance, March 29, 2020
|
|
$
|
20,239
|
|
|
$
|
2,031
|
|
|
$
|
22,270
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Retirement
and
Postretirement
Benefit Plans
|
|
|
Total
|
|
Balance, December 30, 2018
|
|
$
|
16,529
|
|
|
$
|
2,119
|
|
|
$
|
18,648
|
|
Other Comprehensive Loss Before Reclassifications
|
|
|
(1,037
|
)
|
|
|
—
|
|
|
|
(1,037
|
)
|
Net Other Comprehensive Loss Before
Reclassifications
|
|
|
(1,037
|
)
|
|
|
—
|
|
|
|
(1,037
|
)
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior Service Credits (A)
|
|
|
—
|
|
|
|
109
|
|
|
|
109
|
|
Unrecognized Net Loss (A)
|
|
|
—
|
|
|
|
(109
|
)
|
|
|
(109
|
)
|
Total Reclassifications Before Tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Income Tax
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
Net Reclassifications
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
Other Comprehensive Loss (Income)
|
|
|
(1,037
|
)
|
|
|
1
|
|
|
|
(1,036
|
)
|
Other Comprehensive Income Attributable to Non-
Controlling Interest
|
|
|
(125
|
)
|
|
|
—
|
|
|
|
(125
|
)
|
Balance, March 31, 2019
|
|
$
|
15,617
|
|
|
$
|
2,120
|
|
|
$
|
17,737
|
|
20
|
|
Nine Months Ended March 29, 2020
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Retirement
and
Postretirement
Benefit Plans
|
|
|
Total
|
|
Balance, June 30, 2019
|
|
$
|
16,317
|
|
|
$
|
2,251
|
|
|
$
|
18,568
|
|
Other Comprehensive Income Before Reclassifications
|
|
|
6,059
|
|
|
|
—
|
|
|
|
6,059
|
|
Income Tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net Other Comprehensive Income Before
Reclassifications
|
|
|
6,059
|
|
|
|
—
|
|
|
|
6,059
|
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior Service Credits (A)
|
|
|
—
|
|
|
|
22
|
|
|
|
22
|
|
Unrecognized Net Loss (A)
|
|
|
—
|
|
|
|
(309
|
)
|
|
|
(309
|
)
|
Total Reclassifications Before Tax
|
|
|
—
|
|
|
|
(287
|
)
|
|
|
(287
|
)
|
Income Tax
|
|
|
—
|
|
|
|
67
|
|
|
|
67
|
|
Net Reclassifications
|
|
|
—
|
|
|
|
(220
|
)
|
|
|
(220
|
)
|
Other Comprehensive Income
|
|
|
6,059
|
|
|
|
(220
|
)
|
|
|
5,839
|
|
Other Comprehensive Income Attributable to Non-
Controlling Interest
|
|
|
2,137
|
|
|
|
—
|
|
|
|
2,137
|
|
Balance, March 29, 2020
|
|
$
|
20,239
|
|
|
$
|
2,031
|
|
|
$
|
22,270
|
|
|
|
Nine Months Ended March 31, 2019
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Retirement
and
Postretirement
Benefit Plans
|
|
|
Total
|
|
Balance, July 1, 2018
|
|
$
|
15,291
|
|
|
$
|
18,148
|
|
|
$
|
33,439
|
|
Other Comprehensive Loss Before Reclassifications
|
|
|
146
|
|
|
|
—
|
|
|
|
146
|
|
Income Tax
|
|
|
(185
|
)
|
|
|
—
|
|
|
|
(185
|
)
|
Net Other Comprehensive Loss Before
Reclassifications
|
|
|
(39
|
)
|
|
|
—
|
|
|
|
(39
|
)
|
Reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Termination Settlement (A)
|
|
|
—
|
|
|
|
(25,668
|
)
|
|
|
(25,668
|
)
|
Prior Service Credits (A)
|
|
|
—
|
|
|
|
329
|
|
|
|
329
|
|
Unrecognized Net Loss (A)
|
|
|
—
|
|
|
|
(1,155
|
)
|
|
|
(1,155
|
)
|
Total Reclassifications Before Tax
|
|
|
—
|
|
|
|
(26,494
|
)
|
|
|
(26,494
|
)
|
Income Tax
|
|
|
—
|
|
|
|
6,502
|
|
|
|
6,502
|
|
Net Reclassifications
|
|
|
—
|
|
|
|
(19,992
|
)
|
|
|
(19,992
|
)
|
Other Comprehensive Loss (Income)
|
|
|
(39
|
)
|
|
|
(19,992
|
)
|
|
|
(20,031
|
)
|
Other Comprehensive Income Attributable to Non-
Controlling Interest
|
|
|
(282
|
)
|
|
|
—
|
|
|
|
(282
|
)
|
Reclassification of stranded tax effects
|
|
|
83
|
|
|
|
3,964
|
|
|
|
4,047
|
|
Balance, March 31, 2019
|
|
$
|
15,617
|
|
|
$
|
2,120
|
|
|
$
|
17,737
|
|
(A)
|
Amounts reclassified are included in the computation of net periodic benefit cost, which is included in Other Income (Expense), net in the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive (Loss) Income. See Pension and Postretirement Benefits note to these Notes to Condensed Consolidated Financial Statements above.
|
21
Item 2
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES