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~~ Yes☒No NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ~~YES~~ Yes☒No 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.

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~~ Yes☐No 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: ~~3,755,022~~3,820,192 shares outstanding as of ~~April 1,~~December 30, 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 statements 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, work stoppages at the Company or at the location of its key customers as a result of labor disputes, foreign currency fluctuations, uncertainties stemming from U.S. trade policies, tariffs and reactions to same from foreign countries, 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 ~~6, 2018~~5, 2019 with the Securities and Exchange Commission for the year ended ~~July 1, 2018.~~June 30, 2019.

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.

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

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018			December 29, 2019			December 30, 2018			December 29, 2019			December 30, 2018
Net sales	$	128,230		$	116,823		$	358,302		$	322,465		$	106,283		$	112,913		$	226,245		$	230,072
Cost of goods sold		112,548			101,626			314,701			281,159			95,950			100,177			200,026			202,153
Gross profit		15,682			15,197			43,601			41,306			10,333			12,736			26,219			27,919
Engineering, selling and administrative expenses		11,721			10,839			33,222			31,033			12,094			10,470			25,048			21,501
Income from operations		3,961			4,358			10,379			10,273
Interest income		—			1			—			8
(Loss) Income from operations														(1,761	)		2,266			1,171			6,418
Equity earnings of joint ventures		66			619			2,451			3,118			492			1,476			976			2,385
Interest expense		(413	)		(305	)		(1,224	)		(761	)		(248	)		(404	)		(588	)		(811	)
Pension Termination Settlement Charge		—			—			(32,434	)		—
Pension termination settlement charge														—			(32,434	)		—			(32,434	)
Other income (expense), net		209			158			(298	)		354			23			(262	)		(74	)		(507	)
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
(Loss) income before provision for income taxes and non-controlling interest														(1,494	)		(29,358	)		1,485			(24,949	)
Benefit for income taxes														(399	)		(7,760	)		(100	)		(7,780	)
Net (loss) income														(1,095	)		(21,598	)		1,585			(17,169	)
Net income attributable to non-controlling Interest		1,307			963			2,835			2,729			246			566			1,682			1,528
Net income (loss) attributable to STRATTEC SECURITY CORPORATION	$	1,730		$	2,969		$	(16,967	)	$	8,307
Net loss attributable to STRATTEC SECURITY CORPORATION													$	(1,341	)	$	(22,164	)	$	(97	)	$	(18,697	)

Comprehensive Income:
Net income (loss)	$	3,037		$	3,932		$	(14,132	)	$	11,036
Comprehensive (loss) income:
Net (loss) income													$	(1,095	)	$	(21,598	)	$	1,585		$	(17,169	)
Pension and postretirement plans, net of tax		(1	)		338			19,992			893			73			19,677			146			19,993
Currency translation adjustments		1,037			3,487			39			1,193			1,634			(1,829	)		186			(998	)
Other comprehensive income, net of tax		1,036			3,825			20,031			2,086			1,707			17,848			332			18,995
Comprehensive income		4,073			7,757			5,899			13,122
Comprehensive income attributable to non- controlling interest		1,432			1,894			3,117			2,709
Comprehensive income attributable to STRATTEC SECURITY CORPORATION	$	2,641		$	5,863		$	2,782		$	10,413
Comprehensive income (loss)														612			(3,750	)		1,917			1,826
Comprehensive income attributable to non-controlling interest														748			69			1,932			1,685
Comprehensive (loss) income attributable to STRATTEC SECURITY CORPORATION													$	(136	)	$	(3,819	)	$	(15	)	$	141

Earnings (loss) per share attributable to STRATTEC SECURITY CORPORATION:
Loss per share attributable to STRATTEC SECURITY CORPORATION:
Basic	$	0.47		$	0.82		$	(4.62	)	$	2.29		$	(0.36	)	$	(6.03	)	$	(0.03	)	$	(5.10	)
Diluted	$	0.46		$	0.80		$	(4.62	)	$	2.24		$	(0.36	)	$	(5.96	)	$	(0.03	)	$	(5.03	)

Average shares outstanding:
Basic		3,684			3,634			3,670			3,625			3,741			3,675			3,725			3,663
Diluted		3,728			3,708			3,670			3,702			3,741			3,718			3,725			3,715

Cash dividends declared per share	$	0.14		$	0.14		$	0.42		$	0.42		$	0.14		$	0.14		$	0.28		$	0.28

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

	March 31, 2019			July 1, 2018			December 29, 2019			June 30, 2019
	(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	9,202		$	8,090		$	9,285		$	7,809
Receivables, net		87,847			73,832			65,893			84,230
Inventories:
Finished products		12,544			13,410			15,350			11,582
Work in process		11,485			10,059			11,756			10,529
Purchased materials		26,948			27,185			29,897			29,376
Excess and obsolete reserve		(4,155	)		(4,000	)		(4,492	)		(4,225	)
Inventories, net		46,822			46,654			52,511			47,262
Other current assets		15,609			22,527			15,789			17,331
Total current assets		159,480			151,103			143,478			156,632
Investment in joint ventures		23,876			22,192			24,058			23,528
Deferred Income Taxes		1,210			—			3,958			2,933
Other long-term assets		10,877			17,338			7,045			11,523
Property, plant and equipment		282,660			269,716			293,287			287,421
Less: accumulated depreciation		(164,819	)		(153,174	)		(178,247	)		(169,301	)
Net property, plant and equipment		117,841			116,542			115,040			118,120
	$	313,284		$	307,175		$	293,579		$	312,736
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	46,207		$	38,439		$	31,693		$	41,889
Accrued Liabilities:
Payroll and benefits		12,761			13,393			15,624			17,339
Environmental		1,279			1,291			1,269			1,278
Warranty		7,995			7,800			7,800			7,900
Other		10,563			7,870			9,047			10,857
Total current liabilities		78,805			68,793			65,433			79,263
Borrowings under credit facilities		44,000			51,000			32,000			42,000
Deferred income taxes		—			961
Accrued pension obligations		1,645			1,553			1,723			1,663
Accrued postretirement obligations		677			826			728			762
Other long-term liabilities		831			796			4,846			1,232
Shareholders’ Equity:
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
Common stock, authorized 12,000,000 shares, $.01 par value, 7,358,812 issued shares at December 29, 2019 and 7,304,994 issued shares at June 30, 2019								74			73
Capital in excess of par value		96,215			95,140			97,601			96,491
Retained earnings		221,696			236,162			219,973			221,117
Accumulated other comprehensive loss		(17,737	)		(33,439	)		(18,486	)		(18,568	)
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	)
Less: treasury stock, at cost (3,611,509 shares at December 29, 2019 and 3,613,439 shares at June 30, 2019)								(135,693	)		(135,725	)
Total STRATTEC SECURITY CORPORATION shareholders’ equity		164,505			162,158			163,469			163,388
Non-controlling interest		22,821			21,088			25,380			24,428
Total shareholders’ equity		187,326			183,246			188,849			187,816
	$	313,284		$	307,175		$	293,579		$	312,736

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

	Nine Months Ended						Six Months Ended
	March 31, 2019			April 1, 2018			December 29, 2019			December 30, 2018
CASH FLOWS FROM 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		12,543			10,551
Net income (loss)							$	1,585		$	(17,169	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation								9,580			8,123
Foreign currency transaction loss		261			173			448			69
Unrealized (gain) loss on peso forward contracts		(116	)		687
Unrealized gain on peso forward contracts								—			(93	)
Stock based compensation expense		867			871			624			626
Equity earnings of joint ventures		(2,451	)		(3,118	)		(976	)		(2,385	)
Pension Termination Settlement Charge		32,434			—
Pension termination settlement charge								—			32,434
Non-cash compensation expense								4,473			—
Deferred income taxes		(8,131	)		(1,710	)		(1,032	)		(8,131	)
Change in operating assets and liabilities:
Receivables		(14,411	)		(5,206	)		18,387			7,291
Inventories		(168	)		(7,505	)		(5,249	)		(1,334	)
Other assets		7,553			(8,277	)		1,397			3,729
Accounts payable and accrued liabilities		10,753			6,244			(9,057	)		(3,154	)
Other, net		(281	)		(44	)		428			(284	)
Net cash provided by operating activities		24,721			3,702			20,608			19,722
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures		(200	)		(125	)
Repayment from loan to joint ventures		—			300
Purchase of property, plant and equipment		(13,550	)		(19,382	)		(7,384	)		(9,402	)
Proceeds received on sale of property, plant, and equipment		12			12
Proceeds received on sale of property, plant and equipment								15			12
Net cash used in investing activities		(13,738	)		(19,195	)		(7,369	)		(9,390	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility		2,000			21,000			—			2,000
Repayment of borrowings under credit facility		(9,000	)		(3,000	)		(10,000	)		(7,000	)
Dividends paid to non-controlling interests of subsidiaries		(1,384	)		(2,217	)		(980	)		(984	)
Dividends paid		(1,546	)		(1,525	)		(1,047	)		(1,029	)
Exercise of stock options and employee stock purchases		244			217			519			72
Net cash (used in) provided by financing activities		(9,686	)		14,475
Net cash used in financing activities								(11,508	)		(6,941	)
Foreign currency impact on cash		(185	)		(306	)		(255	)		(108	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,112			(1,324	)
NET INCREASE IN CASH AND CASH EQUIVALENTS								1,476			3,283

CASH AND CASH EQUIVALENTS
Beginning of period		8,090			8,361			7,809			8,090
End of period	$	9,202		$	7,037		$	9,285		$	11,373
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	230		$	2,356		$	497		$	199
Interest	$	1,229		$	716			621		$	813
Non-cash investing activities:
Change in capital expenditures in accounts payable	$	(405	)	$	(1,825	)	$	(1,154	)	$	(395	)

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 exists to introduce a new generation of biometric security products based on the designs of Actuator Systems, our partner and the owner of the remaining ownership interest. The business of SAL LLC has been wound down to sell only commercial biometric locks.

The accompanying condensed consolidated financial statements reflect the consolidated results of STRATTEC SECURITY CORPORATION, its wholly owned Mexican subsidiary, STRATTEC de Mexico, and its majority owned subsidiaries, ADAC-STRATTEC, LLC and STRATTEC POWER ACCESS LLC. STRATTEC SECURITY CORPORATION is located in Milwaukee, Wisconsin. STRATTEC de Mexico is located in Juarez, Mexico. ADAC-STRATTEC, LLC and STRATTEC POWER ACCESS LLC have operations in El Paso, Texas and Juarez and Leon, Mexico. Equity investments in Vehicle Access Systems Technology LLC (“VAST LLC”) and SAL LLC, for which we exercise significant influence but do not control and are not the primary beneficiary, are accounted for using the equity method. VAST LLC consists primarily of ~~four~~4 wholly owned subsidiaries in China, ~~one~~1 wholly owned subsidiary in Brazil and ~~one~~1 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~~1 reporting segment.

In the opinion of management, the accompanying condensed consolidated balance sheets as of ~~March 31,~~December 29, 2019 and ~~July 1, 2018,~~June 30, 2019, which have been derived from our audited financial statements, and the related unaudited interim condensed consolidated financial statements included herein contain all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with Rule 10-01 of Regulation S-X. All significant intercompany transactions have been eliminated.

Interim financial results are not necessarily indicative of operating results for an entire year. The information included in this Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the STRATTEC SECURITY CORPORATION ~~2018 Annual Report,~~2019 Form 10-K, which was filed with the Securities and Exchange Commission ~~as an exhibit to our Form 10-K~~ on September ~~6, 2018.~~5, 2019.

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. We implemented the new standard effective July 2, 2018, the first day of our 2019 fiscal year, using the modified retrospective 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 February 2016, the FASB issued an update to the accounting guidance for leases. The update increases the transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements. We implemented the new guidance effective July 1, 2019, the first day of our 2020 fiscal year, by applying the modified retrospective method without restatement of comparative periods’ financial information, as permitted by the transition guidance. The adoption of the new guidance had an impact on our balance sheet, but did not have an impact on either our consolidated operating results or our cash flows. Adoption of the new guidance resulted in the recognition of a right-of-use asset of $4.1 million and related lease obligation of $4.1 million for an operating lease as of July 1, 2019. We had 0 finance leases as of July 1, 2019. As noted above, the adoption of the new guidance did not have a significant impact on our operating results or cash flows. See “Leases” below for additional information.

In August 2017, the FASB issued an update to the accounting for hedging activities. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness, due to a difference between economic terms of the hedge instrument and the underlying transaction, and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same line as the hedged item in the consolidated statement of income. The standard also modifies the accounting for components excluded from the assessment of hedge effectiveness and simplifies the application of hedge accounting in certain situations. Our July 1, 2019 adoption of the new guidance had no impact to our financial statements.

In June 2018, the FASB issued an update to the accounting for nonemployee share-based payment accounting. The update aligns measurement and classification guidance for share-based payments to nonemployees with the guidance applicable to employees. Under the new guidance, the measurement of equity-classified nonemployee awards is fixed at the date of grant. Our July 1, 2019 adoption of the new guidance had no impact to our financial statements.

In December 2019, the FASB issued an update to accounting for income taxes. The update enhances and simplifies various aspects of income tax accounting including hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, investment ownership changes from a subsidiary to an equity method investment and vice versa, interim-period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim-period tax accounting. This accounting update is effective for ~~fiscal years~~annual and interim periods beginning after December 15, ~~2018 and interim periods within those years.~~2020, with early adoption permitted. We do not expect that the adoption of this pronouncement will have a material impact on our consolidated financial statements.

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. The adoption of this pronouncement did not have a material impact on our consolidated financial statements.

In February 2018, the FASB issued guidance on the reclassification of certain tax effects from accumulated other comprehensive income. The guidance 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 those fiscal years. We elected early adoption beginning effective December 30, 2018. The adoption of 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. During the three and ~~nine~~six month periods ended ~~March 31, 2019 and April 1,~~December 30, 2018, we had contracts with Bank of Montreal that provided for monthly Mexican peso currency forward contracts for a portion of our estimated peso denominated operating costs. Our objective in entering into these currency forward contracts iswas 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~~were not used for speculative purposes and ~~are~~were not designated as hedges. As a result, all currency forward contracts ~~are~~were recognized in our accompanying condensed consolidated financial statements at fair value and changes in the fair value ~~are~~were reported in current earnings as part of Other Income (Expense), net.

~~The following table quantifies the outstanding~~ No Mexican peso currency forward contracts were in effect during the six month period ended December 29, 2019 and none were outstanding as of ~~March 31, 2019 (thousands of dollars, except average forward contractual exchange rates):~~December 29, 2019.

~~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 (Expense), net on the accompanying Condensed Consolidated Statements of ~~Income (Loss)~~Loss and Comprehensive (Loss) Income and consisted of the following (thousands of dollars):

	Three Months Ended				Nine Months Ended					Three Months Ended					Six Months Ended
	March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018			December 29, 2019		December 30, 2018			December 29, 2019		December 30, 2018
Not Designated as Hedging Instruments:
Realized Gain	$	122	$	322	$	344	$	981		$	—	$	50		$	—	$	222
Unrealized Gain (Loss)	$	23	$	392	$	116	$	(687	)
Unrealized (Loss) Gain										$	—	$	(132	)	$	—	$	93

The fair value of our cash and cash equivalents, accounts receivable, accounts payable and borrowings under our credit ~~facility~~facilities approximated book value as of ~~March 31,~~December 29, 2019 and ~~July 1, 2018.~~June 30, 2019. Fair value is defined as the exchange price that would be received for an asset or paid for a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of ~~March 31,~~December 29, 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	$	268	$	—	$	—	$	294	$	—	$	—
Mid Cap		281		—		—		315		—		—
Large Cap		565		—		—		656		—		—
International		841		—		—		929		—		—
Fixed Income Funds		889		—		—		923		—		—
Cash and Cash Equivalents		—		4		—		—		6		—
Mexican Peso Forward Contracts		—		77		—
Total Assets at Fair Value	$	2,844	$	81	$	—	$	3,117	$	6	$	—

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 U.S. dollar and Mexican peso. There were no transfers between Level 1 and Level 2 assets during the nine month period ended 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					Six Months Ended
	March 31, 2019			April 1, 2018			March 31, 2019		April 1, 2018			December 29, 2019		December 30, 2018			December 29, 2019		December 30, 2018
Net Sales	$	35,771		$	44,133		$	123,546	$	127,976		$	44,479	$	47,719		$	87,047	$	87,775
Cost of Goods Sold		29,303			34,063			98,173		98,339			35,793		37,768			70,452		68,870
Gross Profit		6,468			10,070			25,373		29,637			8,686		9,951			16,595		18,905
Engineering, Selling and Administrative Expenses		7,377			7,429			20,246		19,775			7,323		6,719			14,004		12,869
(Loss) income From Operations		(909	)		2,641			5,127		9,862
Income From Operations													1,363		3,232			2,591		6,036
Other Income, net		882			163			3,186		949			643		1,907			1,503		2,304
(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
Income before Provision for Income Taxes													2,006		5,139			4,094		8,340
Provision for Income Taxes													517		658			1,145		1,125
Net Income	$	37		$	2,121		$	7,252	$	9,444		$	1,489	$	4,481		$	2,949	$	7,215
STRATTEC’s Share of VAST LLC Net Income	$	12		$	707		$	2,417	$	3,148		$	496	$	1,494		$	983	$	2,405
Intercompany Profit Elimination		13			(4	)		10		(6	)		—		(7	)		—		(3	)
STRATTEC’s Equity Earnings of VAST LLC	$	25		$	703		$	2,427	$	3,142		$	496	$	1,487		$	983	$	2,402

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.

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 March 31, 2019 and July 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 of Joint Ventures in the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive Income for all periods presented in this report. 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 of SAL LLC totaled $84,000 and $24,000 for the three and nine month periods ended April 1, 2018, respectively.

The business of our joint venture company, SAL LLC, has been wound down to sell only commercial biometric locks. STRATTEC’s equity loss of SAL LLC totaled $4,000 and $7,000 for the three and six month periods ended December 29, 2019 and $11,000 and $17,000 for the three and six month periods ended December 30, 2018.

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				Six Months Ended
	March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018		December 29, 2019		December 30, 2018		December 29, 2019		December 30, 2018
Sales to VAST LLC	$	878	$	507	$	2,751	$	2,090	$	1,661	$	1,375	$	2,552	$	1,873
Sales to SAL LLC	$	—	$	—	$	—	$	182
Purchases from VAST LLC	$	36	$	29	$	164	$	158	$	82	$	86	$	179	$	128
Expenses Charged to VAST LLC	$	317	$	232	$	1,096	$	615	$	519	$	434	$	1,350	$	779
Expenses Charged from VAST LLC	$	192	$	176	$	628	$	706	$	218	$	229	$	444	$	436

We have an operating lease for our El Paso, Texas finished goods and service parts distribution warehouse that has a current lease term through October 2023. This lease includes renewal terms that can extend the lease term for five additional years. For purposes of calculating operating lease obligations, we included the option to extend the lease as it is reasonably certain that we will exercise such option. The lease does not contain material residual value guarantees or restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease term.

As the lease does not provide an implicit rate, we used our incremental borrowing rate at lease commencement to determine the present value of our lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest we would pay to borrow over a similar term with similar payments.

The operating lease asset and obligation related to our El Paso warehouse lease included in the accompanying Condensed Consolidated Balance Sheet are presented below (in thousands):

Future minimum lease payments, by our fiscal year, including options to extend that are reasonably certain to be exercised, under the non-cancelable lease are as follows as of December 29, 2019 (in thousands):

Future minimum lease payments, by our fiscal year, excluding options to extend that are reasonably certain to be exercised, prior to the adoption of the new accounting guidance on leases were as follows as of June 30, 2019 (in thousands):

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

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

Operating lease expense for the three and six month periods ended December 29, 2019 totaled $116,000 and $229,000, respectively.

STRATTEC has a $40 million secured revolving credit facility (the “STRATTEC Credit Facility”) with BMO Harris Bank. ADAC-STRATTEC LLC has a ~~$30~~$25 million secured revolving credit facility (the “ADAC-STRATTEC Credit Facility”) with BMO Harris Bank N.A., which is guaranteed by STRATTEC. The credit facilities both expire August 1, ~~2021. The ADAC-STRATTEC Credit Facility borrowing limit decreases to $25 million effective July 1, 2019.~~2022. Borrowings under either credit facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixed assets. Interest on borrowings under the STRATTEC Credit Facility and interest on borrowings under the ADAC-STRATTEC Credit Facility prior to December 31, 2018 were at varying rates based, at our option, on the London Interbank Offering Rate (“LIBOR”) plus 1.0 percent or the bank’s prime rate. Effective December 31, 2018, and thereafter, interest on borrowings under the ADAC-STRATTEC Credit Facility is at varying rates based, at our option, on LIBOR plus 1.25 percent or the bank’s prime rate. Both credit facilities contain a restrictive financial covenant that requires the applicable borrower to maintain a minimum net worth level. The ADAC-STRATTEC Credit Facility includes an additional restrictive financial covenant that requires the maintenance of a minimum fixed charge coverage ratio. As of ~~March 31,~~December 29, 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):

	March 31, 2019		July 1, 2018		December 29, 2019		June 30, 2019
STRATTEC Credit Facility	$	19,000	$	23,000	$	13,000	$	18,000
ADAC-STRATTEC Credit Facility		25,000		28,000		19,000		24,000
	$	44,000	$	51,000	$	32,000	$	42,000

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										Six Months Ended
	Average Outstanding Borrowings				Weighted Average Interest Rate						Average Outstanding Borrowings				Weighted Average Interest Rate
	March 31, 2019		April 1, 2018		March 31, 2019			April 1, 2018			December 29, 2019		December 30, 2018		December 29, 2019			December 30, 2018
STRATTEC Credit Facility	$	22,212	$	21,223		3.3	%		2.4	%	$	14,604	$	23,319		3.1	%		3.2	%
ADAC-STRATTEC Credit Facility	$	26,286	$	23,989		3.4	%		2.5	%	$	21,473	$	26,929		3.3	%		3.2	%

We are from time to time subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, alleged breaches of contracts, product warranties, intellectual property matters and employment related matters. It is our opinion that the outcome of such matters will not have a material adverse impact on our consolidated financial position, results of operations or cash flows. With respect to warranty matters, although we cannot ensure that future costs of warranty claims by customers will not be material, we believe our established reserves are adequate to cover potential warranty settlements.

In 1995, we recorded a provision of $3 million for estimated costs to remediate an environmental contamination site at our Milwaukee facility. The facility was contaminated by a solvent spill, which occurred in 1985, from a former above ground solvent storage tank located on the east side of the facility. The reserve was originally established based on third party estimates to adequately cover the cost for active remediation of the contamination. Due to changing technology and related costs associated with active remediation of the contamination, in fiscal 2010, the reserve was adjusted based on updated third party estimates to adequately cover the cost for active remediation of the contamination. Additionally, in fiscal 2016, we obtained updated third party estimates for adequately covering the cost for active remediation of this contamination. Based upon the updated estimates, no further adjustment to the reserve was required. From 1995 through ~~March 31,~~December 29, 2019, costs of approximately ~~$596,000~~$606,000 have been incurred related to the installation of monitoring wells on the property and ongoing monitoring costs. We monitor and evaluate the site with the use of these groundwater monitoring wells. An environmental consultant samples these wells one or two times a year to determine the status of the contamination and the potential for remediation of the contamination by natural attenuation, the dissipation of the contamination over time to concentrations below applicable standards. If such sampling evidences a sufficient degree of and trend toward natural attenuation of the contamination at the site, we may be able to obtain a closure letter from the regulatory authorities resolving the issue without the need for active remediation. If a sufficient degree and trend toward natural attenuation is not evidenced by sampling, a more active form of remediation beyond natural attenuation may be required. The sampling has not yet satisfied all of the requirements for closure by natural attenuation. As a result, sampling continues and the reserve remains at an amount to reflect our estimated cost of active remediation. The reserve is not measured on a discounted basis. We believe, based on findings-to-date and known environmental regulations, that the remaining environmental reserve of $1.3 million at ~~March 31,~~December 29, 2019 is adequate.

A summary of activity impacting shareholders’ equity for the three and ~~nine~~six month periods ended ~~March 31,~~December 29, 2019 and ~~April 1,~~December 30, 2018 were as follows (in thousands):

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

	Three Months Ended December 29, 2019
	Total Shareholders’ Equity			Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Non-Controlling Interest
Balance, September 29, 2019	$	188,271		$	74	$	97,128	$	221,839		$	(19,691	)	$	(135,711	)	$	24,632
Net Loss		(1,095	)		—		—		(1,341	)		—			—			246
Dividend Declared		(525	)		—		—		(525	)		—			—			—
Dividend Declared – Non- controlling Interests of Subsidiaries		-			—		—		—			—			—			—
Translation Adjustments		1,634			—		—		—			1,132			—			502
Stock Based Compensation		211			—		211		—			—			—			—
Pension and Postretirement Adjustment, Net of Tax		73			—		—		—			73			—			—
Stock Option Exercises		256			—		256		—			—			—			—
Employee Stock Purchases		24			—		6		—			—			18			—
Balance, December 29, 2019	$	188,849		$	74	$	97,601	$	219,973		$	(18,486	)	$	(135,693	)	$	25,380

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

	Three Months Ended December 30, 2018
	Total Shareholders’ Equity			Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Non-Controlling Interest
Balance, September 30, 2018	$	187,932		$	73	$	95,537	$	239,115		$	(32,946	)	$	(135,767	)	$	21,920
Net Loss		(21,598	)		—		—		(22,164	)		—			—			566
Dividend Declared		(515	)		—		—		(515	)		—			—			—
Dividend Declared – Non- controlling Interests of Subsidiaries		(200	)		—		—		—			—			—			(200	)
Translation Adjustments		(1,829	)		—		—		—			(1,332	)		—			(497	)
Stock Based Compensation		241			—		241		—			—			—			—
Pension and Postretirement Adjustment, Net of Tax		19,677			—		—		—			19,677			—			—
Reclassification of Stranded Tax Effects		—			—		—		4,047			(4,047	)		—			—
Stock Option Exercises		32			—		32		—			—			—			—
Employee Stock Purchases		17			—		8		—			—			9			—
Balance, December 30, 2018	$	183,757		$	73	$	95,818	$	220,483		$	(18,648	)	$	(135,758	)	$	21,789

	Nine Months Ended April 1, 2018																			Six Months Ended December 29, 2019
	Total Shareholders’ Equity			Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Non-Controlling Interest			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
Balance, June 30, 2019																				$	187,816		$	73	$	96,491	$	221,117		$	(18,568	)	$	(135,725	)	$	24,428
Net Income		11,036			—		—		8,307			—			—			2,729			1,585			—		—		(97	)		—			—			1,682
Dividend Declared		(1,525	)		—		—		(1,525	)		—			—			—			(1,047	)		—		—		(1,047	)		—			—			—
Dividend Declared – Non- controlling Interests of Subsidiaries		(2,217	)		—		—		—			—			—			(2,217	)		(980	)		—		—		—			—			—			(980	)
Translation adjustments		1,193			—		—		—			1,213			—			(20	)
Translation Adjustments																					186			—		—		—			(64	)		—			250
Stock Based Compensation		871			—		871		—			—			—			—			624			—		624		—			—			—			—
Pension and Postretirement Adjustment, Net of Tax		893			—		—		—			893			—			—			146			—		—		—			146			—			—
Stock Option Exercises		139			—		139		—			—			—			—			478			1		477		—			—			—			—
Employee Stock Purchases		78			—		46		—			—			32			—			41			—		9		—			—			32			—
Balance, April 1, 2018	$	183,182		$	72	$	94,869	$	232,695		$	(30,782	)	$	(135,790	)	$	22,118
Balance, December 29, 2019																				$	188,849		$	74	$	97,601	$	219,973		$	(18,486	)	$	(135,693	)	$	25,380

	Six Months Ended December 30, 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 1, 2018	$	183,246		$	73	$	95,140	$	236,162		$	(33,439	)	$	(135,778	)	$	21,088
Net Loss		(17,169	)		—		—		(18,697	)		—			—			1,528
Dividend Declared		(1,029	)		—		—		(1,029	)		—			—			—
Dividend Declared – Non- controlling Interests of Subsidiaries		(984	)		—		—		—			—			—			(984	)
Translation Adjustments		(998	)		—		—		—			(1,155	)		—			157
Stock Based Compensation		626			—		626		—			—			—			—
Pension and Postretirement Adjustment, Net of Tax		19,993			—		—		—			19,993			—			—
Reclassification of Stranded Tax Effects		—			—		—		4,047			(4,047	)		—			—
Stock Option Exercises		32			—		32		—			—			—			—
Employee Stock Purchases		40			—		20		—			—			20			—
Balance, December 30, 2018	$	183,757		$	73	$	95,818	$	220,483		$	(18,648	)	$	(135,758	)	$	21,789

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,~~December 29, 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~~six month period ended ~~March 31,~~December 29, 2019 was as follows (thousands of dollars):

Balance, July 2, 2018	$	1,195
Balance, June 30, 2019				$	932
Discounts Recorded as a Reduction in Sales		1,368			880
Payments of Discounts to Customers		(1,654	)		(915	)
Other		(279	)		(13	)
Balance, March 31, 2019	$	630
Balance, December 29, 2019				$	884

Revenue by product group for the periods presented was as follows (thousands of dollars):

	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018		December 29, 2019		December 30, 2018		December 29, 2019		December 30, 2018
Keys & Locksets	$	34,677	$	32,228	$	101,722	$	84,866	$	29,177	$	32,693	$	61,646	$	67,045
Door Handles & Exterior Trim										26,131		25,803		57,522		51,761
Power Access		25,398		22,278		68,193		64,028		16,262		20,396		35,720		42,795
Door Handles & Exterior Trim		32,212		24,032		83,973		63,602
Latches										13,074		11,709		26,971		22,764
Aftermarket & OE Service										12,135		10,776		23,048		21,760
Driver Controls		10,532		14,514		31,370		39,463		7,976		10,091		17,761		20,838
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		1,528		1,445		3,577		3,109
	$	128,230	$	116,823	$	358,302	$	322,465	$	106,283	$	112,913	$	226,245	$	230,072

Revenue by customer or customer group for the periods presented was as follows (thousands of dollars):

	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018		December 29, 2019		December 30, 2018		December 29, 2019		December 30, 2018
Fiat Chrysler Automobiles	$	29,917	$	31,283	$	85,824	$	77,387	$	27,154	$	25,610	$	52,636	$	55,907
General Motors Company		30,969		22,417		80,111		64,151		25,405		23,855		59,243		49,142
Ford Motor Company		15,942		18,062		47,579		49,494		15,253		16,114		31,065		31,637
Tier 1 Customers		20,078		19,027		56,357		51,284		14,784		18,463		32,531		36,279
Commercial and Other OEM Customers		22,794		21,713		65,190		59,341		21,420		21,468		42,766		42,396
Hyundai / Kia		8,530		4,321		23,241		20,808		2,267		7,403		8,004		14,711
	$	128,230	$	116,823	$	358,302	$	322,465	$	106,283	$	112,913	$	226,245	$	230,072

Net other income (expense) included in the accompanying Condensed Consolidated Statements of ~~Income (Loss)~~Loss and Comprehensive (Loss) Income primarily included foreign currency transaction gains and losses, realized and unrealized losses on our Mexican peso currency forward contracts, net periodic pension and postretirement benefit ~~(costs) credits,~~costs, other than the service cost component, related to our pension and postretirement plans and Rabbi Trust gains and losses. Foreign currency transaction gains and losses resulted from activity associated with foreign denominated assets held by our Mexican subsidiaries. We entered into the Mexican Peso currency forward contracts described above to minimize earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. 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						Three Months Ended						Six Months Ended
	March 31, 2019			April 1, 2018			March 31, 2019			April 1, 2018			December 29, 2019			December 30, 2018			December 29, 2019			December 30, 2018
Foreign Currency Transaction Loss	$	(192	)	$	(592	)	$	(261	)	$	(173	)
Unrealized Gain (Loss) on Peso Forward Contracts		23			392			116			(687	)
Foreign Currency Transaction (Loss) Gain													$	(363	)	$	359		$	(448	)	$	(69	)
Unrealized (Loss) Gain on Peso Forward Contracts														—			(132	)		—			93
Realized Gain on Peso Forward Contracts		122			322			344			981			—			50			—			222
Pension and Postretirement Plans (Cost) Credit		(27	)		111			(662	)		335
Pension and Postretirement Plans Cost														(117	)		(317	)		(234	)		(635	)
Rabbi Trust Gain (Loss)		257			(14	)		57			178			187			(279	)		185			(200	)
Other		26			(61	)		108			(280	)		316			57			423			82
	$	209		$	158		$	(298	)	$	354		$	23		$	(262	)	$	(74	)	$	(507	)

Our ~~income~~effective tax ~~provision~~rate was 26.7% and 26.4% for the three months ended December 29, 2019 and ~~nine month~~December 30, 2018, respectively. Our effective tax rate was (6.7)% and 31.2% for the six months ended December 29, 2019 and December 30, 2018, respectively. During the periods ended ~~April 1, 2018 were~~December 29, 2019, our effective tax rate 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 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~~discrete impact of the ~~Act, we recorded a discrete net tax benefit of $309,000~~non-cash compensation expense, as discussed under Pension and ~~$854,000 for~~Postretirement Benefits below. During the ~~three and nine month~~ periods ended ~~April 1, 2018. This net~~December 30, 2018, our effective tax ~~benefit primarily consisted of (1)~~rate was impacted by the discrete 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 December 31, 2017. However, we were able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments of these elements during the three month period ended December 31, 2017. 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 three and nine month periods ended March 31, 2019 were impacted by a $7.9 million tax benefit resulting from the~~pension termination ~~of our qualified, noncontributory defined benefit pension plan~~settlement charge, 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 tax benefit of $372,000, which represents measurement period adjustments to the one-time transition tax on non-previously taxed post 1986 accumulated foreign ~~earnings. The expected annual~~earnings occurring as a result of the enactment of the Tax Cuts and Jobs Act of 2017. Our effective tax rate ~~between our fiscal 2019 and 2018 years decreased~~prior to discrete impacts increased from ~~approximately 20.6~~5.1 percent ~~as April 1,~~for the periods ended December 30, 2018 to ~~approximately 10.7~~15.6 percent ~~as of March 31,~~for the periods ended December 29, 2019 due to a larger tax benefit in 2018 related to the ~~reduction in~~impact of the ~~U.S.~~global intangible low-taxed income (“GILTI”) provisions. Our effective tax rate differs from the statutory tax rate ~~between years~~due the GILTI provisions each period, our available R&D tax credit and ~~changes in the U.S. taxation of non-U.S. earnings.~~

~~Additionally, our income tax provisions for the three and nine months 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.

Basic ~~earnings (loss)~~loss per share is computed on the basis of the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the potential dilutive common shares outstanding during the applicable period using the treasury stock method. Potential dilutive common shares include outstanding stock options and unvested restricted stock awards.

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

Three Months Ended

March 31,
2019

April 1,
2018

Net income

Shares

Per-Share Amount

Net income

Shares

Per-Share Amount

Basic Earnings Per Share
$
1,730

3,684

$
0.47

$
2,969

3,634

$
0.82

Stock Option and Restricted
Stock Awards

—

44

—

74

Diluted Earnings Per Share
$
1,730

3,728

$
0.46

$
2,969

3,708

$
0.80

	Three Months Ended
	December 29, 2019								December 30, 2018
	Net Loss			Shares		Per-Share Amount			Net Loss			Shares		Per-Share Amount
Basic Loss Per Share	$	(1,341	)		3,741	$	(0.36	)	$	(22,164	)		3,675	$	(6.03	)
Stock Option and Restricted Stock Awards		—			—					—			43
Diluted Loss Per Share	$	(1,341	)		3,741	$	(0.36	)	$	(22,164	)		3,718	$	(5.96	)

The calculation of ~~earnings~~loss per share excluded 90,860 and 41,200 share-based payment awards ~~for the quarters ended March 31,~~as of December 29, 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 1,December 30, 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 ~~March 31,~~December 29, 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 ~~March 31,~~December 29, 2019 were ~~148,239.~~112,839. Awards that expire or are canceled without delivery of shares become available for re-issuance under the plan. We issue new shares of common stock to satisfy stock option exercises.

Nonqualified and incentive stock options and shares of restricted stock have been granted to our officers, outside directors and specified associates under our stock incentive plan. Stock options granted under the plan may not be issued with an exercise price less than the fair market value of the common stock on the date the option is granted. Stock options become exercisable as determined at the date of grant by the Compensation Committee of the Board of Directors. The options expire 10 years after the grant date unless an earlier expiration date is set at the time of grant. The options vest 1 to 4 years after the date of grant as determined by the Compensation Committee of the Board of Directors. Shares of restricted stock granted under the plan are subject to vesting criteria determined by the Compensation Committee of the Board of Directors at the time the shares are granted and have a minimum vesting period of one year from the date of grant. Unvested restricted shares granted have voting rights, regardless of whether the shares are vested or unvested, but only have the right to receive cash dividends after such shares become vested. Restricted stock grants vest 1 to 5 years after the date of grant as determined by the Compensation Committee of the Board of Directors.

The fair value of each stock option grant was estimated as of the date of grant using the Black-Scholes pricing model. The fair value of each restricted stock grant was based on the market price of the underlying common stock as of the date of grant. The resulting compensation cost for fixed awards with graded vesting schedules is amortized on a straight line basis over the vesting period for the entire award.

A summary of stock option activity under our stock incentive plan for the ~~nine~~six months ended ~~March 31,~~December 29, 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				Six Months Ended
	March 31, 2019		April 1, 2018		March 31, 2019		April 1, 2018		December 29, 2019		December 30, 2018		December 29, 2019		December 30, 2018
Intrinsic Value of Options Exercised	$	269	$	—	$	324	$	110	$	83	$	55	$	120	$	55
Fair Value of Stock Options Vesting	$	—	$	—	$	—	$	315	$	—	$	—	$	—	$	—

NoNaN options were granted during the ~~nine~~six month periods ended ~~March 31,~~December 29, 2019 or ~~April 1,~~December 30, 2018.

A summary of restricted stock activity under our omnibus stock incentive plan for the ~~nine~~six months ended ~~March 31,~~December 29, 2019 was as follows:

	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Nonvested Balance, July 1, 2018		69,125		$	49.02
Nonvested Balance, June 30, 2019							63,757		$	39.47
Granted		34,050		$	37.25		39,150		$	21.80
Vested		(37,343	)	$	54.93		(27,318	)	$	37.86
Forfeited		(1,325	)	$	47.17		(2,700	)	$	30.53
Nonvested Balance, March 31, 2019		64,507		$	39.44
Nonvested Balance, December 29, 2019							72,889		$	30.91

As of ~~March 31,~~December 29, 2019, all compensation cost related to outstanding stock options granted under our omnibus stock incentive plan has been recognized. As of ~~March 31,~~December 29, 2019, there was approximately ~~$1.4~~$1.3 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 ~~one~~1 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. 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 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. NoNaN 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~~$31.9 million was recorded during ~~the quarter ended December 30, 2018.~~fiscal 2019. A ~~remaining~~ non-cash compensation expense charge of ~~approximately $8~~$4.2 million ~~is expected~~was also recorded during fiscal 2019 related to ~~be recorded~~the future transfer of the excess assets in ~~future periods when~~ the Qualified Pension Plan ~~is fully terminated and the excess Plan assets are transferred~~ to a STRATTEC defined contribution plan for subsequent pay-out to eligible STRATTEC employees based on a plan approved by the Board of Directors in June 2019. An additional $4.5 million non-cash compensation expense charge related to the final transfer and ~~subsequently paid out.~~pay-out of the excess Qualified Pension Plan assets was recorded during the six month period ended December 29, 2019, of which $2.2 million was recorded during the three month period ended September 29, 2019 and $2.3 million was recorded during the three month period ended December 29, 2019. As of December 29, 2019, the excess Qualified Pension Plan assets were transferred to our defined contribution plan and distributed to eligible STRATTEC employees, which completed the full termination of the Qualified Pension Plan.

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~~$3.1 million at ~~March 31,~~December 29, 2019 and $2.9 million at ~~July 1, 2018~~June 30, 2019 and are included in Other Long-Term Assets in the accompanying Condensed Consolidated Balance Sheets.

We also sponsor a postretirement health care plan for all U.S. associates hired prior to June 1, 2001. The expected cost of retiree health care benefits is recognized during the years the associates who are covered under the plan render service. Effective January 1, 2010, an amendment to the postretirement health care plan limited the benefit for future eligible retirees to $4,000 per plan year and the benefit is further subject to a maximum five year coverage period based on the associate’s retirement date and age. The postretirement health care plan is unfunded.

The service cost component of the net periodic benefit costs under these plans is allocated between Cost of Goods Sold and Engineering, Selling and Administrative Expenses while the remaining components of the net periodic benefit costs are included in Other Income (Expense), net in the accompanying Condensed Consolidated Statements of ~~Income (Loss)~~Loss and Comprehensive (Loss) Income.

The following table summarizes the net periodic benefit cost recognized for each of the periods indicated under these plans (in thousands):

Pension Benefits

Postretirement Benefits

Three Months Ended

Three Months Ended

March 31,
2019

April 1,
2018

March 31,
2019

April 1,
2018

Service cost

$
15

$
17

$
2

$
3

Interest cost

19

965

8

11

Expected return on plan assets

—

(1,528
)

—

—

Amortization of prior service cost (credit)

—

3

(109
)

(191
)
Amortization of unrecognized net loss

—

509

109

119

Net periodic benefit cost (credit)

$
34

$
(34
)

$
10

$
(58
)

	Pension Benefits					Postretirement Benefits
	Three Months Ended					Three Months Ended
	December 29, 2019		December 30, 2018			December 29, 2019			December 30, 2018
Service Cost	$	18	$	15		$	3		$	3
Interest Cost		15		1,032		7				11
Expected Return on Plan Assets		—		(1,138	)		—			—
Plan Settlements		—		32,434			—			—
Amortization of Prior Service Cost (Credit)		—		—			(8	)		(110	)
Amortization of Unrecognized Net Loss		3		416		100				107
Net Periodic Benefit Cost	$	36	$	32,759		$	102		$	11

Within the tables above, we have revised the plan settlement charge and net periodic benefit cost for the three and six months ended December 30, 2018 that was previously disclosed in our December 30, 2018 financial statements. This revision is not material to the financial statements.

NoNaN voluntary contributions were made to the Qualified Pension Plan during the ~~nine~~three or six month periods ended ~~March 31,~~December 29, 2019 and ~~April 1,~~December 30, 2018. NoNaN additional future contributions will be made ~~in conjunction with the termination of~~to the Qualified Pension Plan.

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

Nine Months Ended March 31, 2019

Foreign
Currency
Translation
Adjustments

Retirement
and
Postretirement
Benefit Plans

Total

Balance, July 1, 2018

$
15,291

$
18,148

$
33,439

Other comprehensive loss before reclassifications

146

—

146

Income tax

(185
)

—

(185
)
Net other comprehensive loss before
Reclassifications

(39
)

—

(39
)
Reclassifications:

Pension Termination Settlement (A)

—

(25,668
)

(25,668
)
Prior service credits (A)

—

329

329

Actuarial gains (A)

—

(1,155
)

(1,155
)
Total reclassifications before tax

—

(26,494
)

(26,494
)
Income tax

—

6,502

6,502

Net reclassifications

—

(19,992
)

(19,992
)
Other comprehensive 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

	Three Months Ended December 29, 2019
	Foreign Currency Translation Adjustments			Retirement and Postretirement Benefit Plans			Total
Balance, September 29, 2019	$	17,513		$	2,178		$	19,691
Other Comprehensive Income Before Reclassifications		(1,634	)		—			(1,634	)
Income Tax		—			—			—
Net Other Comprehensive Income Before Reclassifications		(1,634	)		—			(1,634	)
Reclassifications:
Prior Service Credits (A)		—			8			8
Unrecognized Net Loss (A)		—			(103	)		(103	)
Total Reclassifications Before Tax		—			(95	)		(95	)
Income Tax		—			22			22
Net Reclassifications		—			(73	)		(73	)
Other Comprehensive Income		(1,634	)		(73	)		(1,707	)
Other Comprehensive Income Attributable to Non- Controlling Interest		(502	)		—			(502	)
Balance, December 29, 2019	$	16,381		$	2,105		$	18,486

Nine Months Ended April 1, 2018

Foreign
Currency
Translation
Adjustments

Retirement
and
Postretirement
Benefit Plans

Total

Balance, July 2, 2017

$
14,138

$
18,750

$
32,888

Other comprehensive loss before reclassifications

(1,193
)

—

(1,193
)
Income tax

—

—

—

Net other comprehensive loss before
Reclassifications

(1,193
)

—

(1,193
)
Reclassifications:

Prior service credits (A)

—

564

564

Unrecognized net loss (A)

—

(1,885
)

(1,885
)
Total reclassifications before tax

—

(1,321
)

(1,321
)
Income tax

—

428

428

Net reclassifications

—

(893
)

(893
)
Other comprehensive 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

	Three Months Ended December 30, 2018
	Foreign Currency Translation Adjustments			Retirement and Postretirement Benefit Plans			Total
Balance, September 30, 2018	$	15,114		$	17,832		$	32,946
Other Comprehensive Loss Before Reclassifications		2,014			—			2,014
Income Tax		(185	)		—			(185	)
Net Other Comprehensive Loss Before Reclassifications		1,829			—			1,829
Reclassifications:
Pension Termination Settlement (A)		—			(25,668	)		(25,668	)
Prior Service Credits (A)		—			110			110
Unrecognized Net Loss (A)		—			(523	)		(523	)
Total Reclassifications Before Tax		—			(26,081	)		(26,081	)
Income Tax		—			6,404			6,404
Net Reclassifications		—			(19,677	)		(19,677	)
Other Comprehensive Loss (Income)		1,829			(19,677	)		(17,848	)
Other Comprehensive Income Attributable to Non- Controlling Interest		497			—			497
Reclassification of stranded tax effects		83			3,964			4,047
Balance, December 30, 2018	$	16,529		$	2,119		$	18,648

	Six Months Ended December 30, 2018
	Foreign Currency Translation Adjustments			Retirement and Postretirement Benefit Plans			Total
Balance, July 1, 2018	$	15,291		$	18,148		$	33,439
Other Comprehensive Loss Before Reclassifications		1,183			—			1,183
Income Tax		(185	)		—			(185	)
Net Other Comprehensive Loss Before Reclassifications		998			—			998
Reclassifications:
Pension Termination Settlement (A)		—			(25,668	)		(25,668	)
Prior Service Credits (A)		—			220			220
Unrecognized Net Loss (A)		—			(1,046	)		(1,046	)
Total Reclassifications Before Tax		—			(26,494	)		(26,494	)
Income Tax		—			6,501			6,501
Net Reclassifications		—			(19,993	)		(19,993	)
Other Comprehensive Loss (Income)		998			(19,993	)		(18,995	)
Other Comprehensive Income Attributable to Non- Controlling Interest		(157	)		—			(157	)
Reclassification of stranded tax effects		83			3,964			4,047
Balance, December 30, 2018	$	16,529		$	2,119		$	18,648

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 ~~2018 Annual Report~~2019 Form 10-K, which was filed with the Securities and Exchange Commission ~~as an exhibit to its Form 10-K~~ on September ~~6, 2018.~~5, 2019. Unless otherwise indicated, all references to quarters and years refer to fiscal quarters and fiscal years.

During the fiscal years ended June 30, 2019 and 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 flat or slightly higher over the next few years, we anticipate this consumer buying trend will continue. As we look out in calendar ~~2019,~~2020, 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 ~~2018.~~2019. The estimated impact of the General Motors UAW strike, which has reduced sales in our fiscal first and second quarters to date, may result in reduced sales in our entire fiscal year 2020 by approximately $10 million if these orders are not replenished later during fiscal 2020.

As described in “Pension and Postretirement Benefits” in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q, our Board of Directors has approved the termination of the STRATTEC qualified, noncontributory defined benefit pension plan. During our fiscal 2019, we completed a substantial portion of the termination by (1) making distributions from the qualified pension plan trust to participants electing lump sum distributions and (2) entering into an agreement with an insurance company whereby we sold, through a series of annuity contracts, our remaining obligations under the qualified pension plan and, therefore, settled the remaining obligations under this plan with use of funds remaining in the plan. No additional cash contributions to the pension trust were required from STRATTEC to settle these pension obligations. In connection with those actions, we incurred a pre-tax settlement charge of $31.9 million during fiscal 2019. We also incurred a $4.2 million noncash compensation charge during fiscal 2019 related to the future transfer of the remaining excess pension plan assets to a STRATTEC defined contribution plan for subsequent pay-out to eligible participating STRATTEC employees based on a plan approved by the Board of Directors in June 2019. An additional $4.5 million non-cash compensation expense charge related to the final transfer and pay-out of the excess Qualified Pension Plan assets was recorded during the six month period ended December 29, 2019, of which $2.2 million was recorded during the three month period ended September 29, 2019 and $2.3 million was recorded during the three month period ended December 29, 2019. With these final actions during the quarter ended December 29, 2019, we have completed the full termination of the qualified pension plan.

Three months ended ~~March 31,~~September 29, 2019 compared to the three months ended ~~April 1,~~September 30, 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
	March 31, 2019		April 1, 2018		December 29, 2019		December 30, 2018
Fiat Chrysler Automobiles	$	29.9	$	31.3	$	27.2	$	25.7
General Motors Company		31.0		22.4		25.4		23.8
Ford Motor Company		15.9		18.1		15.3		16.1
Tier 1 Customers		20.1		19.0		14.7		18.5
Commercial and Other OEM Customers		22.8		21.7		21.4		21.4
Hyundai / Kia		8.5		4.3		2.3		7.4
	$	128.2	$	116.8	$	106.3	$	112.9

Sales to Fiat Chrysler Automobiles ~~decreased~~increased in the current year quarter as compared to the prior year quarter due to ~~lower production volumes~~higher product content on the FCA vehicles for which we ~~supply.~~supply components. 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 on ~~models for which~~products we supply ~~components,~~to their business. As discussed under Outlook above, the impact of the General Motors UAW strike reduced our net sales by approximately $7 million in ~~particular power access products and latches.~~the current year quarter. Sales to Ford Motor Company decreased in the current year quarter as compared to the prior year quarter due to ~~a combination of discontinued models and~~ lower production volumes on the ~~vehicles~~F-series pickup trucks for which we supply various components. ~~Sales~~The decrease in sales to Tier 1 ~~Customers increased~~customers in the current ~~year~~ quarter as compared to the prior year quarter was due to ~~higher~~lower sales ofvolumes on our ~~door handle and component products.~~driver controls steering column used on passenger car type vehicles. Sales to Commercial and Other OEM Customers ~~during~~in the current ~~year~~ quarter ~~increased~~were flat in comparison to the prior year ~~quarter due to increases in sales related to painted door handle programs for Volkswagen.~~quarter. 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~~decreased sales to Hyundai / Kia in the current year quarter as compared to the prior year quarter iswere due to ~~higher~~lower levels of production of the Kia Sedona minivan for which we primarily supply ~~primarily~~ power sliding door components.

Direct material costs are the most significant component of our cost of goods sold and comprised ~~$74.5~~$59.7 million or ~~66.2~~62.2 percent of our cost of goods sold in the current year quarter compared to ~~$65.6~~$65.4 million or ~~64.5~~65.3 percent of our cost of goods sold in the prior year quarter. The ~~increase~~decrease in our direct material costs between these quarters of ~~$8.9~~$5.7 million or ~~13.6~~8.7 percent was due to ~~increased~~decreased sales volumes in the current year quarter as compared to the prior year ~~quarter.~~quarter and reduced scrap costs resulting from efforts to reduce nonconforming costs resulting from internal manufacturing process quality issues. The ~~increase~~reduction 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 nonconforming costs resulting from internal manufacturing process quality issues~~a $1.4 million increase in our cost of goods sold due to a non-cash compensation expense charge incurred in the current year quarter and due to decreased sales of power access products in the current year quarter as compared to the prior year ~~quarter and an increase in sales of products for certain electrical and latch programs~~quarter. The non-cash compensation expense charge in the current year quarter ~~over~~related to the ~~prior year quarter,~~December 2019 transfer of excess Qualified Pension Plan assets, resulting from the termination of the Qualified Pension Plan, to a STRATTEC defined contribution plan for ~~which~~pay-out to eligible STRATTEC employees. Without this non-cash compensation expense charge, the direct material ~~content represents~~costs as a ~~more significant portion~~percentage of ~~the total~~our cost of goods sold in the ~~product. This trend is expected~~current year quarter would have been 63.1 percent. Power access products have a higher purchased content percentage as compared to ~~continue for the remainder~~our other products. The decreased sales of power access products between periods further reduced our direct material costs as a percentage of our ~~fiscal year 2019.~~cost of goods sold.

The remaining components of our cost of goods sold consist of labor and overhead costs which increased ~~$2.0~~$1.5 million or ~~5.6~~4.3 percent to ~~$38.0~~$36.3 million in the current year quarter from ~~$36.0~~$34.8 million in the prior year quarter. Current year quarter costs include a $1.4 million non-cash compensation expense charge related to the transfer of excess Qualified Pension Plan assets as described above. Additionally, labor and overhead costs decreased in the current year quarter as compared to the prior year quarter due to a decrease in the variable portion of these costs ~~increased due to~~resulting from the ~~increase~~decrease in sales ~~volumes~~ between the three month ~~periods. Additionally,~~periods and improvements in our operations at our paint and assembly facility in Leon, Mexico. These cost decreases were offset by 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. 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~~an unfavorable Mexican peso to U.S. dollar exchange rate affecting our operations in Mexico. The U.S. dollar value of our Mexican operations was ~~favorably~~unfavorably impacted by approximately ~~$472,000~~$415,000 in the current year quarter as compared to the prior year quarter due to a ~~favorable~~unfavorable Mexican peso to U.S. dollar exchange rate between these quarterly periods. The average U.S. dollar / Mexican peso exchange rate increased to approximately ~~19.28~~19.31 pesos to the dollar in the current year quarter from approximately ~~18.75~~19.85 pesos to the dollar in the prior year quarter.

	Three Months Ended						Three Months Ended
	March 31, 2019			April 1, 2018			December 29, 2019			December 30, 2018
Gross Profit (in millions)	$	15.7		$	15.2		$	10.3		$	12.7
Gross Profit as a percentage of net sales		12.2	%		13.0	%		9.7	%		11.3	%

Gross profit dollars ~~increased~~decreased in the current year quarter as compared to the prior year quarter as a result of ~~an increase~~a decrease in sales partially offset by ~~an increase~~a decrease 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~~reduction was due a ~~percentage~~$1.4 million non-cash compensation expense charge related to the December 2019 transfer of ~~net sales was negatively impacted by~~excess Qualified Pension Plan assets to a STRATTEC defined contribution plan, an increase in the Mexican minimum wage for our Mexican workforce effective January 1, 2019, and ~~higher than expected production costs~~the impact of an unfavorable Mexican peso to U.S. dollar exchange rate affecting our operations in Mexico. These unfavorable impacts were partially offset by improvements in our operations 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,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
	March 31, 2019			April 1, 2018			December 29, 2019			December 30, 2018
Expenses (in millions)	$	11.7		$	10.8		$	12.1		$	10.5
Expenses as a percentage of net sales		9.1	%		9.3	%		11.4	%		9.3	%

Engineering, selling and administrative expenses in the current year quarter increased in comparison to the prior year quarter as a result of a $869,000 non-cash compensation expense charge related to the transfer of excess Qualified Pension Plan assets, as discussed above, and higher outside expenditures on new product development costs ~~associated with utilizing~~for power access products, for which we utilize 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~~Loss from operations was ~~$4.0~~$1.8 million in the current year quarter compared to ~~$4.4~~income from operations of $2.3 million in the prior year quarter asdue to a reduction in gross profit margin dollars and an increase in engineering, selling and administrative expenses ~~was partially offset by an increase in gross margin dollars,~~between quarters, 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
	March 31, 2019		April 1, 2018			December 29, 2019			December 30, 2018
Vehicle Access Systems Technology LLC	$	25	$	703		$	496		$	1,487
STRATTEC Advanced Logic, LLC		41		(84	)		(4	)		(11	)
	$	66	$	619		$	492		$	1,476

Lower profitability offrom our Vehicle Access Systems Technology LLC (“VAST LLC”) joint ventures is due to lower ~~net sales and~~profitability in our VAST China operation resulting from higher development costs for new programs ~~at our VAST China operation~~ and ~~start-up~~startup costs ~~for our~~associated with a new plant ~~operation~~ in Jingzhou, ~~China.~~China, which we believe will give VAST added capacity, efficiencies, and a broader geographic footprint in the China market going forward. Our VAST LLC 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 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 business of SAL LLC has been wound down to sell only commercial biometric locks.

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

	Three Months Ended						Three Months Ended
	March 31, 2019			April 1, 2018			December 29, 2019			December 30, 2018
Foreign Currency Transaction Loss	$	(192	)	$	(592	)
Unrealized Gain on Peso Forward Contracts		23			392
Foreign Currency Transaction (Loss) Gain							$	(363	)	$	359
Unrealized Loss on Peso Forward Contracts								-			(132	)
Realized Gain on Peso Forward Contracts		122			322			-			50
Pension and Postretirement Plans (Cost) Credit		(27	)		111
Pension and Postretirement Plans Cost								(117	)		(317	)
Rabbi Trust Gain (Loss)		257			(14	)		187			(279	)
Other		26			(61	)		316			57
	$	209		$	158		$	23		$	(262	)

Foreign currency transaction losses during the current year quarter and prior year 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 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 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 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 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.

In connection with our analysis of the impact of the Act, we recorded a discrete net tax benefit of $309,000 for the three 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

Our 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 December 31, 2017. However, we were able to make reasonable estimates of certain effectsrate was 26.7% and therefore, recorded provisional adjustments of these elements during the three month period ended December 31, 2017. We identified these items as provisional since our analysis of the items was 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, 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 statements26.4% for the three months ended December ~~31, 2017. However, as of December 31, 2017, 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,29, 2019 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~~respectively. During the period ended December 29, 2019, our ~~accounting for all income~~effective tax ~~elements~~rate was impacted by the discrete impact of the ~~Act. No measurement~~non-cash compensation expense, as discussed under Pension and Postretirement Benefits below. During the period ~~adjustments~~ended December 30, 2018, our effective tax rate was impacted by the discrete impact of the pension termination settlement charge, as discussed under Pension and Postretirement Benefits below. Our effective tax rate prior to discrete impacts increased from 5.1 percent for the period ended December 30, 2018 to 15.6 percent for the period ended December 29, 2019 due to a larger tax benefit in 2018 related to the ~~Act were recorded in~~impact of the ~~three month period ended March 31, 2019.~~

~~Our~~global intangible low-taxed income ~~tax provision for the three month periods ended March 31, 2019 was impacted by a reduction in the expected~~(“GILTI”) provisions. Our effective tax rate ~~as compared to~~differs from the ~~prior year period. The expected annual effective~~statutory tax rate ~~between~~due the GILTI provisions each period, our ~~fiscal 2019~~available R&D tax credit and 2018 years decreased to approximately 10.7 percent as of March 2019 from approximately 20.6 percent as of 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 three 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.

~~Nine~~Six months ended ~~March 31,~~December 29, 2019 compared to the ~~nine~~six months ended ~~April 1,~~December 30, 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):

	Nine Months Ended				Six Months Ended
	March 31, 2019		April 1, 2018		December 29, 2019		December 30, 2018
Fiat Chrysler Automobiles	$	85.8	$	77.4	$	52.6	$	56.0
General Motors Company		80.1		64.2		59.2		49.1
Ford Motor Company		47.6		49.5		31.1		31.6
Tier 1 Customers		56.4		51.3		32.5		36.3
Commercial and Other OEM Customers		65.2		59.3		42.8		42.4
Hyundai / Kia		23.2		20.8		8.0		14.7
	$	358.3	$	322.5	$	226.2	$	230.1

Sales to Fiat Chrysler Automobiles ~~increased~~decreased in the current year period as compared to the prior year period due to lower vehicle production volumes on the FCA minivans for which we supply multiple components, which decrease was partially offset by higher product content on ~~the components~~other FCA vehicles for which we supply ~~on certain vehicles, in particular the Ram pickup truck.~~components. 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 higher content on ~~models for which~~products we supply ~~components,~~to their business. As discussed under Outlook above, the estimated impact of the General Motors UAW strike reduced our net sales by approximately $10 million in ~~particular power access products and latches.~~the current year period. Sales to Ford Motor Company ~~decreased~~and Commercial and Other OEM Customers were flat 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. Theseperiod. The 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~~decrease in sales to Tier 1 customers in the current year period as compared to the prior year period was due to lower sales volumes on our driver controls steering column used on passenger car type vehicles. The decreased sales to Hyundai / Kia in the current year period as compared to the prior year period ~~was~~were due to ~~higher~~lower levels of production of the Kia Sedona minivan for which we primarily supply ~~primarily~~ power sliding door components.

Direct material costs are the most significant component of our cost of goods sold and comprised ~~$207.7~~$128.2 million or ~~66.0~~64.1 percent of our cost of goods sold in the current year period compared to ~~$179.9~~$133.2 million or ~~64.0~~65.9 percent of our cost of goods sold in the prior year period. The ~~increase~~decrease in our direct material costs between these ~~periods~~quarters of ~~$27.8~~$5.0 million or ~~15.5~~3.8 percent was due to ~~increased~~decreased sales volumes in the current year period as compared to the prior year ~~period.~~period and reduced scrap costs resulting from efforts to reduce nonconforming costs resulting from internal manufacturing process quality issues. The ~~increase~~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, in part, due to ~~increased nonconforming costs resulting~~a $2.7 million increase in our cost of goods sold from ~~internal manufacturing process quality issues~~a non-cash compensation expense charge incurred in the current year period and as a result of decreased sales of power access products 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~~period. The non-cash compensation expense charge in the current year period ~~over~~related to the ~~prior year period,~~December 2019 transfer of excess Qualified Pension Plan assets, resulting from the termination of the Qualified Pension Plan, to a STRATTEC defined contribution plan for ~~which~~pay-out to eligible STRATTEC employees. Without this non-cash compensation expense charge, the direct material ~~content represents~~costs as a ~~more significant portion~~percentage of ~~the total~~our cost of goods sold in the ~~product. This trend is expected~~current year period would have been 65.0 percent. Power access products have a higher purchased content percentage as compared to ~~continue for the remainder~~our other products. The decreased sales of power access products between periods further reduced our direct material costs as a percentage of our ~~fiscal year 2019.~~cost of goods sold.

The remaining components of our cost of goods sold consist of labor and overhead costs which increased ~~$5.7~~$2.8 million or ~~5.6~~4.1 percent to ~~$107.0~~$71.8 million in the current year period from ~~$101.3~~$69.0 million in the prior year period. Current year period ~~as the variable portion of these~~ costs ~~increased due~~included a $2.7 million non-cash compensation expense charge related to the ~~increase in sales volumes between the nine month periods.~~December 2019 transfer of excess Qualified Pension Plan assets as described above. Additionally, ~~an increase in the Mexican minimum wage for our Mexican workforce effective January 1, 2019, higher expediting~~labor and overhead 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 costsdecreased in the current year period as compared to the prior year ~~period. These cost increases were partially offset by~~period due to a ~~favorable product~~decrease in the variable portion of these costs resulting from the decrease in sales ~~mix, which included increased sales of~~between the six-month periods, improvements in our ~~door handle~~operations at our paint and ~~exterior trim and power access products,~~assembly facility in Leon, Mexico, 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 was favorably impacted by approximately ~~$2.1 million~~$110,000 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~~six-month periods. The average U.S. dollar / Mexican peso exchange rate increased to approximately ~~19.36~~19.46 pesos to the dollar in the current year period from approximately ~~18.54~~19.41 pesos to the dollar in the prior year period. These cost decreases were offset by an increase in the Mexican minimum wage for our Mexican workforce effective January 1, 2019.

	Nine Months Ended						Six Months Ended
	March 31, 2019			April 1, 2018			December 29, 2019			December 30, 2018
Gross Profit (in millions)	$	43.6		$	41.3		$	26.2		$	27.9
Gross Profit as a percentage of net sales		12.2	%		12.8	%		11.6	%		12.1	%

~~The increase in gross~~Gross profit dollars decreased in the current year period as compared to the prior year period ~~was attributed to the increase~~as a result of a decrease in sales partially offset by ~~the increase~~a decrease 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~~reduction was due to a ~~percentage~~$2.7 million non-cash compensation expense charge related to the December 2019 transfer of ~~net sales was negatively impacted by customer price reductions,~~excess Qualified Pension Plan assets and an increase in the Mexican minimum wage ~~higher expediting costs associated with new product launches, and higher than expected production costs~~for our Mexican workforce effective January 1, 2019. These unfavorable impacts were partially offset by improvements in our operations 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~~affecting our ~~Mexican~~ operations in Mexico, all as discussed above.

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

	Nine Months Ended						Six Months Ended
	March 31, 2019			April 1, 2018			December 29, 2019			December 30, 2018
Expenses (in millions)	$	33.2		$	31.0		$	25.0		$	21.5
Expenses as a percentage of net sales		9.3	%		9.6	%		11.1	%		9.3	%

Engineering, selling and administrative expenses ~~increased during~~in the current year period ~~as compared to the prior year period. The current year period as compared~~increased in comparison to the prior year period ~~included an increase in~~as a result of a $1.7 million non-cash compensation expense charge related to the transfer of excess Qualified Pension Plan assets, as discussed above, and higher 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.work.

Income from operations was ~~$10.4~~$1.2 million in the current year period compared to ~~$10.3~~$6.4 million asin the prior year period ~~over period increase~~due to a reduction in ~~the~~ gross profit margin ~~was offset by~~dollars and 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):

	Nine Months Ended					Six Months Ended
	March 31, 2019		April 1, 2018			December 29, 2019			December 30, 2018
Vehicle Access Systems Technology LLC	$	2,427	$	3,142		$	983		$	2,402
STRATTEC Advanced Logic, LLC		24		(24	)		(7	)		(17	)
	$	2,451	$	3,118		$	976		$	2,385

Lower profitability from our Vehicle Access Systems Technology LLC (“VAST LLC”) joint ventures is due to lower profitability in our VAST China operation resulting from higher development costs for new programs and costs associated with breaking ground for a new plant in Jingzhou, China, which we believe will give VAST added capacity, efficiencies, and a broader geographic footprint in the China market going forward. 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):

	Nine Months Ended						Six Months Ended
	March 31, 2019			April 1, 2017			December 29, 2019			December 30, 2018
Foreign Currency Transaction Loss	$	(261	)	$	(173	)	$	(448	)	$	(69	)
Unrealized Gain (Loss) on Peso Forward Contracts		116			(687	)
Unrealized Gain on Peso Forward Contracts								-			93
Realized Gain on Peso Forward Contracts		344			981			-			222
Pension and Postretirement Plans (Cost) Credit		(662	)		335
Rabbi Trust Gain		57			178
Pension and Postretirement Plans Cost								(234	)		(635	)
Rabbi Trust Gain (Loss)								185			(200	)
Other		108			(280	)		423			82
	$	(298	)	$	354		$	(74	)	$	(507	)

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~~effective tax ~~provision~~rate was (6.7)% and 31.2% for the ~~nine month periods~~six months ended ~~April 1,~~December 29, 2019 and December 30, 2018, respectively. During the period ended December 29, 2019, our effective tax rate 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 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.

~~In connection with our analysis of the~~discrete impact of the ~~Act, we recorded a discrete net tax benefit of $854,000 for~~non-cash compensation expense, as discussed under Pension and Postretirement Benefits below. During the ~~nine month~~ period ended ~~April 1, 2018. This net~~December 30, 2018, our effective tax ~~benefit primarily consisted of (1)~~rate was impacted by the discrete 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.

~~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~~pension termination ~~of our qualified, noncontributory defined benefit pension plan~~settlement charge, 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 tax benefit of $372,000, which represents measurement period adjustments to the one-time transition tax on non-previously taxed post 1986 accumulated foreign ~~earnings. The expected annual~~earnings occurring as a result of the enactment of the Tax Cuts and Jobs Act of 2017. Our effective tax rate ~~between our fiscal~~prior to discrete impacts increased from 5.1 percent for the period ended December 30, 2018 to 15.6 percent for the period ended December 29, 2019 ~~and 2018 years decreased to approximately 10.7 percent as of March 2019 from approximately 20.6 percent as March 2018~~ due to a larger tax benefit in 2018 related to the ~~reduction in~~impact of the ~~U.S.~~global intangible low-taxed income (“GILTI”) provisions. Our effective tax rate differs from the statutory tax rate ~~between years~~due the GILTI provisions each period, our available R&D tax credit 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 ~~March 31,~~December 29, 2019 was as follows (in millions):

Fiat Chrysler Automobiles	$	18.3	$	15.3
General Motors Company	$	27.7	$	20.9
Ford Motor Company	$	9.8	$	7.4

We earn a portion of our operating income in Mexico. As of ~~March 31,~~December 29, 2019, ~~$2.8~~$3.6 million of our ~~$9.2~~$9.3 million cash and cash equivalents balance was held in Mexico. These funds are available for repatriation as deemed necessary.

	Nine Months Ended						Six Months Ended
	March 31, 2019			April 1, 2018			December 29, 2019			December 30, 2018
Cash Flows from (in millions):
Operating Activities	$	24.7		$	3.7		$	20.6		$	19.7
Investing Activities	$	(13.7	)	$	(19.2	)	$	(7.4	)	$	(9.4	)
Financing Activities	$	(9.7	)	$	14.5		$	(11.5	)	$	(6.9	)

The ~~change~~increase in cash provided by operating ~~cash flow~~activities between periods ~~was impacted by improvement in our overall financial results and~~reflected a ~~reduction in working capital requirements in the current year period as compared to an~~net increase in working capital requirements in the prior year period. The period over period decrease in net working capital requirements totaled $16.4 million. The 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~~of $1.0 million, with the increase in our working capital requirements being 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									Six Months Ended
	March 31, 2019			April 1, 2018			Change			December 29, 2019			December 30, 2018			Change
Accounts Receivable	$	14.4		$	5.2		$	9.2		$	(18.4	)	$	(7.3	)	$	(11.1	)
Inventory	$	0.2		$	7.5		$	(7.3	)	$	5.2		$	1.3		$	3.9
Other Assets	$	(5.5	)	$	8.3		$	(13.8	)	$	(1.4	)	$	(3.7	)	$	2.3
Accounts Payable and Accrued Liabilities	$	(10.8	)	$	(6.2	)	$	(4.6	)	$	9.1		$	3.2		$	5.9

The period over period change in the accounts receivable balances ~~reflected an increase in our accounts receivable balances~~is the result of the amount and timing of sales during ~~both the current year period and the prior year period.~~each quarter. The ~~increase~~reduction in accounts receivable balances during ~~both periods~~each year-to-date period reflected ~~increased~~reduced sales levels toward the end of each of our ~~March period ends~~December periods as compared to the end of the previous June periods. The period over period change in inventory reflected anlarger increase in inventory balances during the ~~prior year~~current year-to-date period ~~which was~~as compared to the ~~result~~prior-year-to-date period due to an inventory build-up of ~~ramping up for new customer program launches.~~General Motors components stemming from the impacts of the General Motors strike. The period over period change in other assets reflected a reduction in our other assets balances in both the current year period and ~~an increase in the other assets balances during~~ the prior year period. ~~The current year period reduction was~~During both periods, the ~~result of a reduction in customer tooling balances while the prior year increase was the result of increases in~~reductions were driven by lower 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. 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 billing for tooling cost reimbursement. The period over period change in accounts payable and accrued liability balances reflected ~~a reduction~~an increase in working capital requirements during each period. The ~~reductions~~increases in working capital requirements were the result of ~~increases~~decreases in accounts payable balances each period, which resulted from the timing of purchases and payments with our vendors based on normal payment terms.

Net cash used by investing activities of ~~$13.7~~$7.4 million during the current year period and ~~$19.2~~$9.4 million during the prior year period were the result of capital expenditures made in support of requirements for new product programs and the upgrade and replacement of existing equipment. Prior year period capital expenditures also included $1.4 million 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 ADAC-STRATTEC LLC Cash Requirements included herein.

Net cash used in financing activities during the current year period of ~~$9.7~~$11.5 million included repayments of borrowings under credit facilities of ~~$9.0~~$10.0 million, ~~$1.5~~$1.0 million of regular quarterly dividend payments to shareholders and ~~$1.4~~$980,000 of dividend payments to non-controlling interests in our subsidiaries, partially offset by $519,000 received for the exercise of stock options under our stock incentive plan and our employee stock purchase plan. Net cash used in financing activities of $6.9 million during the prior year period included repayments of borrowings under credit facilities of $7.0 million, $1.0 million of regular quarterly dividend payments to shareholders and $984,000 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.

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. No capital contributions were made to VAST LLC during the six months ended December 29, 2019 or December 30, 2018. During the ~~nine~~six months ended ~~March 31,~~December 29, 2019 and ~~April 1,~~December 30, 2018, VAST LLC made capital contributions to Sistema de Acesso Veicular Ltda totaling $200,000 and $300,000, respectively. Due to economic conditions in Brazil, ~~totaling $975,000 and $871,000, respectively. During the nine months ended March 31, 2019,~~we anticipate Sistema de Acesso Veicular Ltda will require a capital ~~contributions totaling $600,000 were made to VAST LLC~~contribution of approximately $300,000 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 ~~through calendar 2019.~~during the remainder of fiscal 2020. STRATTEC’s portion of the capital contributions is anticipated to be ~~$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, began the construction of a new manufacturing facility in Leon, Mexico during our fiscal 2017 and completed the 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. In connection with this facility construction, the ADAC-STRATTEC Credit Facility was amended 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.$100,000.

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. The business of SAL 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 ~~2019.~~2020.

We anticipate capital expenditures will be approximately ~~$17.0~~$15 million in fiscal 2020, of which $7.4 million has already been made through December 29, 2019, in support of requirements for new product programs and the upgrade and replacement of existing 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 ~~March 31,~~December 29, 2019. A total of 3,655,322 shares have been repurchased over the life of the program through ~~March 31,~~December 29, 2019, at a cost of approximately $136.4 million. No shares were repurchased during the ~~nine~~six month periods ended ~~March 31,~~December 29, 2019 or ~~April 1,~~December 30, 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 ~~2019.~~2020.

STRATTEC has a $40 million secured revolving credit facility (the “STRATTEC Credit Facility”) with BMO Harris Bank N.A. ADAC-STRATTEC LLC has a ~~$30~~$25 million secured revolving credit facility (the “ADAC-STRATTEC Credit Facility”) with BMO Harris Bank N.A., which is guaranteed by STRATTEC. The credit facilities both expire August 1, ~~2021. The ADAC-STRATTEC Credit Facility borrowing limit decreases to $25 million effective July 1, 2019.~~2022. Borrowings under either credit facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixed assets located in the U.S. Interest on borrowings under the STRATTEC Credit Facility 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. Outstanding borrowings under the STRATTEC Credit Facility totaled ~~$19~~$13 million at ~~March 31,~~December 29, 2019 and ~~$23~~$18 million at ~~July 1, 2018.~~June 30, 2019. The average outstanding borrowings and weighted average interest rate on the STRATTEC Credit Facility loans were approximately ~~$22.2~~$14.6 million and ~~3.3~~3.1 percent, respectively, during the ~~nine~~six months ended ~~March 31,~~December 29, 2019. Outstanding borrowings under the ADAC-STRATTEC Credit Facility totaled ~~$25~~$19 million at ~~March 31,~~December 29, 2019 and ~~$28.0~~$24.0 million at ~~July 2, 2017.~~June 30, 2019. The average outstanding borrowings and weighted average interest rate on the ADAC-STRATTEC Credit Facility loans were approximately ~~$26.3~~$21.5 million and ~~3.4~~3.3 percent, respectively, during the ~~nine~~six months ended ~~March 31,~~December 29, 2019.

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 from time to time entered into 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.~~costs to minimize our earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. Refer to discussion under 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, 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. Minda-VAST Access Systems is based in Pune, India and is a 50:50 joint venture with Minda Management Services Limited, an affiliate of both Minda Corporation Limited and Spark Minda, Ashok Minda Group of New Delhi, India (collectively “Minda”). Minda and its affiliates cater to the needs of all major car, motorcycle, commercial vehicle, tractor and off-road vehicle manufacturers in India. They are a leading manufacturer in the Indian marketplace of security & access products, handles, automotive safety, restraint systems, driver information and telematics systems for both OEMs and the aftermarket. VAST LLC also maintains branch offices in South Korea and Japan in support of customer sales and engineering requirements.

The VAST LLC investments are accounted for using the equity method of ~~accounting.~~accounting and the results of the VAST LLC foreign subsidiaries and joint venture are reported on a one-month lag basis. The activities related to the VAST LLC joint ventures resulted in equity earnings of joint ventures to STRATTEC of $983,000 during the six months ended December 29, 2019 and $2.4 million during the ~~nine~~six months ended ~~March 31, 2019 and $3.1 million during the nine months ended April 1,~~December 30, 2018. During the ~~nine~~six months ended ~~March 31,~~December 29, 2019 and December 30, 2018, no 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 collectively by all VAST LLC partners. STRATTEC’s portion of these capital contributions totaled $125,000. The capital contributions to VAST LLC were made for the purpose of funding operations in Brazil.LLC.

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~~$1.3 million during the ~~nine~~six months ended ~~March 31,~~December 29, 2019 and approximately ~~$1.6 million~~$940,000 during the ~~nine~~six months ended ~~April 1,~~December 30, 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 decreased net income to STRATTEC of approximately $353,000 during the six months ended December 29, 2019 and 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~~six months ended ~~April 1,~~December 30, 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 ~~earnings~~loss of joint ventures to STRATTEC of approximately ~~$24,000~~$7,000 during the ~~nine~~six months ended ~~March 31,~~December 29, 2019 and ~~equity loss of joint ventures of~~ approximately ~~$24,000~~$17,000 during the ~~nine~~six months ended ~~April 1,~~December 30, 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)~~Loss and Comprehensive (Loss) Income. The business of SAL LLC has been wound down to sell only commercial biometric locks. ~~See further discussion under Equity Earnings of Joint Ventures included in Notes to Condensed Consolidated Financial Statements herein.~~

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 ~~6, 2018.~~5, 2019.

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 ~~March 31,~~December 29, 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~~six month period ended ~~March 31,~~December 29, 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	☐☐	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)~~Loss and Comprehensive (Loss) Income	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6-19
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~20-31~~20-29
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3230
Item 4	Controls and Procedures	3230

Part II - OTHER INFORMATION
Item 1	Legal Proceedings	3331
Item 1A	Risk Factors	3331
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3331
Item 3	Defaults Upon Senior Securities	3331
Item 4	Mine Safety Disclosures	3331
Item 5	Other Information	3331
Item 6	Exhibits	3331

		Effective Dates		Notional Amount				Average Forward Contractual Exchange Rate				Fair Value
Buy MXP/Sell USD		April 15, 2019 - June 13, 2019		$	2,250				20.22			$	77

	December 29, 2019
Right-of Use Asset Under Operating Lease:
Other Long-Term Assets	$	3,922
Lease Obligation Under Operating Lease:
Current Liabilities: Accrued Liabilities: Other	$	343
Other Long-Term Liabilities		3,579
	$	3,922

2020 (for the remaining six months)	$	232
2021		473
2022		484
2023		497
2024		509
Thereafter		2,356
Total Future Minimum Lease Payments		4,551
Less: Imputed Interest		(629	)
Total Lease Obligations	$	3,922

2020	$	539
2021		504
2022		495
2023		498
2024		168
Thereafter		—
Total Future Minimum Lease Payments	$	2,204

	Six Months Ended
	December 29, 2019
Operating Cash Flows:
Cash Paid Related to Operating Lease Obligation	$	229
Non-Cash Activity:
Right-of-Use Asset Obtained in Exchange for Operating Lease Obligation	$	—

	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

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Outstanding, July 1, 2018		133,074		$	29.37
Exercised		(15,714	)	$	10.92
Outstanding, March 31, 2019		117,360		$	31.80		3.0	$	467
Exercisable, March 31, 2019		117,360		$	31.85		3.0	$	467

3.1		Amended and Restated Articles of Incorporation of the Company (Incorporated by reference from Exhibit 3.1 to the Form 10-K filed on September 7, 2017.)

3.2		Amendment to Amended and Restated Articles of Incorporation of the Company (Incorporated by reference from Exhibit 3.1 to the Form 10-Q report filed on November 7, 2019.)

3.3		Amended By-laws of the Company (Incorporated by reference from Exhibit 99.3 to the Form 8-K filed on October 7, 2005.)

4.1		Amendment No. 6 to Credit Agreement, dated as of October 28, 2019, between STRATTEC SECURITY CORPORATION and BMO Harris Bank N.A., as lender (Incorporated by reference from Exhibit 4.1 to the Form 8-K report filed on October 28, 2019.)

4.2		Amendment No. 7 to Credit Agreement, dated as of October28, 2019, between ADAC-STRATTEC LLC and BMO Harris Bank N.A., as lender (Incorporated by reference from Exhibit 4.2 to the Form 8-K report filed on October 28, 2019.)

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 ~~March 31,~~December 29, 2019 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Condensed Consolidated Statements of ~~Income (Loss)~~Loss and Comprehensive (Loss) Income; (ii) Condensed Consolidated Balance Sheets; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated Financial 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.

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 29, 2019, formatted in Inline XBRL (included in Exhibit 101).

	STRATTEC SECURITY CORPORATION (Registrant)

Date: ~~May 7, 2019~~February 6, 2020	By:	/s/ Patrick J. Hansen
		Patrick J. Hansen
		Senior Vice President,
		Chief Financial Officer,
		Treasurer and Secretary
		(Principal Accounting and Financial Officer)