Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

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

Common stock, par value $0.01 per share: ~~3,703,991~~3,755,022 shares outstanding as of April ~~2, 2018~~1, 2019 (which number includes all restricted shares previously awarded that have not vested as of such date).

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

The Company’s business, operations and financial performance are subject to certain risks and uncertainties, which could result in material differences in actual results from the Company’s current expectations. These risks and uncertainties include, but are not limited to, general economic conditions, in particular relating to the automotive industry, consumer demand for the Company’s and its customers’ products, competitive and technological developments, customer purchasing actions, changes in warranty provisions and customers’ product recall policies, foreign currency fluctuations, uncertainties stemming from U.S. trade policies, tariffs and reactions to same from foreign countries, costs of operations, the volume and scope of product returns and warranty claims and other matters described in the section titled “Risk Factors” in the Company’s Form 10-K report filed on September ~~7, 2017~~6, 2018 with the Securities and Exchange Commission for the year ended July ~~2, 2017.~~1, 2018.

Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this Form 10-Q.

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	April 1, 2018			April 2, 2017			April 1, 2018			April 2, 2017			March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018
Net sales	$	116,823		$	109,706		$	322,465		$	308,895		$	128,230		$	116,823		$	358,302		$	322,465
Cost of goods sold		101,626			92,105			281,159			262,797			112,548			101,626			314,701			281,159
Gross profit		15,197			17,601			41,306			46,098			15,682			15,197			43,601			41,306
Engineering, selling and administrative expenses		10,839			11,782			31,033			34,308			11,721			10,839			33,222			31,033
Income from operations		4,358			5,819			10,273			11,790			3,961			4,358			10,379			10,273
Interest income		1			52			8			132			—			1			—			8
Equity earnings (loss) of joint ventures		619			(163	)		3,118			128
Equity earnings of joint ventures														66			619			2,451			3,118
Interest expense		(305	)		(100	)		(761	)		(276	)		(413	)		(305	)		(1,224	)		(761	)
Other income, net		158			1,192			354			1,376
Income before provision for income taxes and non-controlling interest		4,831			6,800			12,992			13,150
Provision for income taxes		899			1,752			1,956			4,060
Net income		3,932			5,048			11,036			9,090
Pension Termination Settlement Charge														—			—			(32,434	)		—
Other income (expense), net														209			158			(298	)		354
Income (loss) before provision (benefit) for income taxes and non-controlling interest														3,823			4,831			(21,126	)		12,992
Provision (benefit) for income taxes														786			899			(6,994	)		1,956
Net income (loss)														3,037			3,932			(14,132	)		11,036
Net income attributable to non-controlling Interest		963			1,566			2,729			3,668			1,307			963			2,835			2,729
Net income attributable to STRATTEC SECURITY CORPORATION	$	2,969		$	3,482		$	8,307		$	5,422
Net income (loss) attributable to STRATTEC SECURITY CORPORATION													$	1,730		$	2,969		$	(16,967	)	$	8,307

Comprehensive Income:
Net income	$	3,932		$	5,048		$	11,036		$	9,090
Net income (loss)													$	3,037		$	3,932		$	(14,132	)	$	11,036
Pension and postretirement plans, net of tax		338			475			893			1,424			(1	)		338			19,992			893
Currency translation adjustments		3,487			3,357			1,193			(1,674	)		1,037			3,487			39			1,193
Other comprehensive loss, net of tax		3,825			3,832			2,086			(250	)
Other comprehensive income, net of tax														1,036			3,825			20,031			2,086
Comprehensive income		7,757			8,880			13,122			8,840			4,073			7,757			5,899			13,122
Comprehensive income attributable to non- controlling interest		1,894			2,638			2,709			3,737			1,432			1,894			3,117			2,709
Comprehensive income attributable to STRATTEC SECURITY CORPORATION	$	5,863		$	6,242		$	10,413		$	5,103		$	2,641		$	5,863		$	2,782		$	10,413

Earnings per share attributable to STRATTEC SECURITY CORPORATION:
Earnings (loss) per share attributable to STRATTEC SECURITY CORPORATION:
Basic	$	0.82		$	0.97		$	2.29		$	1.51		$	0.47		$	0.82		$	(4.62	)	$	2.29
Diluted	$	0.80		$	0.95		$	2.24		$	1.48		$	0.46		$	0.80		$	(4.62	)	$	2.24

Average shares outstanding:
Basic		3,634			3,592			3,625			3,586			3,684			3,634			3,670			3,625
Diluted		3,708			3,671			3,702			3,666			3,728			3,708			3,670			3,702

Cash dividends declared per share	$	0.14		$	0.14		$	0.42		$	0.42		$	0.14		$	0.14		$	0.42		$	0.42

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

	April 1, 2018			July 2, 2017			March 31, 2019			July 1, 2018
	(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	7,037		$	8,361		$	9,202		$	8,090
Receivables, net		70,527			64,933			87,847			73,832
Inventories:
Finished products		9,665			9,976			12,544			13,410
Work in process		9,655			9,328			11,485			10,059
Purchased materials		28,339			20,682			26,948			27,185
Excess and obsolete reserve		(4,678	)		(4,510	)		(4,155	)		(4,000	)
Inventories, net		42,981			35,476			46,822			46,654
Other current assets		27,401			20,235			15,609			22,527
Total current assets		147,946			129,005			159,480			151,103
Investment in joint ventures		21,367			16,840			23,876			22,192
Deferred income taxes		1,620			256
Deferred Income Taxes								1,210			—
Other long-term assets		17,598			16,022			10,877			17,338
Property, plant and equipment		268,246			251,519			282,660			269,716
Less: accumulated depreciation		(149,697	)		(139,928	)		(164,819	)		(153,174	)
Net property, plant and equipment		118,549			111,591			117,841			116,542
	$	307,080		$	273,714		$	313,284		$	307,175
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	44,268		$	39,679		$	46,207		$	38,439
Accrued Liabilities:
Payroll and benefits		12,371			13,055			12,761			13,393
Environmental		1,295			1,308			1,279			1,291
Warranty		6,297			5,550			7,995			7,800
Other		7,498			8,303			10,563			7,870
Total current liabilities		71,729			67,895			78,805			68,793
Borrowings under credit facility		48,000			30,000
Borrowings under credit facilities								44,000			51,000
Deferred income taxes								—			961
Accrued pension obligations		1,580			1,492			1,645			1,553
Accrued postretirement obligations		802			1,003			677			826
Other long-term liabilities		1,787			610			831			796
Shareholders’ Equity:
Common stock, authorized 12,000,000 shares, $.01 par value, 7,251,937 issued shares at April 1, 2018 and 7,216,103 issued shares at July 2, 2017		72			72
Common stock, authorized 12,000,000 shares, $.01 par value, 7,304,994 issued shares at March 31, 2019 and 7,251,937 issued shares at July 1, 2018								73			73
Capital in excess of par value		94,869			93,813			96,215			95,140
Retained earnings		232,695			225,913			221,696			236,162
Accumulated other comprehensive loss		(30,782	)		(32,888	)		(17,737	)		(33,439	)
Less: treasury stock, at cost (3,617,471 shares at April 1, 2018 and 3,619,487 shares at July 2, 2017)		(135,790	)		(135,822	)
Less: treasury stock, at cost (3,614,479 shares at March 31, 2019 and 3,616,734 shares at July 1,2018)								(135,742	)		(135,778	)
Total STRATTEC SECURITY CORPORATION shareholders’ equity		161,064			151,088			164,505			162,158
Non-controlling interest		22,118			21,626			22,821			21,088
Total shareholders’ equity		183,182			172,714			187,326			183,246
	$	307,080		$	273,714		$	313,284		$	307,175

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

	Nine Months Ended						Nine Months Ended
	April 1, 2018			April 2, 2017			March 31, 2019			April 1, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	11,036		$	9,090
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income							$	(14,132	)	$	11,036
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		10,551			8,454			12,543			10,551
Foreign currency transaction loss (gain)		173			(1,775	)
Unrealized loss (gain) on peso forward contracts		687			(1,147	)
Foreign currency transaction loss								261			173
Unrealized (gain) loss on peso forward contracts								(116	)		687
Stock based compensation expense		871			1,154			867			871
Equity earnings of joint ventures		(3,118	)		(128	)		(2,451	)		(3,118	)
Pension Termination Settlement Charge								32,434			—
Deferred income taxes		(1,710	)		—			(8,131	)		(1,710	)
Change in operating assets and liabilities:
Receivables		(5,206	)		(6,978	)		(14,411	)		(5,206	)
Inventories		(7,505	)		473			(168	)		(7,505	)
Other assets		(8,277	)		(4,674	)		7,553			(8,277	)
Accounts payable and accrued liabilities		6,244			7,831			10,753			6,244
Other, net		(44	)		(143	)		(281	)		(44	)
Net cash provided by operating activities		3,702			12,157			24,721			3,702
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures		(125	)		(250	)		(200	)		(125	)
Loan to joint ventures		—			(1,925	)
Repayment from loan to joint ventures		300			75			—			300
Purchase of property, plant and equipment		(19,382	)		(26,642	)		(13,550	)		(19,382	)
Proceeds received on sale of property, plant, and equipment		12			—			12			12
Net cash used in investing activities		(19,195	)		(28,742	)		(13,738	)		(19,195	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility		21,000			30,000			2,000			21,000
Repayments of borrowings under credit facility		(3,000	)		(24,000	)
Contribution from non-controlling interest of subsidiaries		—			2,940
Repayment of borrowings under credit facility								(9,000	)		(3,000	)
Dividends paid to non-controlling interests of subsidiaries		(2,217	)		(1,764	)		(1,384	)		(2,217	)
Dividends paid		(1,525	)		(1,509	)		(1,546	)		(1,525	)
Exercise of stock options and employee stock purchases		217			187			244			217
Net cash provided by financing activities		14,475			5,854
Net cash (used in) provided by financing activities								(9,686	)		14,475
Foreign currency impact on cash		(306	)		245			(185	)		(306	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,324	)		(10,486	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS								1,112			(1,324	)

CASH AND CASH EQUIVALENTS
Beginning of period		8,361			15,477			8,090			8,361
End of period	$	7,037		$	4,991		$	9,202		$	7,037
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	2,356		$	1,512		$	230		$	2,356
Interest	$	716		$	263		$	1,229		$	716
Non-cash investing activities:
Change in capital expenditures in accounts payable	$	(1,825	)	$	(650	)	$	(405	)	$	(1,825	)

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

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 ~~was formed~~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. ~~Currently, we, along with our joint venture partner, are winding down operating the~~The business of SAL ~~LLC.~~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 ~~three~~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 ~~April~~March 31, 2019 and July 1, 2018, ~~and July 2, 2017,~~ 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 ~~2017~~2018 Annual Report, which was filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on September ~~7, 2017.~~6, 2018.

In May 2014, the FASB issued an update to the accounting guidance for the recognition of revenue arising from contracts with customers. The update supersedes most current revenue recognition guidance and outlines a single comprehensive model for revenue recognition based on the principle that an entity should recognize revenue in an amount that reflects the expected consideration to be received in the exchange of goods and services. The guidance update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The guidance permits two methods of adoption: the full retrospective method, which requires retrospective restatement of each prior reporting period presented, or the modified retrospective method, which requires the cumulative effect of initially applying the guidance be recognized at the date of initial application. Currently, we do not expect the adoption of this standard to have a material impact on our results of operations or financial position; however, we expect to expand disclosures in line with the requirements ofWe implemented the new standard. We currently do not expect any changes to how we account for reimbursable pre-production costs, which are currently accounted for as a cost reduction. We expect revenue related to parts shipped under our production contracts to remain unchanged. We will adopt this standard ~~as of~~effective July 2, 2018, the first day of our 2019 fiscal ~~year. We currently plan to adopt the new standard~~year, using the modified retrospective ~~approach.~~approach to transition to the new standard. We assessed our revenue stream based upon the provisions of our customer contracts in effect on the July 2, 2018 effective date to determine the cumulative effect of initially applying the guidance. Based on our assessment, the adoption date financial statement impact was limited to a balance sheet reclassification required to establish the contract liability concept provided for in the guidance. As such, comparative financial information for reporting periods prior to July 2, 2018 has not been restated and continues to be reported in accordance with our revenue recognition policies prior to the adoption of the new guidance. Additionally, there was no cumulative effect adjustment required to be recorded to our retained earnings. The effect of the reclassification changes made to our July 2, 2018 Condensed Consolidated Balance Sheet increased Receivables, net by $1.2 million, with a corresponding increase to Accrued Liabilities: Other. Refer to the discussion of Revenue from Contracts with Customers included in these Notes to Condensed Consolidated Financial Statements.

In August 2014, the FASB issued an update to the accounting guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new guidance requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. This accounting update is effective for annual and interim periods beginning on or after December 15, 2016, with early adoption permitted. The adoption of this pronouncement did not have a material impact on our consolidated financial statements.

In July 2015, the FASB issued an accounting standard to simplify the measurement of inventory by changing the subsequent measurement guidance from the lower of cost or market to the lower of cost and net realizable value for inventory. The standard update is effective for fiscal years beginning after December 15, 2016 and interim periods within those years, and early adoption was permitted. The standard is to be applied prospectively. The adoption of this pronouncement did not have a material impact on our consolidated financial statements.

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. The guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. We do not expect that the adoption of this pronouncement will have a material impact on our consolidated financial statements.

In March 2016, the FASB issued an update to the accounting guidance for share-based payments. The update simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification of such items in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years. The adoption of this pronouncement did not have a material impact on our consolidated financial statements.

In August 2016, the FASB issued an update to the accounting guidance on the classification of certain cash receipts and cash payments. The update aims to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those years. ~~We do not expect that the~~The adoption of this pronouncement ~~will~~did not have a material impact on our consolidated financial statements.

In March 2017, the FASB issued an update to the accounting guidance for the presentation of net periodic pension cost and net periodic postretirement benefit cost. The update requires the service cost component of net periodic benefit cost be reported in the same line items as other compensation costs arising from services rendered by the pertinent employees during the applicable period. The remaining components of net periodic benefit cost are required to be presented separately from the service cost component outside a subtotal of income from operations. Additionally, the update allows only the service cost component to be eligible for capitalization when applicable. The guidance requires retrospective restatement for each period presented for the presentation of the service cost component and the other components of net periodic benefit cost in the income statement and prospective application for the capitalization of the service cost component of net periodic benefit cost. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those years, with early adoption permitted. We elected early adoption beginning with the interim periods of our fiscal 2018. The adoption of this guidance resulted in the reclassification of expense within our Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended April 2, 2017 of $198,000 and $595,000, respectively, from cost of goods sold to Other income, net and $87,000 and $260,000, respectively, from engineering, selling and administrative expenses to Other Income, net.

In February 2018, the FASB issued guidance on the reclassification of certain tax effects from accumulated other comprehensive income. The guidance ~~will permit~~permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of U.S. tax reform to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within ~~these~~those fiscal years. We ~~do not expect that the~~elected early adoption beginning effective December 30, 2018. The adoption of ~~this pronouncement will have a material impact on our consolidated financial statements.~~the guidance resulted in the reclassification of $4.0 million from accumulated other comprehensive income to retained earnings during the quarter ended December 30, 2018.

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 executed~~During the three and nine month periods ended March 31, 2019 and April 1, 2018, we had contracts with Bank of Montreal that ~~provide~~provided for ~~bi-weekly and~~ monthly Mexican peso currency forward contracts for a portion of our estimated peso denominated operating costs. ~~The peso currency forward contracts include settlement dates that began on October 16, 2015 and end on June 15, 2018.~~ Our objective in entering into these 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 ~~April 1, 2018~~March 31, 2019 (thousands of dollars, except average forward contractual exchange rates):

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

	April 1, 2018		July 2, 2017		March 31, 2019		July 1, 2018
Not Designated as Hedging Instruments:
Other Current Assets:
Other Current Assets (Liabilities):
Mexican Peso Forward Contracts	$	434	$	1,121	$	77	$	(39	)

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 Income and consisted of the following (thousands of dollars):

	Three Months Ended					Nine Months Ended						Three Months Ended				Nine Months Ended
	April 1, 2018		April 2, 2017			April 1, 2018			April 2, 2017			March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018
Not Designated as Hedging Instruments:
Realized Gain (Loss)	$	322	$	(692	)	$	981		$	(1,498	)
Realized Gain												$	122	$	322	$	344	$	981
Unrealized Gain (Loss)	$	392	$	2,710		$	(687	)	$	1,147		$	23	$	392	$	116	$	(687	)

The fair value of our cash and cash equivalents, accounts receivable, accounts payable and borrowings under our credit facility approximated book value as of ~~April 1, 2018~~March 31, 2019 and July ~~2, 2017.~~1, 2018. Fair value is defined as the exchange price that would be received for an asset or paid for a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of ~~April 1, 2018~~March 31, 2019 (in thousands):

	Fair Value Inputs						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		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	$	281	$	—	$	—	$	268	$	—	$	—
Mid Cap		279		—		—		281		—		—
Large Cap		543		—		—		565		—		—
International		819		—		—		841		—		—
Fixed Income Funds		855		—		—		889		—		—
Cash and Cash Equivalents								—		4		—
Mexican Peso Forward Contracts		—		434		—		—		77		—
Total Assets at Fair Value	$	2,777	$	434	$	—	$	2,844	$	81	$	—

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 ~~two currencies.~~U.S. dollar and Mexican peso. There were no transfers between Level 1 and Level 2 assets during the nine month period ended ~~April 1, 2018.~~March 31, 2019.

We hold a one-third interest in a joint venture company, VAST LLC, with WITTE and ADAC. 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.

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

	Three Months Ended					Nine Months Ended						Three Months Ended						Nine Months Ended
	April 1, 2018			April 2, 2017		April 1, 2018			April 2, 2017			March 31, 2019			April 1, 2018			March 31, 2019		April 1, 2018
Net Sales	$	44,133		$	30,967	$	127,976		$	89,983		$	35,771		$	44,133		$	123,546	$	127,976
Cost of Goods Sold		34,063			24,776		98,339			71,993			29,303			34,063			98,173		98,339
Gross Profit		10,070			6,191		29,637			17,990			6,468			10,070			25,373		29,637
Engineering, Selling and Administrative Expenses		7,429			5,067		19,775			14,294			7,377			7,429			20,246		19,775
Income From Operations		2,641			1,124		9,862			3,696
(Loss) income From Operations													(909	)		2,641			5,127		9,862
Other Income, net		163			259		949			1,430			882			163			3,186		949
Income before Provision for Income Taxes		2,804			1,383		10,811			5,126
Provision for Income Taxes		683			50		1,367			627
(Loss) Income before (Benefit) Provision for Income Taxes													(27	)		2,804			8,313		10,811
(Benefit) Provision for Income Taxes													(64	)		683			1,061		1,367
Net Income	$	2,121		$	1,333	$	9,444		$	4,499		$	37		$	2,121		$	7,252	$	9,444
STRATTEC’s Share of VAST LLC Net Income	$	707		$	445	$	3,148		$	1,500		$	12		$	707		$	2,417	$	3,148
Intercompany Profit Elimination		(4	)		6		(6	)		(17	)		13			(4	)		10		(6	)
STRATTEC’s Equity Earnings of VAST LLC	$	703		$	451	$	3,142		$	1,483		$	25		$	703		$	2,427	$	3,142

We hold a 51% ownership interest in a joint venture company, SAL LLC, which was formed to introduce a new generation of biometric security products based upon the designs of Actuator Systems LLC, our partner. SAL LLC is considered a variable interest entity based on loans from STRATTEC as discussed below. STRATTEC is not the primary beneficiary and does not control the entity. Accordingly, our investment in SAL LLC is accounted for using the equity method.

SAL LLC maintains a license agreement with Westinghouse allowing SAL LLC to do business as Westinghouse Security. Payments due Westinghouse under the license agreement were guaranteed by STRATTEC. As of April 1, 2018 and July 2, 2017, STRATTEC has a recorded liability equal to the estimated fair value of the future payments due under this guarantee of $250,000, which is payable by June 30, 2018. The liability is included in Accrued Liabilities: Other in the accompanying Condensed Consolidated Balance Sheets.

Loans were made from STRATTEC to SAL LLC in support of operating expenses and working capital needs. The outstanding loan amounts totaled $2.6 million as of ~~April 1, 2018~~March 31, 2019 and July ~~2, 2017.~~1, 2018. As of each balance sheet date, the outstanding loan amount was eliminated against STRATTEC’s Investment in SAL LLC in the preparation of the consolidated financial statements.

Even though we maintain a 51 percent ownership interest in SAL LLC, effective with our fiscal 2015 fourth quarter and thereafter, 100 percent of the funding for SAL LLC was being made by loans from STRATTEC to SAL LLC. Therefore, STRATTEC recognized 100 percent of the losses of SAL LLC up to our committed financial support through Equity Earnings ~~(Loss)~~ of Joint Ventures in the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive Income for all periods presented in this report. ~~The~~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. STRATTEC’s equity loss ~~reported~~of SAL LLC totaled $84,000 and $24,000 for the ~~year to date period~~three and nine month periods ended April 1, 2018, ~~reflects a reduction in our estimated required financial support needed to satisfy the liabilities of SAL LLC.~~

~~The following are summarized statements of operations for SAL LLC (in thousands):~~respectively.

~~Currently, we, along with our joint venture partner, are winding down operating the~~The business of SAL ~~LLC.~~LLC has been wound down to sell only commercial biometric locks.

We have sales of component parts to VAST LLC and SAL 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 and SAL LLC for the periods indicated below (in thousands):

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	April 1, 2018		April 2, 2017		April 1, 2018		April 2, 2017		March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018
Sales to VAST LLC	$	507	$	501	$	2,090	$	1,041	$	878	$	507	$	2,751	$	2,090
Sales to SAL LLC	$	—	$	63	$	182	$	190	$	—	$	—	$	—	$	182
Purchases from VAST LLC	$	29	$	27	$	158	$	129	$	36	$	29	$	164	$	158
Expenses Charged to VAST LLC	$	232	$	341	$	615	$	567	$	317	$	232	$	1,096	$	615
Expenses Charged from VAST LLC	$	176	$	375	$	706	$	724	$	192	$	176	$	628	$	706

STRATTEC has a ~~$30~~$40 million secured revolving credit facility (the “STRATTEC Credit Facility”) with BMO Harris ~~Bank N.A.~~Bank. ADAC-STRATTEC LLC has a $30 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, 2021. The ADAC-STRATTEC Credit Facility borrowing limit decreases to $25 million effective July 1, 2019. ~~The credit facilities both expire August 1, 2020.~~ Borrowings under either credit facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixed ~~assets located in the U.S.~~assets. Interest on borrowings under ~~both credit facilities is~~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. The ADAC-STRATTEC Credit Facility also required that a capital contribution to ADAC-STRATTEC LLC of $6 million collectively from STRATTEC and ADAC be completed by September 30, 2016. This capital contribution was completed as required. STRATTEC’s portion of the capital contribution totaled $3.06 million. As of ~~April 1, 2018,~~March 31, 2019, we were in compliance with all financial covenants required by these credit facilities.

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

	April 1, 2018		July 2, 2017		March 31, 2019		July 1, 2018
STRATTEC Credit Facility	$	23,000	$	16,000	$	19,000	$	23,000
ADAC-STRATTEC Credit Facility	$	25,000	$	14,000		25,000		28,000
					$	44,000	$	51,000

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										Nine Months Ended
	Average Outstanding Borrowings				Weighted Average Interest Rate						Average Outstanding Borrowings				Weighted Average Interest Rate
	April 1, 2018		April 2, 2017		April 1, 2018			April 2, 2017			March 31, 2019		April 1, 2018		March 31, 2019			April 1, 2018
STRATTEC Credit Facility	$	21,223	$	12,416		2.4	%		1.6	%	$	22,212	$	21,223		3.3	%		2.4	%
ADAC-STRATTEC Credit Facility	$	23,989	$	9,821		2.5	%		1.6	%	$	26,286	$	23,989		3.4	%		2.5	%

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 ~~April 1, 2018,~~March 31, 2019, costs of approximately ~~$580,000~~$596,000 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 ~~April 1, 2018~~March 31, 2019 is adequate.

A summary of activity impacting shareholders’ equity for the three and nine month ~~period~~periods ended March 31, 2019 and April 1, 2018 ~~was~~were as follows (in thousands):

Total
Shareholders’
Equity

Equity
Attributable
to STRATTEC

Equity
Attributable
to Non-
Controlling
Interest

Balance, July 2, 2017

$
172,714

$
151,088

$
21,626

Net Income

11,036

8,307

2,729

Dividend Declared

(1,525
)

(1,525
)

—

Dividend Declared – Non-controlling Interests of
   Subsidiaries

(2,217
)

—

(2,217
)
Translation adjustments

1,193

1,213

(20
)
Stock Based Compensation

871

871

—

Pension and Postretirement Adjustment, Net of
   Tax

893

893

—

Employee Stock Purchases and Stock Option
   Exercises

217

217

—

Balance, April 1, 2018

$
183,182

$
161,064

$
22,118

	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 Income		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

	Three Months Ended April 1, 2018
	Total Shareholders’ Equity			Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Non-Controlling Interest
Balance, December 31, 2017	$	175,856		$	72	$	94,603	$	230,234		$	(33,676	)	$	(135,801	)	$	20,424
Net Income		3,932			—		—		2,969			—			—			963
Dividend Declared		(508	)		—		—		(508	)		—			—			—
Dividend Declared – Non- controlling Interests of Subsidiaries		(200	)		—		—		—			—			—			(200	)
Translation adjustments		3,487			—		—		—			2,556			—			931
Stock Based Compensation		250			—		250		—						—			—
Pension and Postretirement Adjustment, Net of Tax		338			—		—		—			338			—			—
Employee Stock Purchases		27			—		16		—						11			—
Balance, April 1, 2018	$	183,182		$	72	$	94,869	$	232,695		$	(30,782	)	$	(135,790	)	$	22,118

	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) Income		(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

	Nine Months Ended April 1, 2018
	Total Shareholders’ Equity			Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Non-Controlling Interest
Balance, July 2, 2017	$	172,714		$	72	$	93,813	$	225,913		$	(32,888	)	$	(135,822	)	$	21,626
Net Income		11,036			—		—		8,307			—			—			2,729
Dividend Declared		(1,525	)		—		—		(1,525	)		—			—			—
Dividend Declared – Non- controlling Interests of Subsidiaries		(2,217	)		—		—		—			—			—			(2,217	)
Translation adjustments		1,193			—		—		—			1,213			—			(20	)
Stock Based Compensation		871			—		871		—			—			—			—
Pension and Postretirement Adjustment, Net of Tax		893			—		—		—			893			—			—
Stock Option Exercises		139			—		139		—			—			—			—
Employee Stock Purchases		78			—		46		—			—			32			—
Balance, April 1, 2018	$	183,182		$	72	$	94,869	$	232,695		$	(30,782	)	$	(135,790	)	$	22,118

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.

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

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

We do not have an enforceable right to payment at any time prior to when the parts are shipped or delivered to the customer. Therefore, we recognize revenue at the point in time we satisfy a performance obligation by transferring control of a part to a customer. Amounts billed to customers related to shipping and handling costs are included in Net Sales in the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive Income. Shipping and handling costs are accounted for as fulfillment costs and are included in Cost of Goods Sold in the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive Income.

Tooling and Pre-Production Engineering Costs Related to Long-Term Supply Arrangements:

We incur pre-production engineering and tooling costs related to the products produced for our customers under long-term supply agreements. Customer reimbursements for tooling and pre-production engineering activities that are part of a long-term supply arrangement are accounted for as a reduction of cost in accordance with ASC 340, Other Assets and Deferred Costs. Pre-production costs related to long-term supply agreements with a contractual guarantee for reimbursement are included in Other Current Assets in the accompanying Condensed Consolidated Balance Sheets. We expense all pre-production engineering costs for which reimbursement is not contractually guaranteed by the customer. All pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for which we do not have a non-cancelable right to use the tooling is also expensed when incurred.

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

We have no material contract assets as of March 31, 2019. 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 31, 2019 was as follows (thousands of dollars):

Net other income (expense) included in the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive 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) credits, 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 to minimize earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. ~~Pension and postretirement plan impacts include the components of net periodic benefit cost other than the service cost component.~~ The Rabbi Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in this Trust are considered trading securities.

The impact of these items for each of the periods presented was as follows (in thousands):

Three Months Ended

Nine Months Ended

April 1,
2018

April 2,
2017

April 1,
2018

April 2,
2017

Foreign Currency Transaction (Loss) Gain

$
(592
)

$
(722
)

$
(173
)

$
1,775

Unrealized Gain (Loss) on Peso Forward Contracts

392

2,710

(687
)

1,147

Realized Gain (Loss) on Peso Forward Contracts

322

(692
)

981

(1,498
)

Pension and Postretirement Plans Credit (Cost)

111

(285
)

335

(855
)

Rabbi Trust (Loss) Gain

(14
)

112

178

227

Other

(61
)

69

(280
)

580

$
158

$
1,192

$
354

$
1,376

	Three Months Ended						Nine Months Ended
	March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018
Foreign Currency Transaction Loss	$	(192	)	$	(592	)	$	(261	)	$	(173	)
Unrealized Gain (Loss) on Peso Forward Contracts		23			392			116			(687	)
Realized Gain on Peso Forward Contracts		122			322			344			981
Pension and Postretirement Plans (Cost) Credit		(27	)		111			(662	)		335
Rabbi Trust Gain (Loss)		257			(14	)		57			178
Other		26			(61	)		108			(280	)
	$	209		$	158		$	(298	)	$	354

Our income tax ~~provisions~~provision for the three and nine month periods ended April 1, 2018 were impacted by the Tax Cuts and Jobs Act of 2017 (“the Act”), which was signed into law on December 22, 2017 with an effective date of January 1, 2018. The Act ~~makes~~made broad and complex changes to the U.S. tax code that ~~will affect~~affected our ~~fiscal year ending July~~tax provision beginning January 1, 2018, including but not limited to (1) a reduction in the U.S. statutory tax rate to 21 percent following its effective date and a change in the measurement of our deferred tax assets and deferred tax liabilities resulting from the reduction in the statutory rate, (2) requiring a one-time transition tax on certain deemed repatriated earnings of foreign subsidiaries that is payable over eight years, and (3) bonus depreciation that will allow for full expensing of qualified property. Section 15 of the Internal Revenue Code stipulates that for our fiscal year ~~ending~~ended July 1, 2018, ~~we will have~~ a blended statutory corporate tax rate of 28%, was applicable, which iswas based on the applicable statutory ~~tax~~ rates before and after the effective date of the Act and the number of days in our fiscal year.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that should not extend beyond one year from the Act’s enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but itthe company is ~~still~~ able to determine a reasonable estimate, ~~of the tax effect,~~ it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act.

In connection with our analysis of the impact of the Act, we ~~have~~ recorded a discrete net tax benefit of $309,000 and $854,000 for the three and nine month periods ended April 1, ~~2018, respectively.~~2018. This net tax benefit primarily ~~consists~~consisted of (1) the impact of the change in measurement of our deferred tax assets and liabilities, (2) the one-time transition tax on non-previously taxed post 1986 accumulated foreign earnings, and (3) the impact of changing our annualized effective tax rate. For various reasons that are discussed more fully below, we ~~have~~did not ~~completed~~complete our accounting for the income tax effects for certain elements of the ~~Act.~~Act as of December 31, 2017. However, we were able to make reasonable estimates of certain effects and, therefore, we recorded provisional adjustments of these elements induring the ~~accompanying condensed financial statements.~~three month period ended December 31, 2017. We identified these items as provisional since our analysis of the items iswas not complete.

The Act ~~reduces~~reduced the corporate tax rate to 21 percent, effective January 1, 2018. For certain of our net deferred tax assets, we ~~have~~ recorded a provisional adjustment to reflect the reduction in the corporate tax rate. While we are able to make a reasonable estimate of the impact of the reduction in the corporate rate, it may be affected by other analyses related to the Act, including, but not limited to, the impact of our calculation of deemed repatriation of deferred foreign income and the impact of full expensing for certain assets.

The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, ~~we must determine,~~ in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries must be determined, as well as the amount of non-U.S. income taxes paid on such earnings. We were able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation in the accompanying condensed financial ~~statements.~~statements for the nine months ended April 1, 2018. However, ~~we are continuing~~as of April 1, 2018, additional information needed to ~~gather additional information~~be gathered to more precisely compute the amount of the Transition Tax.

We ~~must~~were required to assess whether our valuation allowance analyses ~~are~~was affected by various aspects of the Act (e.g., deemed repatriation of deferred foreign income, Global Intangible Low-Taxed Income (“GILTI”) inclusions, and new categories of Foreign Tax Credits). Since, as discussed herein, we ~~have~~ recorded provisional amounts related to certain portions of the Act, any corresponding determination of the need for, or change in, a valuation allowance iswas also provisional.

~~Our~~As of December 30, 2018, we had completed our accounting for ~~the following~~all income tax elements of the Act is incomplete, and we were not yet able to make reasonable estimates of the effects. Therefore, no provisional adjustments were recorded for the following elements in our accompanying condensed financial statements.

Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether we expect to have future U.S. inclusions in taxable income related to GILTI depends on not only our current structure and estimated future results of global operations but also our intent and ability to modify our structure and/or our business, we are not yet able to reasonably estimate the effect of this provision of the Act. ~~Therefore, we have not made any~~Measurement period adjustments related to ~~potential GILTI~~the Act recorded in the nine month period ended March 31, 2019 totaled $372,000.

Our income tax provision for the three and nine month periods ended March 31, 2019 were impacted by a $7.9 million tax benefit resulting from the termination of our qualified, noncontributory defined benefit pension plan as discussed under Pension and Postretirement Benefits below and a reduction in ~~our financial statements and have not made a policy decision regarding whether~~the expected effective tax rate as compared to ~~record deferred taxes on GILTI.~~

the prior year period. Our income tax provision for the nine month period ended ~~April 2, 2017~~March 31, 2019 was also impacted by a discrete benefit of $372,000, which represents measurement period adjustments to the ~~recognition of a $424,000 deferred~~one-time transition tax ~~liability resulting from a change in assertion regarding the permanent reinvestment of earnings from two of our Mexican subsidiaries. Prior to~~on non-previously taxed post 1986 accumulated foreign earnings. The expected annual effective tax rate between our fiscal ~~2017 second quarter,~~2019 and 2018 years decreased from approximately 20.6 percent as April 1, 2018 to approximately 10.7 percent as of March 31, 2019 due to the ~~accumulated undistributed earnings from such subsidiaries were considered to be permanently reinvested~~reduction in ~~Mexico. Accordingly, we did not previously record deferred income taxes on these earnings in our financial statements. During our fiscal 2017 second quarter, the strength of~~ the U.S. ~~dollar to the Mexican peso significantly decreased~~statutory rate between years and changes in the U.S. tax cost associated with a distribution from the Mexican entities as compared to the U.S. tax cost associated with such a distribution in prior periods. Consequently, we changed our assertion regarding the permanent reinvestmenttaxation of earnings from these Mexican subsidiaries. Such earnings were no longer considered permanently reinvested as of January 1, 2017. As a result, we repatriated $15 million from Mexico to the U.S. during the quarter ended January 1, 2017, recognized the deferred tax liability resulting from the change in assertion, and concluded that, with some restrictions and tax implications, the remaining current and future accumulated undistributed earnings of these subsidiaries will be available for repatriation in future periods as deemed necessary.non-U.S. earnings.

Additionally, our income tax provisions for the three and nine ~~month periods~~months ended March 31, 2019 and April 1, 2018 ~~and April 2, 2017~~ were affected by 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.

~~We are currently subject to a U.S. Federal income tax examination related to our fiscal year 2016.~~

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												Three Months Ended
	April 1, 2018						April 2, 2017						March 31, 2019						April 1, 2018
	Net income		Shares		Per-Share Amount		Net income		Shares		Per-Share Amount		Net income		Shares		Per-Share Amount		Net income		Shares		Per-Share Amount
Basic Earnings Per Share	$	2,969		3,634	$	0.82	$	3,482		3,592	$	0.97	$	1,730		3,684	$	0.47	$	2,969		3,634	$	0.82
Stock Option and Restricted Stock Awards		—		74				—		79				—		44				—		74
Diluted Earnings Per Share	$	2,969		3,708	$	0.80	$	3,482		3,671	$	0.95	$	1,730		3,728	$	0.46	$	2,969		3,708	$	0.80

The calculation of earnings per share excluded 41,200 ~~and 14,010~~ share-based payment awards ~~as of~~for the quarters ended March 31, 2019 and April 1, 2018 because their inclusion would have been anti-dilutive. The calculation of earnings (loss) per share excluded 181,867 and 41,200 shares-based payment awards for the nine month periods ended March 31, 2019 and April ~~2, 2017,~~1, 2018, respectively, because their inclusion would have been anti-dilutive.

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 ~~April 1, 2018,~~March 31, 2019, 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 ~~April 1, 2018~~March 31, 2019 were ~~180,864.~~148,239. 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. ~~Prior to August 2016, the restricted~~Restricted stock grants ~~issued vest 3 to 5 years after the date of grant. As of August 2016, restricted stock grants issued~~ 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 ~~April 1, 2018~~March 31, 2019 was as follows:

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				Three Months Ended				Nine Months Ended
	April 1, 2018		April 2, 2017		April 1, 2018		April 2, 2017		March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018
Intrinsic Value of Options Exercised	$	—	$	—	$	110	$	97	$	269	$	—	$	324	$	110
Fair Value of Stock Options Vesting	$	—	$	—	$	315	$	566	$	—	$	—	$	—	$	315

No options were granted during the nine month periods ended March 31, 2019 or April 1, ~~2018 or April 2, 2017.~~2018.

A summary of restricted stock activity under our omnibus stock incentive plan for the nine months ended ~~April 1, 2018~~March 31, 2019 was as follows:

	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Nonvested Balance, July 2, 2017		75,850		$	60.61
Nonvested Balance, July 1, 2018							69,125		$	49.02
Granted		27,950		$	33.30		34,050		$	37.25
Vested		(30,400	)	$	62.99		(37,343	)	$	54.93
Forfeited		(3,875	)	$	52.80		(1,325	)	$	47.17
Nonvested Balance, April 1, 2018		69,525		$	49.02
Nonvested Balance, March 31, 2019							64,507		$	39.44

As of ~~April 1, 2018,~~March 31, 2019, all compensation cost related to outstanding stock options granted under our omnibus stock incentive plan has been recognized. As of ~~April 1, 2018,~~March 31, 2019, there was approximately ~~$1.3~~$1.4 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 1one year. 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.

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. Benefits under the Qualified Pension Plan are based on credited years of service and final average compensation. Our policy is to fund the Qualified Pension Plan with at least the minimum actuarially computed annual contribution required under the Employee Retirement Income Security Act of 1974 (ERISA). Plan assets consist primarily of listed equity and fixed income securities. Effective December 31, 2009, the Board of Directors amended the Qualified Pension Plan to freeze benefit accruals and future eligibility. The Board of Directors has 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 ~~proposed termination date~~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 $32.4 million was recorded during the quarter ended December ~~31, 2017. The termination~~30, 2018. A remaining non-cash compensation expense charge of approximately $8 million is expected to be recorded in future periods when the Qualified Pension Plan is ~~contingent upon (1) receipt of an IRS determination letter that~~fully terminated and the Qualified Pension Plan was qualified upon termination and (2) approval by the Pension Benefit Guaranty Corporation (“PBGC”). The date the termination will be approved and benefits can be distributed will not be known until we receive all required regulatory approvals. We submitted a request to the IRS for a determination letter that the Qualified Pension Plan is qualified upon termination prior to the end of the 2017 calendar year. We are still waiting for receipt of such notification from the IRS. Depending on the time of receipt of IRS and PBGC approval, we intend to distribute Qualified Pension Plan assets prior to the end of the 2018 calendar year. Additionally, in connection with preparing for the termination of the Qualified Pension Plan, we have amended the plan to provide that participants are 100 percent vested in their accrued benefits as of the effective date of the plan termination, to adopt a new standard for disability benefits that will apply when the plan’s assets are distributed due to the termination, to add a lump sum distribution for employees and terminated vested participants who are not in payment status when Qualified Pensionexcess Plan assets are ~~distributed due~~transferred to ~~the termination~~a STRATTEC defined contribution plan and to make certain other conforming amendments to the Qualified Pension Plan to comply with applicable laws that may be required by the IRS or may be deemed necessary or advisable to improve the administration of the Qualified Pension Plan or facilitate its termination and liquidation. We will contribute to the Trust Fund for the Qualified Pension Plan as necessary to ensure there are sufficient assets to provide all Qualified Pension Plan benefits as required by the PBGC. The financial impact of the Qualified Pension Plan termination will be recognized as a settlement of the Qualified Pension Plan liabilities. The settlement date and related financial impact have not yet been determined.subsequently paid out.

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 BMO Harris Bank N.A. 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 $2.8 million at ~~April~~March 31, 2019 and at July 1, 2018 ~~and $2.6 million at July 2, 2017, respectively,~~ 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 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						Pension Benefits					Postretirement Benefits
	Three Months Ended						Three Months Ended						Three Months Ended					Three Months Ended
	April 1, 2018			April 2, 2017			April 1, 2018			April 2, 2017			March 31, 2019		April 1, 2018			March 31, 2019			April 1, 2018
Service cost	$	17		$	13		$	3		$	4		$	15	$	17		$	2		$	3
Interest cost		965			981		11				13			19		965		8				11
Expected return on plan assets		(1,528	)		(1,463	)		—			—			—		(1,528	)		—			—
Amortization of prior service cost (credit)	3				3			(191	)		(191	)		—		3			(109	)		(191	)
Amortization of unrecognized net loss	509				807		119				134			—		509		109				119
Net periodic benefit (credit) cost	$	(34	)	$	341		$	(58	)	$	(40	)
Net periodic benefit cost (credit)													$	34	$	(34	)	$	10		$	(58	)

	Pension Benefits						Postretirement Benefits						Pension Benefits						Postretirement Benefits
	Nine Months Ended						Nine Months Ended						Nine Months Ended						Nine Months Ended
	April 1, 2018			April 2, 2017			April 1, 2018			April 2, 2017			March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018
Service cost	$	50		$	40		$	10		$	11		$	46		$	50		$	8		$	10
Interest cost		2,893			2,943			33			40			2,083			2,893		30				33
Expected return on plan assets		(4,583	)		(4,390	)		—			—			(2,276	)		(4,583	)		—			—
Plan Settlements														(32,434	)		—			—			—
Amortization of prior service cost (credit)	9				9			(573	)		(573	)		—			9			(329	)		(573	)
Amortization of unrecognized net loss		1,526			2,421			359			403		832				1,526		323				359
Net periodic benefit (credit) cost	$	(105	)	$	1,023		$	(171	)	$	(119	)	$	(31,749	)	$	(105	)	$	32		$	(171	)

No voluntary contributions were made to the Qualified Pension Plan during the nine month ~~period~~periods ended March 31, 2019 and April 1, 2018. ~~Voluntary~~No additional contributions ~~of $5 million were~~will be made toin conjunction with the termination of the Qualified Pension ~~Plan during the nine month period ended April 2, 2017. No additional contributions are anticipated to be made during the remainder of fiscal 2018.~~Plan.

The following tables summarize the changes in accumulated other comprehensive loss (“AOCL”) for each period presented (in thousands):

	Nine Months Ended April 1, 2018									Nine Months Ended March 31, 2019
	Foreign Currency Translation Adjustments			Retirement and Postretirement Benefit Plans			Total			Foreign Currency Translation Adjustments			Retirement and Postretirement Benefit Plans			Total
Balance, July 2, 2017	$	14,138		$	18,750		$	32,888
Balance, July 1, 2018										$	15,291		$	18,148		$	33,439
Other comprehensive loss before reclassifications		(1,193	)		—			(1,193	)		146			—			146
Income tax		—			—			—			(185	)		—			(185	)
Net other comprehensive loss before Reclassifications		(1,193	)		—			(1,193	)		(39	)		—			(39	)
Reclassifications:
Pension Termination Settlement (A)											—			(25,668	)		(25,668	)
Prior service credits (A)		—			564			564			—			329			329
Actuarial gains (A)		—			(1,885	)		(1,885	)		—			(1,155	)		(1,155	)
Total reclassifications before tax		—			(1,321	)		(1,321	)		—			(26,494	)		(26,494	)
Income tax		—			428			428			—			6,502			6,502
Net reclassifications		—			(893	)		(893	)		—			(19,992	)		(19,992	)
Other comprehensive loss (income)		(1,193	)		(893	)		(2,086	)
Other comprehensive loss attributable to non- controlling interest		20			—			20
Balance, April 1, 2018	$	12,925		$	17,857		$	30,782
Other comprehensive 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

	Nine Months Ended April 2, 2017									Nine Months Ended April 1, 2018
	Foreign Currency Translation Adjustments			Retirement and Postretirement Benefit Plans			Total			Foreign Currency Translation Adjustments			Retirement and Postretirement Benefit Plans			Total
Balance, July 3, 2016	$	13,155		$	24,518		$	37,673
Balance, July 2, 2017										$	14,138		$	18,750		$	32,888
Other comprehensive loss before reclassifications		1,948			—			1,948			(1,193	)		—			(1,193	)
Income tax		(274	)		—			(274	)		—			—			—
Net other comprehensive loss before Reclassifications		1,674			—			1,674			(1,193	)		—			(1,193	)
Reclassifications:
Prior service credits (A)		—			564			564			—			564			564
Unrecognized net loss (A)		—			(2,825	)		(2,825	)		—			(1,885	)		(1,885	)
Total reclassifications before tax		—			(2,261	)		(2,261	)		—			(1,321	)		(1,321	)
Income tax		—			837			837			—			428			428
Net reclassifications		—			(1,424	)		(1,424	)		—			(893	)		(893	)
Other comprehensive loss (income)		1,674			(1,424	)		250
Other comprehensive income											(1,193	)		(893	)		(2,086	)
Other comprehensive loss attributable to non- controlling interest		(69	)		—			(69	)		20			—			20
Balance, April 2, 2017	$	14,898		$	23,094		$	37,992
Balance, April 1, 2018										$	12,925		$	17,857		$	30,782

The following Management’s Discussion and Analysis should be read in conjunction with STRATTEC SECURITY CORPORATION’s accompanying Condensed Consolidated Financial Statements and Notes thereto and its ~~2017~~2018 Annual Report which was filed with the Securities and Exchange Commission as an exhibit to its Form 10-K on September ~~7, 2017.~~6, 2018. Unless otherwise indicated, all references to quarters and years refer to fiscal quarters and fiscal years.

During the fiscal ~~year~~years ended July 1, 2018 and July 2, 2017, we experienced stronger sales demand for our components from our major North American automotive customers, Fiat Chrysler Automobiles, General Motors Company and Ford Motor Company, as it relates to light trucks and both sport and car based utility vehicles in comparison to passenger cars, which was likely influenced by both lower gas prices and consumer preferences. If gas prices continue to remain ~~low~~flat or slightly higher over the next few years, we anticipate this consumer buying trend will continue. As we look out ~~over the remainder of~~in calendar ~~2018,~~2019, the current sales projections from our third party forecasting service indicate that North American light vehicle production will remain flat or slightly lower than the levels experienced during calendar year 2017. However, our capital spending will remain high through our fiscal year 2018 as we continue to support several new customer program launches, in particular production at our new paint and door handle assembly facility in Leon, Mexico.2018.

Three months ended ~~April 1, 2018~~March 31, 2019 compared to the three months ended April ~~2, 2017~~1, 2018

Net sales to each of our customers or customer groups in the current year quarter and prior year quarter were as follows (in millions):

	Three Months Ended				Three Months Ended
	April 1, 2018		April 2, 2017		March 31, 2019		April 1, 2018
Fiat Chrysler Automobiles	$	31.3	$	28.0	$	29.9	$	31.3
General Motors Company		22.4		21.9		31.0		22.4
Ford Motor Company		18.1		16.8		15.9		18.1
Tier 1 Customers		19.0		19.6		20.1		19.0
Commercial and Other OEM Customers		21.7		15.2		22.8		21.7
Hyundai / Kia		4.3		8.2		8.5		4.3
	$	116.8	$	109.7	$	128.2	$	116.8

Sales to Fiat Chrysler Automobiles ~~increased~~decreased in the current year quarter as compared to the prior year quarter due to ~~a combination of higher vehicle~~lower production volumes ~~and content~~ on the ~~components~~vehicles we supply. The increase in sales to General Motors Company in the current year quarter as compared to the prior year quarter was attributed to higher sales content ~~sales~~ on models for which we supply components, in particular ~~latches. In the prior year quarter we supplied Opel Automotive GmbH as part of our General Motors business. We now supply these~~power access products ~~directly to Opel Automotive, which sales are now included under “Commercial~~ and ~~Other OEM Customers” above.~~latches. Sales to Ford Motor Company ~~increased~~decreased in the current year quarter as compared to the prior year quarter due to a combination of ~~higher~~discontinued models and lower production volumes ~~and content~~ on ~~components~~the vehicles for which we ~~supply.~~supply components. Sales to Tier 1 Customers ~~decreased~~increased in the current year quarter as compared to the prior year quarter due to ~~lower~~higher sales onof our ~~driver controls~~door handle and component products. Sales to Commercial and Other OEM Customers during the current year quarter increased in comparison to the prior year quarter due to ~~new~~increases in sales related to painted door handle programs ~~at Honda of America Manufacturing, Inc. and~~for Volkswagen. These ~~customers,~~Commercial and Other OEM Customers, along with our Tier 1 Customers, represent purchasers of vehicle access control products, such as latches, fobs, driver controls and door handles ~~and related components,~~ that we have developed in recent years to complement our historic core business of locks and keys. The ~~decreased~~increase in sales to Hyundai / Kia in the current year quarter as compared to the prior year quarter ~~were~~is due to ~~lower~~higher levels of production ~~on vehicles~~of the Kia Sedona minivan for which we supply primarily power sliding door components.

Direct material costs are the most significant component of our cost of goods sold and comprised ~~$65.6~~$74.5 million or ~~64.6~~66.2 percent of our cost of goods sold in the current year quarter compared to ~~$61.7~~$65.6 million or ~~67.0~~64.5 percent of our cost of goods sold in the prior year quarter. The increase in our direct material costs between these quarters of ~~$3.9~~$8.9 million or ~~6.3~~13.6 percent was due to increased sales volumes in the current year quarter as compared to the prior year quarter. The ~~reduction~~increase in our direct material costs as a percentage of our cost of goods sold in the current year quarter as compared to the prior year quarter was due to increased ~~scrap and sorting~~nonconforming costs ~~in our prior year quarter~~ resulting from internal manufacturing process quality issues ~~as well as an increase in the remaining components of our cost of goods sold~~ in the current ~~year~~ quarter as compared to the prior year quarter ~~as discussed below.~~and an increase in sales of products for certain electrical and latch programs in the current year quarter over the prior year quarter, for which the direct material content represents a more significant portion of the total cost of the product. This trend is expected to continue for the remainder of our fiscal year 2019.

The remaining components of our cost of goods sold consist of labor and overhead costs which increased ~~$5.6~~$2.0 million or ~~18.4~~5.6 percent to ~~$36.0~~$38.0 million in the current year quarter from ~~$30.4~~$36.0 million in the prior year quarter as the variable portion of these costs increased due to the increase in sales volumes between the three month periods. Additionally, an increase in the Mexican minimum wage for our Mexican workforce effective January 1, 2019 and higher than expected production costs at our door handle paint and assembly facility in Leon, Mexico, increased costs in the current year quarter as compared to the prior year ~~quarter~~quarter. These cost increases were partially offset by a favorable product sales mix, which included ~~a continuation from our previous quarters of higher production and expediting costs associated with new product launches occurring in fiscal year 2018, in particular in connection with the start-up~~increased sales of our ~~new~~ door handle ~~paint facility in Leon, Mexico~~ and ~~due to an unfavorable~~exterior trim and power access products, and the impact of a favorable Mexican peso to U.S. dollar exchange rate affecting our operations in Mexico. The U.S. dollar value of our Mexican operations ~~increased~~was favorably impacted by approximately ~~$826,000~~$472,000 in the current year quarter as compared to the prior year quarter due to ~~an unfavorable~~a favorable Mexican peso to U.S. dollar exchange rate between these quarterly periods. The average U.S. dollar / Mexican peso exchange rate ~~decreased~~increased to approximately ~~18.75~~19.28 pesos to the dollar in the current year quarter from approximately ~~19.86~~18.75 pesos to the dollar in the prior year quarter.

	Three Months Ended						Three Months Ended
	April 1, 2018			April 2, 2017			March 31, 2019			April 1, 2018
Gross Profit (in millions)	$	15.2		$	17.6		$	15.7		$	15.2
Gross Profit as a percentage of net sales		13.0	%		16.0	%		12.2	%		13.0	%

~~The decrease in gross~~Gross profit ~~and gross profit as a percentage of net sales~~dollars increased in the current year quarter as compared to the prior year quarter ~~were attributed to~~as a result of an increase in sales partially offset by an increase in cost of goods sold, as discussed above. Gross profit as a percentage of net sales decreased between periods. The current quarter gross profit as a percentage of net sales was negatively impacted by an increase in the Mexican minimum wage and higher than expected ~~start-up~~ production costs at our door handle paint and ~~expediting costs associated with new product launches occurring during the current year quarter, in particular in connection with the opening of our new paint~~assembly facility in Leon, Mexico, ~~to meet certain customer schedules~~ as well as anlower gross profit margins on products associated with certain new electrical, latch and lockset programs, which were implemented during the twelve month period ending March 31, 2019. The lower gross margins associated with these programs is the result of competitive pricing. These unfavorable impacts were partially offset by the impact of a favorable product sales mix and a favorable Mexican ~~Peso~~peso to U.S. ~~Dollar~~dollar exchange rate ~~affecting~~impacting the ~~cost~~U.S. dollar value of our Mexican operations, ~~all~~ as discussed above.

Engineering, selling and administrative expenses in the current year quarter and prior year quarter were as follows:

	Three Months Ended						Three Months Ended
	April 1, 2018			April 2, 2017			March 31, 2019			April 1, 2018
Expenses (in millions)	$	10.8		$	11.8		$	11.7		$	10.8
Expenses as a percentage of net sales		9.3	%		10.7	%		9.1	%		9.3	%

Engineering, selling and administrative expenses decreased during the current year quarter as compared to the prior year quarter. The current year quarter as compared to the prior year quarter included a reduction in new product program development costs for which we utilized third party vendors for a portion of the development work.

Income from operations was $4.4 million in the current year quarter compared to $5.8 million in the prior year quarter. This reduction was the result of the quarter over quarter reduction in the gross profit margin, partially offset by a reduction in engineering, selling and administrative expenses in the current year quarter ~~as compared~~increased in comparison to the prior year quarter as a result of higher outside expenditures on new product development costs associated with utilizing third party vendors for a portion of our development work. The expenses decreased as a percentage of net sales due to the increase in sales between quarters as previously discussed.

Income from operations was $4.0 million in the current year quarter compared to $4.4 million in the prior year quarter as an increase in engineering, selling and administrative expenses was partially offset by an increase in gross margin dollars, all as discussed above.

The equity earnings (loss) of joint ventures was comprised of the following in the current year quarter and prior year quarter (in thousands):

	Three Months Ended						Three Months Ended
	April 1, 2018			April 2, 2017			March 31, 2019		April 1, 2018
Vehicle Access Systems Technology LLC	$	703		$	451		$	25	$	703
STRATTEC Advanced Logic, LLC		(84	)		(614	)		41		(84	)
	$	619		$	(163	)	$	66	$	619

~~Our~~Lower profitability of our Vehicle Access Systems Technology LLC (“VAST LLC”) joint ventures is due to lower net sales and higher development costs for new programs at our VAST China operation and start-up costs for our new plant operation in ~~China and India continue to report profitable operating results while our~~Jingzhou, China. Our VAST LLC joint venture in Brazil continues to report losses due to our limited amount of business in that region. The increase in equity earnings of VAST LLC relates to higher sales and profitability at our VAST China operations. STRATTEC is not the primary beneficiary and does not control STRATTEC Advanced Logic, LLC (“SAL LLC”). Accordingly, our investment in SAL LLC is accounted for using the equity method. During all periods presented in this report, 100 percent of the funding for SAL LLC was being made through loans from STRATTEC to SAL LLC. Therefore, during all periods presented in this report, even though STRATTEC maintains a 51 percent ownership interest in SAL LLC, STRATTEC recognized 100 percent of the losses of SAL LLC up to our committed financial support. Currently, we, along with our joint venture partner, are winding down operating the business of SAL LLC.

~~Included in Other Income, net in the current year quarter and prior year quarter were the following items (in thousands):~~

Foreign currency transaction losses during the current year and prior year quarters resulted from activity associated with foreign denominated assets held by our Mexican subsidiaries. We entered into the Mexican peso currency forward contracts to minimize earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. Unrealized gains on the peso forward contracts recognized as a result of mark-to-market adjustments as of April 1, 2018 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. Pension and postretirement plan impacts include the components of net periodic benefit cost other than the service cost component. Our Rabbi Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in the Trust are considered trading securities.

Our income tax provision for the three month period ended April 1, 2018 was impacted by the Tax Cuts and Jobs Act of 2017 (“the Act”), which was signed into law on December 22, 2017 with an effective date of January 1, 2018. The Act makes broad and complex changes to the U.S. tax code that will affect our fiscal year ending July 1, 2018, including but not limited to (1) a reduction in the U.S. statutory tax rate to 21 percent following its effective date and a change in the measurement of our deferred tax assets and deferred tax liabilities resulting from the reduction in the statutory rate, (2) requiring a one-time transition tax on certain repatriated earnings of foreign subsidiaries that is payable over eight years, and (3) bonus depreciation that will allow for full expensing of qualified property. Section 15 of the Internal Revenue Code stipulates that for our fiscal year ending July 1, 2018, we will have a blended statutory corporate tax rate of 28%, which is based on the applicable statutory tax rates before and after the Act and the number of days in our fiscal year.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that should not extend beyond one year from the Act’s enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but it is still able to determine a reasonable estimate of the tax effect, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act.

In connection with our analysis of the impact of the Act, we have recorded a discrete net tax benefit of $309,000 for the three month period ended April 1, 2018. This net tax benefit primarily consists of (1) the impact of the change in measurement of our deferred tax assets and liabilities, (2) the one-time transition tax on non-previously taxed post 1986 accumulated foreign earnings, and (3) the impact of changing our annualized effective tax rate. For various reasons that are discussed more fully below, we have not completed our accounting for the income tax effects for certain elements of the Act. However, we were able to make reasonable estimates of certain effects and, therefore, we recorded provisional adjustments of these elements in the accompanying condensed financial statements. We identified these items as provisional since our analysis of the items is not complete.

~~The Act reduces the corporate tax rate to 21 percent, effective January 1, 2018.~~ For certain of our net deferred tax assets, we have recorded a provisional adjustment to reflect the reduction in the corporate tax rate. While we are able to make a reasonable estimate of the impact of the reduction in the corporate rate, it may be affected by other analyses related to the Act, including, but not limited to, the impact of our calculation of deemed repatriation of deferred foreign income and the impact of full expensing for certain assets.

The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We were able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation in the accompanying condensed financial statements. However, we are continuing to gather additional information to more precisely compute the amount of the Transition Tax.

We must assess whether our valuation allowance analyses are affected by various aspects of the Act (e.g., deemed repatriation of deferred foreign income, Global Intangible Low-Taxed Income (“GILTI”) inclusions, and new categories of Foreign Tax Credits). Since, as discussed herein, we have recorded provisional amounts related to certain portions of the Act, any corresponding determination of the need for or change in a valuation allowance is also provisional.

Our accounting for the following elements of the Act is incomplete, and we were not yet able to make reasonable estimates of the effects. Therefore, no provisional adjustments were recorded for the following elements in our accompanying condensed financial statements.

Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether we expect to have future U.S. inclusions in taxable income related to GILTI depends on not only our current structure and estimated future results of global operations but also our intent and ability to modify our structure and/or our business, we are not yet able to reasonably estimate the effect of this provision of the Act. Therefore, we have not made any adjustments related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI.

Our income tax provision for the three month period ended April 2, 2017 was impacted by the recognition of a $424,000 deferred tax liability resulting from a change in assertion regarding the permanent reinvestment of earnings from two of our Mexican subsidiaries. Prior to our fiscal 2017 second quarter, the accumulated undistributed earnings from such subsidiaries were considered to be permanently reinvested in Mexico. Accordingly, we did not previously record deferred income taxes on these earnings in our financial statements. During our fiscal 2017 second quarter, the strength of the U.S. dollar to the Mexican peso significantly decreased the U.S. tax cost associated with a distribution from the Mexican entities as compared to the U.S. tax cost associated with such a distribution in prior periods. Consequently, we changed our assertion regarding the permanent reinvestment of earnings from these Mexican subsidiaries. Such earnings were no longer considered permanently reinvested as of January 1, 2017. As a result, we repatriated $15 million from Mexico to the U.S. during the quarter ended January 1, 2017, recognized the deferred tax liability resulting from the change in assertion, and concluded that, with some restrictions and tax implications, the remaining current and future accumulated undistributed earnings of these subsidiaries will be available for repatriation in future periods as deemed necessary.

Additionally, our income tax provisions for the three month periods ended April 1, 2018 and April 2, 2017 were affected by 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.

~~We are currently subject to a U.S. Federal income tax examination related to our fiscal year 2016.~~

~~Nine months ended April 1, 2018 compared to the nine months ended April 2, 2017~~

~~Net sales to each of our customers or customer groups in the current year period and prior year period were as follows (in millions):~~

Sales to Fiat Chrysler Automobiles increased in the current year period as compared to the prior year period due to a combination of higher vehicle production volumes and content on the components we supply, partially offset by reduced sales during the six months ended December 31, 2017 as a result of the discontinuation of the Chrysler 200 in December 2016. The decrease in sales to General Motors Company in the current year period as compared to the prior year period was attributed to lower production volumes and content on products we supplied to Opel Automotive GmbH as part of our General Motors business in the prior year period partially offset by increased sales attributed to higher content sales on models for which we supply components, in particular latches. We now supply products directly to Opel Automotive, which are now included under “Commercial and Other OEM Customers” above. The increase in sales to Ford Motor Company in the current year period as compared to the prior year period was due to a combination of higher production volumes and content on components we supply. Sales to Tier 1 Customers decreased in the current year period as compared to the prior year period due to lower sales on our driver controls products. Sales to Commercial and Other OEM Customers during the current year period increased in comparison to the prior year period due to new programs at Honda of America Manufacturing, Inc. and Volkswagen. These customers, along with our Tier 1 Customers, represent purchasers of vehicle access control products, such as latches, fobs, driver controls and door handles and related components, that we have developed in recent years to complement our historic core business of locks and keys. The decreased sales to Hyundai / Kia in the current year period as compared to the prior year period were due to lower levels of production on vehicles for which we supply components.

Direct material costs are the most significant component of our cost of goods sold and comprised $179.9 million or 64.0 percent of our cost of goods sold in the current year period compared to $174.0 million or 66.2 percent of our cost of goods sold in the prior year period. The increase in our direct material costs between these periods of $5.9 million or 3.4 percent was due to increased sales volumes in the current year period as compared to the prior year period. The reduction in our direct material costs as a percentage of our cost of goods sold in the current year period as compared to the prior year period was due to increased scrap and sorting costs in our prior year period resulting from internal manufacturing process quality issues as well as an increase in the remaining components of our cost of goods sold in the current year period as compared to the prior year period as discussed below.

The remaining components of our cost of goods sold consist of labor and overhead costs which increased $12.5 million or 14.1 percent to $101.3 million in the current year period from $88.8 million in the prior year period as the variable portion of these costs increased due to the increase in sales volumes between the nine month periods. Additionally, the current year period as compared to the prior year period included a continuation from our previous quarters of higher production and expediting costs associated with new product launches occurring in fiscal year 2018, in particular in connection with the start-up of our new door handle paint facility in Leon, Mexico and due to an unfavorable Mexican peso to U.S. dollar exchange rate affecting our operations in Mexico. The U.S. dollar value of our Mexican operations increased approximately $2.0 million in the current year period as compared to the prior year period due to an unfavorable Mexican peso to U.S. dollar exchange rate between these nine month periods. The average U.S. dollar / Mexican peso exchange rate decreased to approximately 18.54 pesos to the dollar in the current year period from approximately 19.49 pesos to the dollar in the prior year period.

The decrease in gross profit and gross profit as a percentage of net sales in the current year period as compared to the prior year period were attributed to higher than expected start-up production and expediting costs associated with new product launches occurring during the current year period, in particular in connection with the opening of our new paint facility in Leon, Mexico, to meet certain customer schedules as well as an unfavorable Mexican Peso to U.S. Dollar exchange rate affecting the cost of our Mexican operations, all as discussed above.

~~Engineering, selling and administrative expenses in the current year period and prior year period were as follows:~~

Engineering, selling and administrative expenses decreased during the current year period as compared to the prior year period. The current year period as compared to the prior year period included a reduction in new product program development costs for which we utilized third party vendors for a portion of the development work.

Income from operations in the current year period was $10.3 million compared to $11.8 million in the prior year period. The period over period reduction in the gross profit margin was partially offset by a reduction in engineering, selling and administrative expenses in the current year period as compared to the prior year period, all as discussed above.

~~The equity earnings of joint ventures was comprised of the following in the current year period and prior year period (in thousands):~~

Our Vehicle Access Systems Technology LLC (“VAST LLC”) joint ventures in China and India continue to report profitable operating results while our joint venture in Brazil continues to report losses due to our limited amount of business in that region. The increase in equity earnings of VAST LLC relates primarily to higher sales and profitability at our VAST China operations. STRATTEC is not the primary beneficiary and does not control STRATTEC Advanced Logic, LLC (“SAL LLC”). Accordingly, our investment in SAL LLC is accounted for using the equity method. During all periods presented in this report, 100 percent of the funding for SAL LLC was being made through loans from STRATTEC to SAL LLC. Therefore, during all periods presented in this report, even though STRATTEC maintains a 51 percent ownership interest in SAL LLC, STRATTEC recognized 100 percent of the losses of SAL LLC up to our committed financial support. The equity earnings reported for the nine month period ended April 1, 2018 reflect a reduction in our estimated required financial support needed to satisfy the liabilities of SAL LLC. Currently, we, along with our joint venture partner, are winding down operating the business of SAL ~~LLC.~~LLC has been wound down to sell only commercial biometric locks.

Included in Other Income (Expense), net in the current year ~~period~~quarter and prior year ~~period~~quarter were the following items (in thousands):

Foreign currency transaction losses ~~and gains~~ during the current year quarter and prior year ~~periods~~quarter resulted from activity associated with foreign denominated assets held by our Mexican subsidiaries. We entered into the Mexican peso currency forward contracts 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 ~~April 1, 2018~~March 31, 2019 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. Pension and postretirement plan impacts include the components of net periodic benefit cost other than the service cost component. Our Rabbi Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in the Trust are considered trading securities.

Our income tax provision for the ~~nine~~three month period ended April 1, 2018 was impacted by the Tax Cuts and Jobs Act of 2017 (“the Act”), which was signed into law on December 22, 2017 with an effective date of January 1, 2018. The Act ~~makes~~made broad and complex changes to the U.S. tax code that ~~will affect~~affected our ~~fiscal year ending July~~tax provision beginning January 1, 2018, including but not limited to (1) a reduction in the U.S. statutory tax rate to 21 percent following its effective date and a change in the measurement of our deferred tax assets and deferred tax liabilities resulting from the reduction in the statutory rate, (2) requiring a one-time transition tax on certain deemed repatriated earnings of foreign subsidiaries that is payable over eight years, and (3) bonus depreciation that will allow for full expensing of qualified property. Section 15 of the Internal Revenue Code stipulates that for our fiscal year ~~ending~~ended July 1, 2018, ~~we will have~~ a blended statutory corporate tax rate of 28%, was applicable, which iswas based on the applicable statutory ~~tax~~ rates before and after the effective date of the Act and the number of days in our fiscal year.

In connection with our analysis of the impact of the Act, we ~~have~~ recorded a discrete net tax benefit of ~~$854,000~~$309,000 for the ~~nine~~three month period ended April 1, 2018. This net tax benefit primarily ~~consists~~consisted of (1) the impact of the change in measurement of our deferred tax assets and liabilities, (2) the one-time transition tax on non-previously taxed post 1986 accumulated foreign earnings, and (3) the impact of changing our annualized effective tax rate. For various reasons that are discussed more fully below, we ~~have~~did not ~~completed~~complete our accounting for the income tax effects for certain elements of the ~~Act.~~Act as of December 31, 2017. However, we were able to make reasonable estimates of certain effects and, therefore, we recorded provisional adjustments of these elements induring the ~~accompanying condensed financial statements.~~three month period ended December 31, 2017. We identified these items as provisional since our analysis of the items iswas not complete.

The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, ~~we must determine,~~ in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries must be determined, as well as the amount of non-U.S. income taxes paid on such earnings. We were able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation in the accompanying condensed financial ~~statements.~~statements for the three months ended December 31, 2017. However, ~~we are continuing~~as of December 31, 2017, additional information needed to ~~gather additional information~~be gathered to more precisely compute the amount of the Transition Tax.

only our current structure and estimated future results of global operations but also our intent and ability to modify our structure and/or our business, we are not yet able to reasonably estimate the effect of this provision of the Act. Therefore, we have not made anyperiod adjustments related to ~~potential GILTI tax~~the Act were recorded in ~~our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI.~~the three month period ended March 31, 2019.

Our income tax provision for the ~~nine~~three month ~~period~~periods ended ~~April 2, 2017~~March 31, 2019 was impacted by a reduction in the ~~recognition of a $424,000 deferred~~expected effective tax liability resulting from a change in assertion regarding the permanent reinvestment of earnings from two of our Mexican subsidiaries. Prior to our fiscal 2017 second quarter, the accumulated undistributed earnings from such subsidiaries were considered to be permanently reinvested in Mexico. Accordingly, we did not previously record deferred income taxes on these earnings in our financial statements. During our fiscal 2017 second quarter, the strength of the U.S. dollar to the Mexican peso significantly decreased the U.S. tax cost associated with a distribution from the Mexican entitiesrate as compared to the ~~U.S.~~prior year period. The expected annual effective tax ~~cost associated with such a distribution in prior periods. Consequently, we changed~~rate between our ~~assertion regarding the permanent reinvestment of earnings from these Mexican subsidiaries. Such earnings were no longer considered permanently reinvested~~fiscal 2019 and 2018 years decreased to approximately 10.7 percent as of ~~January 1, 2017. As a result, we repatriated $15 million~~March 2019 from ~~Mexico~~approximately 20.6 percent as of March 2018 due to the reduction in the U.S. ~~during~~statutory rate between years and changes in the quarter ended January 1, 2017, recognized the deferred tax liability resulting from the change in assertion, and concluded that, with some restrictions and tax implications, the remaining current and future accumulated undistributed earningsU.S. taxation of ~~these subsidiaries will be available for repatriation in future periods as deemed necessary.~~non-U.S. earnings.

Additionally, our income tax provisions for the ~~nine~~three month periods ended March 31, 2019 and April 1, 2018 ~~and April 2, 2017~~ were affected by 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.

Nine months ended March 31, 2019 compared to the nine months ended April 1, 2018

Net sales to each of our customers or customer groups in the current year period and prior year period were as follows (in millions):

Sales to Fiat Chrysler Automobiles increased in the current year period as compared to the prior year period due to higher product content on the components we supply on certain vehicles, in particular the Ram pickup truck. The increase in sales to General Motors Company in the current year period as compared to the prior year period was attributed to higher vehicle production volumes and content on models for which we supply components, in particular power access products and latches. Sales to Ford Motor Company decreased in the current year period as compared to the prior year period due to a combination of discontinued models and lower production volumes on the vehicles for which we supply components. Sales to Tier 1 Customers increased in the current year period as compared to the prior year period due to higher production volumes of our door handle and component products. Sales to Commercial and Other OEM Customers during the current year period increased in comparison to the prior year period due to new door handle customer programs at Honda of America Manufacturing, Inc. and Volkswagen. These Commercial and Other OEM Customers, along with our Tier 1 Customers, represent purchasers of vehicle access control products, such as latches, fobs, driver controls and door handles that we have developed in recent years to complement our historic core business of locks and keys. The increase in sales to Hyundai / Kia in the current year period as compared to the prior year period was due to higher levels of production of the Kia Sedona minivan for which we supply primarily power sliding door components.

Direct material costs are the most significant component of our cost of goods sold and comprised $207.7 million or 66.0 percent of our cost of goods sold in the current year period compared to $179.9 million or 64.0 percent of our cost of goods sold in the prior year period. The increase in our direct material costs between these periods of $27.8 million or 15.5 percent was due to increased sales volumes in the current year period as compared to the prior year period. The increase in our direct material costs as a percentage of our cost of goods sold in the current year period as compared to the prior year period was due to increased nonconforming costs resulting from internal manufacturing process quality issues incurred in the current year period as compared to the prior year period and an increase in sales of products for certain electrical and latch programs in the current year period over the prior year period, for which the direct material content represents a more significant portion of the total cost of the product. This trend is expected to continue for the remainder of our fiscal year 2019.

The remaining components of our cost of goods sold consist of labor and overhead costs which increased $5.7 million or 5.6 percent to $107.0 million in the current year period from $101.3 million in the prior year period as the variable portion of these costs increased due to the increase in sales volumes between the nine month periods. Additionally, an increase in the Mexican minimum wage for our Mexican workforce effective January 1, 2019, higher expediting costs associated with new product launches occurring during the current year period to meet certain customer schedules, in particular in connection with our door handle paint and assembly facility in Leon, Mexico, and higher than expected production costs at our door handle paint and assembly facility in Leon, Mexico, increased costs in the current year period as compared to the prior year period. These cost increases were partially offset by a favorable product sales mix, which included increased sales of our door handle and exterior trim and power access products, and the impact of a favorable Mexican peso to U.S. ~~Federal income tax examination~~dollar exchange rate affecting our operations in Mexico. The U.S. dollar value of our Mexican operations was favorably impacted by approximately $2.1 million in the current year period as compared to the prior year period due to a favorable Mexican peso to U.S. dollar exchange rate between these year to date periods. The average U.S. dollar / Mexican peso exchange rate increased to approximately 19.36 pesos to the dollar in the current year period from approximately 18.54 pesos to the dollar in the prior year period.

The increase in gross profit dollars in the current year period as compared to the prior year period was attributed to the increase in sales, partially offset by the increase in cost of goods sold as discussed above. Gross profit as a percentage of net sales decreased between periods. The current year period gross profit as a percentage of net sales was negatively impacted by customer price reductions, an increase in the Mexican minimum wage, higher expediting costs associated with new product launches, and higher than expected production costs at our door handle paint and assembly facility in Leon, Mexico, as well as lower gross profit margins on products associated with certain new electrical, latch and lockset programs, which were implemented during the twelve month period ending March 31, 2019. The lower gross margins associated with these programs is the result of competitive pricing. These unfavorable impacts were partially offset by the impact of a favorable product sales mix and a favorable Mexican peso to U.S. dollar exchange rate impacting the U.S. dollar value of our Mexican operations, as discussed above.

Engineering, selling and administrative expenses in the current year period and prior year period were as follows:

Engineering, selling and administrative expenses increased during the current year period as compared to the prior year period. The current year period as compared to the prior year period included an increase in outside expenditures on new product development costs associated with utilizing third party vendors for a portion of our development work and an increase in engineering costs related to our ADAC-STRATTEC LLC door handle and exterior trim products. The expenses decreased as a percentage of net sales due to the increase in sales between quarters as previously discussed.

Income from operations was $10.4 million in the current year period compared to $10.3 million as the period over period increase in the gross profit margin was offset by an increase in engineering, selling and administrative expenses in the current year period as compared to the prior year period, all as discussed above.

The equity earnings (loss) of joint ventures was comprised of the following in the current year period and prior year period (in thousands):

Our VAST LLC joint ventures in China and India continue to report profitable operating results while our joint venture in Brazil continues to report losses due to our limited amount of business in that region. STRATTEC is not the primary beneficiary and does not control SAL LLC. Accordingly, our investment in SAL LLC is accounted for using the equity method. During all periods presented in this report, 100 percent of the funding for SAL LLC was being made through loans from STRATTEC to SAL LLC. Therefore, during all periods presented in this report, even though STRATTEC maintains a 51 percent ownership interest in SAL LLC, STRATTEC recognized 100 percent of the losses of SAL LLC up to our committed financial support. The business of SAL LLC has been wound down to sell only commercial biometric locks.

During the quarter ended December 30, 2018, we completed a substantial portion of terminating our qualified pension plan that was frozen on December 31, 2009. As a result of the termination, a non-cash pre-tax pension settlement charge of $32.4 million was recorded during the current year period. A remaining non-cash compensation expense charge of approximately $8 million is expected to be recorded in future periods when the Qualified Pension Plan is fully terminated and the excess Plan assets are transferred to a STRATTEC defined contribution plan and subsequently paid out.

Included in Other Income (Expense), net in the current year period and prior year period were the following items (in thousands):

Foreign currency transaction losses during the current year period and prior year period resulted from activity associated with foreign denominated assets held by our Mexican subsidiaries. We entered into the Mexican peso currency forward contracts 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 31, 2019 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. Pension and postretirement plan impacts include the components of net periodic benefit cost other than the service cost component. Our Rabbi Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in the Trust are considered trading securities.

Our income tax provision for the nine month periods ended April 1, 2018 was impacted by the Tax Cuts and Jobs Act of 2017 (“the Act”), which was signed into law on December 22, 2017 with an effective date of January 1, 2018. The Act made broad and complex changes to the U.S. tax code that affected our tax provision beginning January 1, 2018, including but not limited to (1) a reduction in the U.S. statutory tax rate to 21 percent following its effective date and a change in the measurement of our deferred tax assets and deferred tax liabilities resulting from the reduction in the statutory rate, (2) requiring a one-time transition tax on certain deemed repatriated earnings of foreign subsidiaries that is payable over eight years, and (3) bonus depreciation that will allow for full expensing of qualified property. Section 15 of the Internal Revenue Code stipulates that for our fiscal year ~~2016.~~ended July 1, 2018, a blended statutory corporate tax rate of 28% was applicable, which was based on the applicable statutory rates before and after the effective date of the Act and the number of days in our fiscal year.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that should not extend beyond one year from the Act’s enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but the company is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act.

In connection with our analysis of the impact of the Act, we recorded a discrete net tax benefit of $854,000 for the nine month period ended April 1, 2018. This net tax benefit primarily consisted of (1) the impact of the change in measurement of our deferred tax assets and liabilities, (2) the one-time transition tax on non-previously taxed post 1986 accumulated foreign earnings, and (3) the impact of changing our annualized effective tax rate. For various reasons that are discussed more fully below, we did not complete our accounting for the income tax effects for certain elements of the Act as of April 1, 2018. However, we were able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments of these elements during the nine month period ended April 1, 2018. We identified these items as provisional since our analysis of the items was not complete.

The Act reduced the corporate tax rate to 21 percent, effective January 1, 2018. For certain of our net deferred tax assets, we recorded a provisional adjustment to reflect the reduction in the corporate tax rate. While we are able to make a reasonable estimate of the impact of the reduction in the corporate rate, it may be affected by other analyses related to the Act, including, but not limited to, the impact of our calculation of deemed repatriation of deferred foreign income and the impact of full expensing for certain assets.

The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries must be determined, as well as the amount of non-U.S. income taxes paid on such earnings. We were able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation in the accompanying condensed financial statements for the nine months ended April 1, 2018. However, as of April 1, 2018, additional information needed to be gathered to more precisely compute the amount of the Transition Tax.

We were required to assess whether our valuation allowance analyses was affected by various aspects of the Act (e.g., deemed repatriation of deferred foreign income, Global Intangible Low-Taxed Income (“GILTI”) inclusions, and new categories of Foreign Tax Credits). Since, as discussed herein, we recorded provisional amounts related to certain portions of the Act, any corresponding determination of the need for, or change in, a valuation allowance was also provisional.

As of December 30, 2018, we had completed our accounting for all income tax elements of the Act. Measurement period adjustments related to the Act recorded in the nine month period ended March 31, 2019 totaled $372,000.

Our income tax provision for the nine month period ended March 31, 2019 was impacted by a $7.9 million tax benefit resulting from the termination of our qualified, noncontributory defined benefit pension plan as discussed under Pension and Postretirement Benefits below and a reduction in the expected effective tax rate as compared to the prior year period. Our income tax provision for the nine month period ended March 31, 2019 was also impacted by a discrete benefit of $372,000, which represents measurement period adjustments to the one-time transition tax on non-previously taxed post 1986 accumulated foreign earnings. The expected annual effective tax rate between our fiscal 2019 and 2018 years decreased to approximately 10.7 percent as of March 2019 from approximately 20.6 percent as March 2018 due to the reduction in the U.S. statutory rate between years and changes in the U.S. taxation of non-U.S. earnings.

Additionally, our income tax provisions for the nine month periods ended March 31, 2019 and April 1, 2018 were affected by 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.

Our primary source of cash flow is from our major customers, which include Fiat Chrysler Automobiles, General Motors Company and Ford Motor Company. As of the date of filing this Form 10-Q with the Securities and Exchange Commission, all of our major customers are making payments on their outstanding accounts receivable in accordance with the payment terms included on their purchase orders. A summary of our outstanding receivable balances from our major customers as of ~~April 1, 2018~~March 31, 2019 was as follows (in millions):

Fiat Chrysler Automobiles	$	20.8	$	18.3
General Motors Company	$	14.8	$	27.7
Ford Motor Company	$	9.7	$	9.8

We earn a portion of our operating income in Mexico. As of ~~April 1, 2018, $1.5~~March 31, 2019, $2.8 million of our ~~$7.0~~$9.2 million cash and cash equivalents balance was held in Mexico. These funds are available for repatriation as deemed necessary.

	Nine Months Ended						Nine Months Ended
	April 1, 2018			April 2, 2017			March 31, 2019			April 1, 2018
Cash Flows from (in millions):
Operating Activities	$	3.7		$	12.2		$	24.7		$	3.7
Investing Activities	$	(19.2	)	$	(28.7	)	$	(13.7	)	$	(19.2	)
Financing Activities	$	14.5		$	5.9		$	(9.7	)	$	14.5

The change in operating cash flow between periods was impacted by improvement in our overall financial results and a ~~larger increase~~reduction in working capital requirements in the current year period as compared to an increase in working capital requirements in the prior year period. The period over period ~~increase~~decrease in net working capital requirements totaled ~~$11.4~~$16.4 million. The ~~increase~~pension settlement impact during the period was a noncash charge, which had no impact on cash flow during the period. The decrease in our working capital requirements between periods was made up of the following working capital changes between periods (in millions):

	Increase (Decrease) in Working Capital Requirements									Increase (Decrease) in Working Capital Requirements
	Nine Months Ended									Nine Months Ended
	April 1, 2018			April 2, 2017			Change			March 31, 2019			April 1, 2018			Change
Accounts Receivable	$	5.2		$	7.0		$	(1.8	)	$	14.4		$	5.2		$	9.2
Inventory	$	7.5		$	(0.5	)	$	8.0		$	0.2		$	7.5		$	(7.3	)
Other Assets	$	8.3		$	4.7		$	3.6		$	(5.5	)	$	8.3		$	(13.8	)
Accounts Payable and Accrued Liabilities	$	(6.2	)	$	(7.8	)	$	1.6		$	(10.8	)	$	(6.2	)	$	(4.6	)

The period over period change in the accounts receivable balances reflected an increase in our accounts receivable balances during both the current year period and the prior year period. The increase in accounts receivable balances during both periods reflected ~~increases in~~increased sales levels toward the end of each of our March period ends as compared to the end of the previous ~~March~~June periods. The period over period change in inventory reflected an increase in inventory balances during the ~~current~~prior year period, which was the result of ramping up for new customer program launches. The period over period change in other assets reflected ~~an increase~~a reduction in our other ~~asset~~assets balances ~~of $8.3 million~~ in the current year period ~~compared to~~and an increase ~~of $4.7 million~~ in the other assets balances during the prior year period. The current year period ~~increase~~reduction was the result of ~~an increase~~a reduction in customer tooling ~~balances. The~~balances while the prior year increase was the result of ~~cash contributions of $5 million to our qualified pension plan. No cash contributions were made to our qualified pension plan during the current year period.~~increases in customer tooling balances. Customer tooling balances consisted of costs incurred for the development of tooling that will be directly reimbursed by our customer whose parts are produced from the tool. ~~The current period change~~Changes in customer tooling balances during each period was the result of the timing of tooling development spending required to meet customer production requirements and related customer ~~reimbursements.~~billing for cost reimbursement. The ~~quarter~~period over ~~quarter~~period change in accounts payable and accrued liability balances reflected a ~~decrease~~reduction in working capital requirements during each period. The reductions in ~~both the current year period and the prior year period. These decreases~~working capital requirements were the result of ~~an increase~~increases in accounts payable balances ~~due to~~each period, which resulted from the timing of purchases and payments with our vendors based on ~~established~~normal payment terms.

Net cash used by investing activities of ~~$19.2~~$13.7 million during the current year period and ~~$28.7~~$19.2 million during the prior year period ~~included~~were the result of capital expenditures ~~of $19.4 million and $26.6 million, respectively. Capital expenditures during each period were~~ made in support of requirements for new product programs and the upgrade and replacement of existing equipment. ~~Current year period and prior~~Prior year period capital expenditures also included ~~$2.5~~$1.4 million ~~and $10.7 million, respectively,~~ related to the completion of the construction of a new ADAC-STRATTEC facility and the purchase of related equipment, all in Leon, Mexico. Refer to discussion under ~~Future Capital Expenditures~~ADAC-STRATTEC LLC Cash Requirements included herein.

Net cash used in investing activities during the prior year period also included $1.9 million of loans to our joint venture, SAL LLC, in support of operating expenses, working capital needs, and the payment of outstanding balances due to STRATTEC for the supply of parts. Currently, we, along with our joint venture partner, are winding down operating the business of SAL LLC.

~~Net cash provided by~~ financing activities during the current year period of $9.7 million included repayments of borrowings under credit facilities of $9.0 million, $1.5 million of regular quarterly dividend payments to shareholders and $1.4 million of dividend payments to non-controlling interests in our subsidiaries, partially offset by $2 million in additional borrowings under credit facilities. Net cash provided by financing activities of $14.5 million during the prior year period included $21.0 million of additional borrowings under credit facilities, which was partially offset by repayments of borrowings under credit facilities of $3.0 million, $1.5 million of regular quarterly dividend payments to shareholders and $2.2 million of dividend payments to non-controlling interests in our subsidiaries. Net cash provided by financing activities of $5.9 million during the prior year period included $30.0 million of additional borrowings under credit facilities and $2.9 million in non-controlling interest contributions to ADAC-STRATTEC LLC in accordance with the ADAC-STRATTEC debt facility provisions, which cash inflows were partially offset by repayments of borrowings under credit facilities of $24.0 million, $1.5 million of regular quarterly dividend payments to shareholders and $1.8 million of dividend payments to non-controlling interests in our subsidiaries.

During the nine months ended April 1, 2018, capital contributions totaling $375,000 were made to VAST LLC. STRATTEC’s portion of these capital contributions totaled $125,000. During the nine months ended April 2, 2017, capital contributions totaling $750,000 were made to VAST LLC. STRATTEC’s portion of these capital contributions totaled $250,000. The capital contributions to VAST LLC were made for the purposes of funding operations in Brazil. We currently anticipate that both VAST China and Minda-VAST Access Systems have adequate debt facilities in place over the next fiscal year to cover the future operating and capital requirements of each business. ~~Due~~During the nine months ended March 31, 2019 and April 1, 2018, VAST LLC made capital contributions to ~~economic conditions in Brazil, we anticipate~~ Sistema de Acesso Veicular Ltda ~~will require a~~in Brazil totaling $975,000 and $871,000, respectively. During the nine months ended March 31, 2019, capital ~~contribution of approximately $150,000~~contributions totaling $600,000 were made to VAST LLC collectively by all VAST LLC partners. STRATTEC’s portion of these capital contributions totaled $200,000. During the nine months ended April 1, 2018, capital contributions totaling $375,000 were made to VAST LLC collectively by all VAST LLC partners. STRATTEC’s portion of these capital contributions totaled $125,000. The capital contributions to VAST LLC in both the current and prior year to date periods were made for the purpose of funding operations in Brazil. We anticipate the Brazilian entity will require capital contributions of approximately $450,000 collectively by all VAST partners to fund operations ~~during the remainder of fiscal year 2018.~~through calendar 2019. STRATTEC’s portion of ~~these remaining~~the capital contributions is anticipated to be ~~$50,000.~~$150,000.

ADAC-STRATTEC de Mexico (ASdM), a wholly owned subsidiary of ADAC-STRATTEC LLC, which is a joint venture between STRATTEC SECURITY CORPORATION and ADAC Automotive, ~~completed~~began the construction of a new manufacturing facility in Leon, Mexico during our fiscal 2017 and completed the ~~current year period.~~construction during our fiscal 2018. Accordingly, during our fiscal 2018 the paint system and assembly equipment located at the new facility became fully operational. Total capital expenditures required for the land, facility, paint system, and assembly equipment totaled approximately $22.5 ~~million as of April 1, 2018. See further discussion under Future Capital Expenditures included herein.~~million. In ~~contemplation of~~connection with this facility construction, ~~effective April 27, 2016,~~ the ADAC-STRATTEC Credit Facility was amended to increase the available borrowings under the credit facility from $10 million to $20 million. Under the terms of the amended credit agreement, a capital contribution to ADAC-STRATTEC LLC of $6 million collectively from STRATTEC and ADAC was completed during the quarter ended October 2, 2016. STRATTEC’s portion of the required capital contribution was $3.06 million. The ADAC-STRATTEC Credit Facility was further amended effective as of June 26, 2017 to increase the borrowing limit to $25 million and effective as of March 27, 2018 to increase the borrowing limit to $30 million until June 30, 2019, at which time the borrowing limit will return to $25 million. This facility is being used primarily to paint and assemble door handle products. As of fiscal 2018, the ADAC-STRATTEC LLC joint venture had annual net sales of approximately $89 million. With newly awarded customer business, we anticipate annual net sales will increase to approximately $115 million during our fiscal 2019.

During all periods presented in this report, STRATTEC provided 100 percent of the financial support to fund the start-up operating losses of SAL LLC through loans due to our joint venture partner’s inability to contribute capital to this joint venture. ~~Currently, we, along with our joint venture partner, are in the process of winding down operating the~~The business of SAL ~~LLC.~~LLC has been wound down to sell only commercial biometric locks. We anticipate STRATTEC will provide minimal to no funding for SAL LLC in fiscal year ~~2018.~~2019.

We anticipate capital expenditures will be approximately ~~$27~~$17.0 million in fiscal ~~2018~~2019 in support of requirements for new product programs and the upgrade and replacement of existing equipment, and the completion of the construction of a new facility in Leon, Mexico. On March 17, 2016, ASdM purchased land in Leon, Mexico. ASdM completed the construction of a new manufacturing facility on this land during the current year period. This facility will be used primarily to paint and assemble door handle products. As of March 2018, the paint system and assembly equipment was fully operational. Currently, the ADAC-STRATTEC LLC joint venture has annual net sales of approximately $75 million. With newly awarded customer business, we anticipate annual net sales will increase to approximately $110 million within the next fiscal year. As of April 1, 2018, total capital expenditures required for the land, facility, paint system, and assembly equipment totaled approximately $22.5 million. Capital expenditures required for the land, facility, paint system, and assembly equipment totaled approximately $2.5 million during the nine month period ended April 1, 2018.equipment.

Our Board of Directors has authorized a stock repurchase program to buy back outstanding shares of our common stock. Shares authorized for buy back under the program totaled 3,839,395 at ~~April 1, 2018.~~March 31, 2019. A total of 3,655,322 shares have been repurchased over the life of the program through ~~April 1, 2018,~~March 31, 2019, at a cost of approximately $136.4 million. No shares were repurchased during the nine month periods ended March 31, 2019 or April 1, ~~2018 or April 2, 2017.~~2018. Additional repurchases may occur from time to time and are expected to continue to be funded by cash flow from operations and current cash balances. Based on the current economic environment and our preference to conserve cash for other uses, we anticipate modest or no stock repurchase activity for the remainder of fiscal year ~~2018.~~2019.

STRATTEC has a ~~$30~~$40 million secured revolving credit facility (the “STRATTEC Credit Facility”) with BMO Harris Bank N.A. ADAC-STRATTEC LLC has a $30 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, 2021. The ADAC-STRATTEC Credit Facility borrowing limit decreases to $25 million effective July 1, 2019. ~~The credit facilities both expire August 1, 2020.~~ Borrowings under either credit facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixed assets located in the U.S. Interest on borrowings under ~~both credit facilities~~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 ~~1.0~~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. The ADAC-STRATTEC Credit Facility also required that a capital contribution to ADAC-STRATTEC LLC of $6 million collectively from STRATTEC and ADAC be completed by September 30, 2016. This capital contribution was completed as required. STRATTEC’s portion of this capital contribution totaled $3.06 million. Outstanding borrowings under the STRATTEC Credit Facility totaled $19 million at March 31, 2019 and $23 million at ~~April~~July 1, ~~2018 and $16.0 million at July 2, 2017.~~2018. The average outstanding borrowings and weighted average interest rate on the STRATTEC Credit Facility loans were approximately ~~$21.2~~$22.2 million and ~~2.4~~3.3 percent, respectively, during the nine months ended ~~April 1, 2018.~~March 31, 2019. Outstanding borrowings under the ADAC-STRATTEC Credit Facility totaled $25 million at ~~April 1, 2018~~March 31, 2019 and ~~$14.0~~$28.0 million at July 2, 2017. The average outstanding borrowings and weighted average interest rate on the ~~ADAC-~~

~~STRATTEC~~ADAC-STRATTEC Credit Facility loans were approximately ~~$24.0~~$26.3 million and ~~2.5~~3.4 percent, respectively, during the nine months ended ~~April 1, 2018.~~March 31, 2019.

SAL LLC maintains a license agreement with Westinghouse allowing SAL LLC to do business as Westinghouse Security. STRATTEC guaranteed all payments due Westinghouse under this license agreement. As of April 1, 2018, STRATTEC has a recorded liability related to this guarantee of $250,000, which amount is equal to the amount of future payments required under the license agreement and the estimated fair value of the guarantee as of April 1, 2018. See further discussion under Equity Earnings (Loss) of Joint Ventures included in Notes to Condensed Consolidated Financial Statements herein.

Inflation Related Items: Over the past several years, we have been impacted by rising health care costs, which have increased our cost of associate medical coverage. A portion of these increases have been offset by plan design changes and associate wellness initiatives. We have also been impacted by increases in the market price of zinc and brass and inflation in Mexico, which impacts the U. S. dollar costs of our Mexican operations. We have negotiated raw material price adjustment clauses with certain, but not all, of our customers to offset some of the market price fluctuations in the cost of zinc. We have contracts with Bank of Montreal that provide for bi-weekly and monthly Mexican peso currency forward contracts for a portion of our estimated peso denominated operating costs. Refer to discussion under ~~Item 3 Quantitative and Qualitative Disclosures About Market Risk~~Notes to Condensed Consolidated Financial Statements: Derivative Instruments included herein.

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

The Alliance Agreements include a set of cross-licensing agreements for the manufacture, distribution and sale of WITTE products by STRATTEC and ADAC in North America, and the manufacture, distribution and sale of STRATTEC and ADAC products by WITTE in Europe. Additionally, a joint venture company, Vehicle Access Systems Technology LLC (“VAST LLC”), in which WITTE, STRATTEC and ADAC each hold a one-third interest, exists to seek opportunities to manufacture and sell each company’s products in areas of the world outside of North America and Europe.

VAST LLC has investments in Sistema de Acesso Veicular Ltda, VAST Fuzhou, VAST Great Shanghai, VAST Shanghai Co., VAST Jingzhou Co. Ltd., and Minda-VAST Access Systems. Sistema de Acesso Veicular Ltda is located in Brazil and services customers in South America. VAST Fuzhou, VAST Great Shanghai, ~~and~~ VAST Shanghai Co., and VAST Jingzhou Co. Ltd. (collectively known as VAST China), provide a base of operations to service our automotive customers in the Asian market. ~~VAST LLC also maintains branch offices~~Minda-VAST Access Systems is based in ~~South Korea~~Pune, India and ~~Japan in support of customer sales and engineering requirements.~~

~~Effective April 30, 2015, VAST LLC executed an agreement~~is a 50:50 joint venture with Minda Management Services Limited, to become a 50:50 joint venture partner in the former Minda-Valeo Security Systems joint venture entity, based in Pune, India. This joint venture entity was renamed Minda-VAST Access Systems (“Minda-VAST”). Minda Management Services Limited is an affiliate of both Minda Corporation Limited and Spark Minda, Ashok Minda Group of New Delhi, India (collectively “Minda”). Minda and its affiliates cater to the needs of all major car, motorcycle, commercial vehicle, tractor and off-road vehicle manufacturers in India. They are a leading manufacturer in the Indian marketplace of security & access products, handles, automotive safety, restraint systems, driver information and telematics systems for both OEMs and the aftermarket. VAST LLC also maintains branch offices in South Korea and Japan in support of customer sales and engineering requirements.

The VAST LLC investments are accounted for using the equity method of accounting. The activities related to the VAST LLC joint ventures resulted in equity earnings of joint ventures to STRATTEC of $2.4 million during the nine months ended March 31, 2019 and $3.1 million during the nine months ended April 1, ~~2018 and $1.5 million during~~2018. During the nine months ended ~~April 2, 2017.~~March 31, 2019, capital contributions totaling $600,000 were made to VAST LLC collectively by all VAST LLC partners. STRATTEC’s portion of these capital contributions totaled $200,000. During the nine months ended April 1, 2018, capital contributions totaling $375,000 were made to VAST ~~LLC.~~LLC collectively by all VAST LLC partners. STRATTEC’s portion of ~~the~~these capital contributions totaled $125,000. ~~During the nine months ended April 2, 2017, capital contributions totaling $750,000 were made to VAST LLC. STRATTEC’s portion of the capital contributions totaled $250,000.~~ The capital contributions to VAST LLC were made for the purpose of funding operations in Brazil.

ADAC-STRATTEC LLC, a Delaware limited liability company, was formed in fiscal year 2007 to support injection molding and door handle assembly operations in Mexico. ADAC-STRATTEC LLC was 51 percent owned by STRATTEC and 49 percent owned by ADAC for all periods presented in this report. An additional Mexican entity, ADAC-STRATTEC de Mexico, is wholly owned by ADAC-STRATTEC LLC. ADAC-STRATTEC LLC’s financial results are consolidated with the financial results of STRATTEC and resulted in increased net income to STRATTEC of approximately $1.7 million during the nine months ended March 31, 2019 and approximately $1.6 million during the nine months ended April 1, 2018 and approximately $2.1 million during the nine months ended April 2, 2017. In accordance with the provisions of the ADAC-STRATTEC Credit Facility a capital contribution to ADAC-STRATTEC LLC of $6 million collectively from STRATTEC and ADAC was completed during the three month period ended October 2, 2016. STRATTEC’s portion of this capital contribution totaled $3.06 million. No capital contributions to ADAC-STRATTEC LLC were made during the nine month period ended April 2, 2017.2018.

STRATTEC POWER ACCESS LLC (“SPA”) was formed in fiscal year 2009 to supply the North American portion of the power sliding door, lift gate and deck lid system access control products which were acquired from Delphi Corporation. SPA was 80 percent owned by STRATTEC and 20 percent owned by WITTE for all periods presented in this report. The financial results of SPA are consolidated with the financial results of STRATTEC and resulted in increased net income to STRATTEC of approximately $2.8 million during the nine months ended March 31, 2019 and approximately $1.9 million during the nine months ended April 1, ~~2018 and approximately $1.2 million during the nine months ended April 2, 2017.~~2018.

SAL LLC was formed in fiscal 2013 to introduce a new generation of biometric security products based upon the designs of Actuator Systems LLC, our partner and the owner of the remaining ownership interest. SAL LLC was 51 percent owned by STRATTEC for all periods presented in this report. Our investment in SAL LLC, for which we exercise significant influence but do not control and are not the primary beneficiary, is accounted for using the equity method. The activities related to SAL LLC resulted in equity ~~loss~~earnings of joint ventures to STRATTEC of approximately $24,000 during the nine months ended ~~April 1, 2018~~March 31, 2019 and equity loss of joint ventures of approximately ~~$1.4 million~~$24,000 during the nine months ended April ~~2, 2017.~~1, 2018. During all periods presented in this report, 100 percent of the funding for SAL LLC was being made through loans from STRATTEC to SAL LLC. Therefore, for all periods presented in this report, even though STRATTEC maintains a 51 percent ownership interest in SAL LLC, STRATTEC recognized 100 percent of the losses of SAL LLC up to our committed financial support through Equity Earnings (Loss) of Joint Ventures in the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive Income. ~~Currently, we, along with our joint venture partner, are winding down operating the~~The business of SAL ~~LLC.~~LLC has been wound down to sell only commercial biometric locks. See further discussion under Equity Earnings ~~(Loss)~~ of Joint Ventures included in Notes to Condensed Consolidated Financial Statements herein.

Our exposure to market risk is limited to fluctuations in raw material commodity prices, interest rate fluctuations on borrowings under our secured revolving credit facilities and foreign currency exchange rate risk associated with STRATTEC’s foreign operations. We do not utilize financial instruments for trading purposes.

Interest Rates: We are subject to interest rate fluctuations on borrowings under our revolving credit facilities. At April 1, 2018, we had $48 million of outstanding borrowings under our credit facilities. The interest expense related to borrowings under the credit facilities during the nine months ended April 1, 2018 was $761,000. A 10% increase or decrease in the interest rate on our borrowings would not have a material effect on our financial position, results of operations or cash flows.

Foreign Currency: We are subject to foreign currency exchange rate exposure related to the U.S. dollar costs of our manufacturing operations in Mexico. 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 executed contracts with Bank of Montreal that provide for bi-weekly and monthly Mexican peso currency forward contracts for a portion of our estimated peso denominated operating costs. The current peso currency forward contracts include settlement dates that began on October 16, 2015 and end on June 15, 2018. Our objective in entering into these 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, net.

~~The following table quantifies the outstanding Mexican peso forward contracts as of April 1, 2018 (thousands of dollars, except average forward contract exchange rates):~~

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

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

Raw Materials Commodity Prices: Our primary raw materials are high-grade zinc, brass, nickel silver, aluminum, steel and plastic resins. These materials are generally available from a number of suppliers, but we have chosen to concentrate our sourcing with one primary vendor for each commodity or purchased component. We believe our sources of raw materials are reliable and adequate for our needs. However, the development of future sourcing issues related to using existing or alternative raw materials and the global availability of these materials as well as significant fluctuations in the market prices of these materials may have an adverse effect on our financial results if the increased raw material costs cannot be recovered from our customers. Given the significant financial impact on us relating to changes in the cost of our primary raw materials, we now attempt to quote quarterly material price adjustments for changes in our zinc costs in our negotiations with our customers. Our success in obtaining these quarterly price adjustments in our customer contracts is dependent on separate negotiations with each customer. It is not a standard practice for our customers to include such price adjustments in their contracts. We have been successful in obtaining quarterly price adjustments in some of our customer contracts. However, we have not been successful in obtaining the adjustments with all of our customers.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act, are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures were effective at reaching a level of reasonable assurance. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. We have designed our disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In the normal course of business, we may be involved in various legal proceedings from time to time. We do not believe we are currently involved in any claim or action the ultimate disposition of which would have a material adverse effect on our financial statements.

There have been no material changes to the risk factors disclosed in our Form 10-K as filed with the Securities and Exchange Commission on September ~~7, 2017.~~6, 2018.

Our Board of Directors authorized a stock repurchase program on October 16, 1996, and the program was publicly announced on October 17, 1996. The Board of Directors has periodically increased the number of shares authorized for repurchase under the program, most recently in August 2008. The program currently authorizes the repurchase of up to 3,839,395 shares of our common stock from time to time, directly or through brokers or agents, and has no expiration date. Over the life of the repurchase program through ~~April 1, 2018,~~March 31, 2019, a total of 3,655,322 shares have been repurchased at a cost of approximately $136.4 million. No shares were repurchased during the nine month period ended ~~April 1, 2018.~~March 31, 2019.

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

Wisconsin		39-1804239
(State of Incorporation)		(I.R.S. Employer Identification No.)

Large Accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐~~(Do not check if a smaller reporting company)~~	Smaller Reporting Company	☐☒
Emerging growth company	☐


Title of each class	Trading symbol	Name of exchange on which registered
Common stock, $.01 par value	STRT	The Nasdaq Global Stock Market

		Page
Part I - FINANCIAL INFORMATION
Item 1	Financial Statements
	Condensed Consolidated Statements of Income (Loss) and Comprehensive Income	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	~~6-18~~6-19
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~19-30~~20-31
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3132
Item 4	Controls and Procedures	32

Part II - OTHER INFORMATION
Item 1	Legal Proceedings	33
Item 1A	Risk Factors	33
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3	Defaults Upon Senior Securities	33
Item 4	Mine Safety Disclosures	33
Item 5	Other Information	33
Item 6	Exhibits	33

		Effective Dates		Notional Amount				Average Forward Contractual Exchange Rate				Fair Value
Buy MXP/Sell USD		April 13, 2018 - June 15, 2018		$	4,500				20.08			$	434

	Total Shareholders’ Equity			Equity Attributable to STRATTEC			Equity Attributable to Non- Controlling Interest
Balance, July 2, 2017	$	172,714		$	151,088		$	21,626
Net Income		11,036			8,307			2,729
Dividend Declared		(1,525	)		(1,525	)		—
Dividend Declared – Non-controlling Interests of Subsidiaries		(2,217	)		—			(2,217	)
Translation adjustments		1,193			1,213			(20	)
Stock Based Compensation		871			871			—
Pension and Postretirement Adjustment, Net of Tax		893			893			—
Employee Stock Purchases and Stock Option Exercises		217			217			—
Balance, April 1, 2018	$	183,182		$	161,064		$	22,118

Balance, July 2, 2018	$	1,195
Discounts Recorded as a Reduction in Sales		1,368
Payments of Discounts to Customers		(1,654	)
Other		(279	)
Balance, March 31, 2019	$	630

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Outstanding, July 2, 2017		138,508		$	29.23
Exercised		(5,434	)	$	25.64
Outstanding, April 1, 2018		133,074		$	29.37		3.6	$	1,450
Exercisable, April 1, 2018		133,074		$	29.37		3.6	$	1,450

	Nine Months Ended
	March 31, 2019			April 1, 2017
Foreign Currency Transaction Loss	$	(261	)	$	(173	)
Unrealized Gain (Loss) on Peso Forward Contracts		116			(687	)
Realized Gain on Peso Forward Contracts		344			981
Pension and Postretirement Plans (Cost) Credit		(662	)		335
Rabbi Trust Gain		57			178
Other		108			(280	)
	$	(298	)	$	354


31.1		Rule 13a-14(a) Certification for Frank J. Krejci, President and Chief Executive Officer

31.2		Rule 13a-14(a) Certification for Patrick J. Hansen, Chief Financial Officer

32 ⁽¹⁾		18 U.S.C. Section 1350 Certifications

101		The following materials from STRATTEC SECURITY CORPORATION's Quarterly Report on Form 10-Q for the fiscal quarter ended ~~April 1, 2018~~March 31, 2019 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Condensed Consolidated Statements of Income (Loss) and Comprehensive Income; (ii) Condensed Consolidated Balance Sheets; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated Financial ~~Statements~~Statements. XBRL Instance Document – the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

	STRATTEC SECURITY CORPORATION (Registrant)

Date: May ~~10, 2018~~7, 2019	By:	/s/ Patrick J. Hansen
		Patrick J. Hansen
		Senior Vice President,
		Chief Financial Officer,
		Treasurer and Secretary
		(Principal Accounting and Financial Officer)

	Three Months Ended				Nine Months Ended
	March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018
Keys & Locksets	$	34,677	$	32,228	$	101,722	$	84,866
Power Access		25,398		22,278		68,193		64,028
Door Handles & Exterior Trim		32,212		24,032		83,973		63,602
Driver Controls		10,532		14,514		31,370		39,463
Aftermarket & OE Service		10,839		10,648		32,599		32,471
Latches		12,602		11,617		35,366		31,698
Other		1,970		1,506		5,079		6,337
	$	128,230	$	116,823	$	358,302	$	322,465