10-Q 1 strt-10q_20171001.htm 10-Q strt-10q_20171001.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549  

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2017

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 0-25150

 

STRATTEC SECURITY CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

Wisconsin

 

39-1804239

(State of Incorporation)

 

(I.R.S. Employer Identification No.)

3333 West Good Hope Road, Milwaukee, WI 53209

(Address of Principal Executive Offices)

(414) 247-3333

(Registrant’s Telephone Number, Including Area Code)

 

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

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

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

 

Large Accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

(Do not check if a smaller reporting company)

  

Smaller Reporting Company

 

Emerging growth company

 

  

 

 

 

 

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

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

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

Common stock, par value $0.01 per share: 3,671,252 shares outstanding as of October 2, 2017 (which number includes all restricted shares previously awarded that have not vested as of such date).

 

 

 

 


STRATTEC SECURITY CORPORATION

FORM 10-Q

October 1, 2017

INDEX

 

 

 

Page

Part I - FINANCIAL INFORMATION

 

Item 1

Financial Statements

 

 

Condensed Consolidated Statements of Income and Comprehensive Income

3

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Condensed Consolidated Financial Statements

6-16

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17-23

Item 3

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4

Controls and Procedures

26

 

 

 

Part II - OTHER INFORMATION

 

Item 1

Legal Proceedings

27

Item 1A  

Risk Factors

27

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3

Defaults Upon Senior Securities

27

Item 4

Mine Safety Disclosures

27

Item 5

Other Information

27

Item 6

Exhibits

27

PROSPECTIVE INFORMATION

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

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

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.

 

 

 

 


 

Item 1 Financial Statements

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Income and Comprehensive Income

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

 

 

Three Months Ended

 

  

 

October 1,

2017

 

 

October 2,

2016

 

Net sales

 

$

102,460

 

 

$

100,244

 

Cost of goods sold

 

 

88,997

 

 

 

85,441

 

Gross profit

 

 

13,463

 

 

 

14,803

 

Engineering, selling and administrative expenses

 

 

10,042

 

 

 

11,283

 

Income from operations

 

 

3,421

 

 

 

3,520

 

Interest income

 

 

4

 

 

 

41

 

Equity earnings (loss) of joint ventures

 

 

1,026

 

 

 

62

 

Interest expense

 

 

(203

)

 

 

(78

)

Other income (expense), net

 

 

87

 

 

 

(242

)

Income before provision for income taxes and non-

   controlling interest

 

 

4,335

 

 

 

3,303

 

Provision for income taxes

 

 

1,066

 

 

 

898

 

Net income

 

 

3,269

 

 

 

2,405

 

Net income attributable to non-controlling interest

 

 

813

 

 

 

863

 

Net income attributable to STRATTEC SECURITY

      CORPORATION

 

$

2,456

 

 

$

1,542

 

 

 

 

 

 

 

 

 

 

Comprehensive Income:

 

 

 

 

 

 

 

 

Net income

 

$

3,269

 

 

$

2,405

 

Pension and postretirement plans, net of tax

 

 

278

 

 

 

475

 

Currency translation adjustments

 

 

297

 

 

 

(1,623

)

Other comprehensive income (loss), net of tax

 

 

575

 

 

 

(1,148

)

Comprehensive income

 

 

3,844

 

 

 

1,257

 

Comprehensive income attributable to non-controlling

    interest

 

 

735

 

 

 

753

 

Comprehensive income attributable to STRATTEC

      SECURITY CORPORATION

 

$

3,109

 

 

$

504

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to STRATTEC SECURITY

      CORPORATION:

 

 

 

 

 

 

 

 

Basic

 

$

0.68

 

 

$

0.43

 

Diluted

 

$

0.67

 

 

$

0.42

 

 

 

 

 

 

 

 

 

 

Average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

3,611

 

 

 

3,576

 

Diluted

 

 

3,681

 

 

 

3,661

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.14

 

 

$

0.14

 

 

 

 

 

 

 

 

 

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

 

 

3


 

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Amounts)

 

 

 

October 1,

2017

 

 

July 2,

2017

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,498

 

 

$

8,361

 

Receivables, net

 

 

64,016

 

 

 

64,933

 

Inventories:

 

 

 

 

 

 

 

 

Finished products

 

 

10,375

 

 

 

9,976

 

Work in process

 

 

10,062

 

 

 

9,328

 

Purchased materials

 

 

23,401

 

 

 

20,682

 

Excess and obsolete reserve

 

 

(4,443

)

 

 

(4,510

)

Inventories, net

 

 

39,395

 

 

 

35,476

 

Other current assets

 

 

21,959

 

 

 

20,235

 

Total current assets

 

 

133,868

 

 

 

129,005

 

Investment in joint ventures

 

 

18,416

 

 

 

16,840

 

Deferred income taxes

 

 

241

 

 

 

256

 

Other long-term assets

 

 

16,665

 

 

 

16,022

 

Property, plant and equipment

 

 

257,081

 

 

 

251,519

 

Less: accumulated depreciation

 

 

(142,575

)

 

 

(139,928

)

Net property, plant and equipment

 

 

114,506

 

 

 

111,591

 

 

 

$

283,696

 

 

$

273,714

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

39,908

 

 

$

39,679

 

Accrued Liabilities:

 

 

 

 

 

 

 

 

Payroll and benefits

 

 

12,049

 

 

 

13,055

 

Environmental

 

 

1,307

 

 

 

1,308

 

Warranty

 

 

5,535

 

 

 

5,550

 

Other

 

 

7,395

 

 

 

8,303

 

Total current liabilities

 

 

66,194

 

 

 

67,895

 

Borrowings under credit facility

 

 

40,000

 

 

 

30,000

 

Accrued pension obligations

 

 

1,521

 

 

 

1,492

 

Accrued postretirement obligations

 

 

934

 

 

 

1,003

 

Other long-term liabilities

 

 

618

 

 

 

610

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, authorized 12,000,000 shares, $.01 par value, 7,246,503

   issued shares at October 1, 2017 and 7,216,103 issued shares at

   July 2, 2017

 

 

72

 

 

 

72

 

Capital in excess of par value

 

 

94,198

 

 

 

93,813

 

Retained earnings

 

 

227,861

 

 

 

225,913

 

Accumulated other comprehensive loss

 

 

(32,235

)

 

 

(32,888

)

Less: treasury stock, at cost (3,618,751 shares at October 1, 2017 and

   3,619,487 shares at July 2, 2017)

 

 

(135,811

)

 

 

(135,822

)

Total STRATTEC SECURITY CORPORATION shareholders’ equity

 

 

154,085

 

 

 

151,088

 

Non-controlling interest

 

 

20,344

 

 

 

21,626

 

Total shareholders’ equity

 

 

174,429

 

 

 

172,714

 

 

 

$

283,696

 

 

$

273,714

 

 

 

 

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

 

 

4


 

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

October 1,

2017

 

 

October 2,

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

3,269

 

 

$

2,405

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,095

 

 

 

2,760

 

Foreign currency transaction loss (gain)

 

 

137

 

 

 

(689

)

Unrealized loss on peso forward contracts

 

 

258

 

 

 

899

 

Stock based compensation expense

 

 

371

 

 

 

428

 

Equity earnings of joint ventures

 

 

(1,026

)

 

 

(62

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

1,200

 

 

 

(4,433

)

Inventories

 

 

(3,919

)

 

 

(3

)

Other assets

 

 

(2,174

)

 

 

(1,372

)

Accounts payable and accrued liabilities

 

 

(852

)

 

 

5,268

 

Other, net

 

 

(5

)

 

 

(172

)

Net cash provided by operating activities

 

 

354

 

 

 

5,029

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Loan to joint ventures

 

 

 

 

 

(850

)

Repayment from loan to joint ventures

 

 

 

 

 

75

 

Purchase of property, plant and equipment

 

 

(7,571

)

 

 

(7,446

)

Net cash used in investing activities

 

 

(7,571

)

 

 

(8,221

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Borrowings under credit facility

 

 

12,000

 

 

 

8,000

 

Repayments of borrowings under credit facility

 

 

(2,000

)

 

 

(4,000

)

Contribution from non-controlling interest of subsidiaries

 

 

 

 

 

2,940

 

Dividends paid to non-controlling interests of subsidiaries

 

 

(2,017

)

 

 

(1,764

)

Dividends paid

 

 

(508

)

 

 

(503

)

Exercise of stock options and employee stock purchases

 

 

25

 

 

 

74

 

Net cash provided by financing activities

 

 

7,500

 

 

 

4,747

 

Foreign currency impact on cash

 

 

(146

)

 

 

37

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

137

 

 

 

1,592

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

 

 

 

 

 

 

 

Beginning of period

 

 

8,361

 

 

 

15,477

 

End of period

 

$

8,498

 

 

$

17,069

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Income taxes

 

$

615

 

 

$

487

 

Interest

 

$

183

 

 

$

86

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Change in capital expenditures in accounts payable

 

$

(1,337

)

 

$

(1,714

)

 

 

 

 

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

 

 

5


 

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Basis of Financial Statements

STRATTEC SECURITY CORPORATION designs, develops, manufactures and markets automotive access control products including mechanical locks and keys, electronically enhanced locks and keys, steering column and instrument panel ignition lock housings, latches, power sliding door systems, power lift gate systems, power deck lid systems, door handles and related products for primarily North American automotive customers. We also supply global automotive manufacturers through a unique strategic relationship with WITTE Automotive (“WITTE”) of Velbert, Germany, and ADAC Automotive (“ADAC”) of Grand Rapids, Michigan. Under this relationship, STRATTEC, WITTE and ADAC market the products of each company to global customers under the “VAST” 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 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. Currently, we, along with our joint venture partner, are winding down and discontinuing operating the business of SAL LLC.

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

In the opinion of management, the accompanying condensed consolidated balance sheets as of October 1, 2017 and July 2, 2017, which have been derived from our audited financial statements, and the related unaudited interim condensed consolidated financial statements included herein contain all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with Rule 10-01 of Regulation S-X. All significant intercompany transactions have been eliminated.

Interim financial results are not necessarily indicative of operating results for an entire year. The information included in this Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the STRATTEC SECURITY CORPORATION 2017 Annual Report, which was filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on September 7, 2017.

 

 

New Accounting Standards

In May 2014, the FASB issued an update to the accounting guidance for the recognition of revenue arising from contracts with customers. The update supersedes most current revenue recognition guidance and outlines a single comprehensive model for revenue recognition based on the principle that an entity should recognize revenue in an amount that reflects the expected consideration to be received in the exchange of goods and services. The guidance update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The guidance permits two methods of adoption: the full retrospective method, which requires retrospective restatement of each prior reporting period presented, or the modified retrospective method, which requires the cumulative effect of initially applying the guidance be recognized at the date of initial application. We currently do not expect any changes to how we account for reimbursable pre-production costs, which are currently accounted for as a cost reduction. In addition, we are continuing to evaluate our contracts with customers, analyzing the impact, if any, on revenue from the sale of production parts. Currently, we do not expect the adoption of this standard to have a material impact on our results of operations or financial position; however, we expect to expand disclosures in line with the requirements of the new standard. We will adopt this standard as of July 2, 2018, the first day of our 2019 fiscal year. We currently plan to adopt the new standard using the modified retrospective approach; however, we will decide which retrospective application to apply once our revenue standard assessment is finalized.

6


 

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

 

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

 

In February 2016, the FASB issued an update to the accounting guidance for leases. The update increases the transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements. The guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. We do not expect that the adoption of this pronouncement will have a material impact on our consolidated financial statements.

 

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

 

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

 

In March 2017, the FASB issued an update to the accounting guidance for the presentation of net periodic pension cost and net periodic postretirement benefit cost. The update requires the service cost component of net periodic benefit cost be reported in the same line items as other compensation costs arising from services rendered by the pertinent employees during the applicable period. The remaining components of net periodic benefit cost are required to be presented separately from the service cost component outside a subtotal of income from operations. Additionally, the update allows only the service cost component to be eligible for capitalization when applicable. The guidance requires retrospective restatement for each period presented for the presentation of the service cost component and the other components of net periodic benefit cost in the income statement and prospective application for the capitalization of the service cost component of net periodic benefit cost. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those years, with early adoption permitted. We elected early adoption beginning with the interim periods of our fiscal 2018. The adoption of this guidance resulted in the reclassification of expense within our Condensed Consolidated Statements of Income and Comprehensive Income for the quarter ended October 2, 2016 of $198,000 from cost of goods sold and $87,000 from engineering, selling and administrative expenses to Other Income (Expense), net.      

 

 

Subsequent Event

 

In October 2017, we entered into additional contracts with Bank of Montreal that provide for monthly Mexican peso currency forward contracts covering the period January 12, 2018 through June 15, 2018. The contracts provide for the purchase of Mexican pesos at an average U.S. dollar / Mexican peso exchange rate of $19.50. The notional amount over the contract periods totals $3 million. See further discussion of Mexican peso forward contracts under Derivative Instruments included in these Notes to Condensed Consolidated Financial Statements.

 

 

Derivative Instruments

We own and operate manufacturing operations in Mexico.  As a result, a portion of our manufacturing costs are incurred in Mexican pesos, which causes our earnings and cash flows to fluctuate due to changes in the U.S. dollar/Mexican peso exchange rate.  We executed contracts with Bank of Montreal that provide for bi-weekly and monthly Mexican peso currency forward contracts for a portion of our estimated peso denominated operating costs. The peso currency forward contracts include settlement dates that began on October 16, 2015 and end on June 15, 2018. Additional contracts were executed subsequent to October 1, 2017. Refer to

7


 

Subsequent Event included in these Notes to Condensed Consolidated Financial Statements. Our objective in entering into these currency forward contracts is to minimize our earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. The Mexican peso forward contracts are not used for speculative purposes and are not designated as hedges.  As a result, all currency forward contracts are recognized in our accompanying condensed consolidated financial statements at fair value and changes in the fair value are reported in current earnings as part of Other Income (Expense), net.

The following table quantifies the outstanding Mexican peso forward contracts as of October 1, 2017 (thousands of dollars, except average forward contractual exchange rates):

 

 

Effective Dates

 

Notional Amount

 

 

Average Forward Contractual Exchange Rate

 

 

Fair Value

 

Buy MXP/Sell USD

 

October 13, 2017 - June 15, 2018

 

$

9,000

 

 

 

20.37

 

 

$

862

 

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

 

 

 

October 1,

2017

 

 

July 2,

2017

 

Not Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

Other Current Assets:

 

 

 

 

 

 

 

 

Mexican Peso Forward Contracts

 

$

862

 

 

$

1,121

 

 

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

 

 

 

Three Months Ended

 

 

 

October 1,

2017

 

 

October 2,

2016

 

Not Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

Realized Gain (Loss)

 

$

458

 

 

$

(230

)

Unrealized Loss

 

$

(258

)

 

$

(899

)

 

 

 

Fair Value of Financial Instruments

The fair value of our cash and cash equivalents, accounts receivable, accounts payable and borrowings under our credit facility approximated book value as of October 1, 2017 and July 2, 2017. 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 October 1, 2017 (in thousands):  

 

 

Fair Value Inputs

 

 

 

Level 1 Assets:

Quoted Prices

In Active Markets

 

 

Level 2 Assets:

Observable

Inputs Other

Than Market

Prices

 

 

Level 3 Assets:

Unobservable

Inputs

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Rabbi Trust Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Stock Index Funds:

 

 

 

 

 

 

 

 

 

 

 

 

Small Cap

 

$

400

 

 

$

 

 

$

 

Mid Cap

 

 

404

 

 

 

 

 

 

 

Large Cap

 

 

542

 

 

 

 

 

 

 

International

 

 

573

 

 

 

 

 

 

 

Fixed Income Funds

 

 

766

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

 

 

 

 

2

 

 

 

 

Mexican Peso Forward Contracts

 

 

 

 

 

862

 

 

 

 

Total Assets at Fair Value

 

$

2,685

 

 

$

864

 

 

$

 

8


 

 

The Rabbi Trust assets fund our amended and restated supplemental executive retirement plan and are included in Other Long-term Assets in the accompanying Condensed Consolidated Balance Sheets. Refer to discussion of Mexican peso forward contracts under Derivative Instruments above. The fair value of the Mexican peso forward contracts considers the remaining term, current exchange rate, and interest rate differentials between the two currencies. There were no transfers between Level 1 and Level 2 assets during the three month period ended October 1, 2017.

 

 

Equity Earnings (Loss) of Joint Ventures

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

 

 

 

October 1,

2017

 

 

October 2,

2016

 

 

Net Sales

$

38,510

 

 

$

25,009

 

 

Cost of Goods Sold

 

29,013

 

 

 

20,093

 

 

Gross Profit

 

9,497

 

 

 

4,916

 

 

Engineering, Selling and Administrative Expenses

 

6,021

 

 

 

4,015

 

 

Income From Operations

 

3,476

 

 

 

901

 

 

Other Income, net

 

150

 

 

 

441

 

 

Income before Provision for Income Taxes

 

3,626

 

 

 

1,342

 

 

Provision for Income Taxes

 

522

 

 

 

172

 

 

Net Income

$

3,104

 

 

$

1,170

 

 

STRATTEC’s Share of VAST LLC Net Income

$

1,035

 

 

$

390

 

 

Intercompany Profit Elimination

 

 

 

 

 

 

STRATTEC’s Equity Earnings of VAST LLC

$

1,035

 

 

$

390

 

 

 

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

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

Loans were made from STRATTEC to SAL LLC in support of operating expenses and working capital needs. The outstanding loan amounts totaled $2.6 million as of October 1, 2017 and July 2, 2017. 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, 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 (Loss) Earnings of Joint Ventures in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income for all periods presented in this report.

9


 

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

 

 

 

Three Months Ended

 

 

 

 

October 1,

2017

 

 

October 2,

2016

 

 

Net Sales

 

$

108

 

 

$

100

 

 

Cost of Goods Sold

 

 

152

 

 

 

87

 

 

Gross Profit

 

 

(44

)

 

 

13

 

 

Engineering, Selling and Administrative Expenses

 

 

(10

)

 

 

337

 

 

Loss From Operations

 

 

(34

)

 

 

(324

)

 

Other Expense, net

 

 

(65

)

 

 

(12

)

 

Net Loss

 

$

(99

)

 

$

(336

)

 

STRATTEC’s Equity Loss of SAL LLC

 

$

(9

)

 

$

(328

)

 

 

Currently, we, along with our joint venture partner, are winding down and discontinuing operating the business of SAL LLC.

 

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

 

 

 

 

October 1,

2017

 

 

October 2,

2016

 

 

Sales to VAST LLC

 

$

596

 

 

$

50

 

 

Sales to SAL, LLC

 

$

35

 

 

$

75

 

 

Purchases from VAST LLC

 

$

45

 

 

$

31

 

 

Expenses Charged to VAST LLC

 

$

212

 

 

$

228

 

 

Expenses Charged from VAST LLC

 

$

218

 

 

$

409

 

 

 

 

Credit Facilities and Guarantees

STRATTEC has a $30 million secured revolving credit facility (the “STRATTEC Credit Facility”) with BMO Harris Bank N.A. ADAC-STRATTEC LLC has a $25 million secured revolving credit facility (the “ADAC-STRATTEC Credit Facility”) with BMO Harris Bank N.A., which is guaranteed by STRATTEC. The credit facilities both expire August 1, 2020. Borrowings under either credit facility are secured by our U.S. cash balances, accounts receivable, inventory, and fixed assets located in the U.S. Interest on borrowings under both credit facilities is at varying rates based, at our option, on the London Interbank Offering Rate (“LIBOR”) plus 1.0 percent or the bank’s prime rate. Both credit facilities contain a restrictive financial covenant that requires the applicable borrower to maintain a minimum net worth level. The ADAC-STRATTEC Credit Facility includes an additional restrictive financial covenant that requires the maintenance of a minimum fixed charge coverage ratio. The ADAC-STRATTEC Credit Facility also required that a capital contribution to ADAC-STRATTEC LLC of $6 million collectively from STRATTEC and ADAC be completed by September 30, 2016. This capital contribution was completed as required. STRATTEC’s portion of the capital contribution totaled $3.06 million. As of October 1, 2017, we were in compliance with all financial covenants required by these credit facilities.

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

 

 

 

October 1,

2017

 

 

July 2,

2017

 

STRATTEC Credit Facility

 

$

20,000

 

 

$

16,000

 

ADAC-STRATTEC Credit Facility

 

$

20,000

 

 

$

14,000

 

10


 

 

Average outstanding borrowings and the weighted average interest rate under each credit facility referenced above were as follows for each period presented (in thousands):

 

 

 

Three Months Ended

 

 

 

Average Outstanding Borrowings

 

 

Weighted Average Interest Rate

 

 

 

October 1,

2017

 

 

October 2,

2016

 

 

October 1,

2017

 

 

October 2,

2016

 

STRATTEC Credit Facility

 

$

18,143

 

 

$

12,159

 

 

 

2.3

%

 

 

1.5

%

ADAC-STRATTEC Credit Facility

 

$

18,022

 

 

$

8,473

 

 

 

2.2

%

 

 

1.5

%

 

    

Commitments and Contingencies

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

In 1995, we recorded a provision of $3 million for estimated costs to remediate an environmental contamination site at our Milwaukee facility. The facility was contaminated by a solvent spill, which occurred in 1985, from a former above ground solvent storage tank located on the east side of the facility. The reserve was originally established based on third party estimates to adequately cover the cost for active remediation of the contamination. Due to changing technology and related costs associated with active remediation of the contamination, in fiscal 2010, the reserve was adjusted based on updated third party estimates to adequately cover the cost for active remediation of the contamination. Additionally, in fiscal 2016, we obtained updated third party estimates for adequately covering the cost for active remediation of this contamination. Based upon the updated estimates, no further adjustment to the reserve was required. From 1995 through October 1, 2017, costs of approximately $568,000 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 the 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 October 1, 2017 is adequate.

 

 

Shareholders’ Equity

A summary of activity impacting shareholders’ equity for the three month period ended October 1, 2017 was as follows (in thousands):

 

 

Total

Shareholders’

Equity

 

 

Equity

Attributable

to STRATTEC

 

 

Equity

Attributable

to Non-

Controlling

Interest

 

Balance, July 2, 2017

 

$

172,714

 

 

$

151,088

 

 

$

21,626

 

Net Income

 

 

3,269

 

 

 

2,456

 

 

 

813

 

Dividend Declared

 

 

(508

)

 

 

(508

)

 

 

 

Dividend Declared – Non-controlling Interests of

   Subsidiaries

 

 

(2,017

)

 

 

 

 

 

(2,017

)

Translation adjustments

 

 

297

 

 

 

375

 

 

 

(78

)

Stock Based Compensation

 

 

371

 

 

 

371

 

 

 

 

Pension and Postretirement Adjustment, Net of

   tax

 

 

278

 

 

 

278

 

 

 

 

Employee Stock Purchases and Stock Option

   Exercises

 

 

25

 

 

 

25

 

 

 

 

Balance, October 1, 2017

 

$

174,429

 

 

$

154,085

 

 

$

20,344

 

11


 

 

 

Other Income (Expense), net

Net other income (expense) included in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income primarily included foreign currency transaction gains and losses, realized and unrealized losses on our Mexican peso currency forward contracts, net periodic pension and postretirement benefit (costs) credits, other than the service cost component, and Rabbi Trust gains and losses. Foreign currency transaction gains and losses resulted from activity associated with foreign denominated assets held by our Mexican subsidiaries. We entered into the Mexican Peso currency forward contracts to minimize earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. Pension and postretirement plan impacts include the components of net periodic benefit cost other than the service cost component. The Rabbi Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in this Trust are considered trading securities.

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

 

 

 

Three Months Ended

 

 

 

 

October 1,

2017

 

 

October 2,

2016

 

 

Foreign Currency Transaction (Loss) Gain

 

$

(137

)

 

$

689

 

 

Unrealized Loss on Peso Forward Contracts

 

 

(258

)

 

 

(899

)

 

Realized Gain (Loss) on Peso Forward Contracts

 

 

458

 

 

 

(230

)

 

Pension and Postretirement Plans

 

 

112

 

 

 

(285

)

 

Rabbi Trust Gain

 

 

89

 

 

 

83

 

 

Other

 

 

(177

)

 

 

400

 

 

 

 

$

87

 

 

$

(242

)

 

 

Income Taxes

The income tax provisions for the three month periods ended October 1, 2017 and October 2, 2016 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. The reduction in our effective tax rate in the current year period as compared to the prior year period was due to a larger anticipated research and development tax credit for Federal tax purposes.

 

 

Earnings Per Share (EPS)

Basic earnings 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

 

 

 

 

 

 

 

October 1,

2017

 

 

 

 

 

 

 

 

 

 

October 2,

2016

 

 

 

 

 

 

 

Net income

 

 

Shares

 

 

Per-Share Amount

 

 

Net income

 

 

Shares

 

 

Per-Share Amount

 

 

Basic Earnings Per Share

$

2,456

 

 

 

3,611

 

 

$

0.68

 

 

$

1,542

 

 

 

3,576

 

 

$

0.43

 

 

Stock Option and Restricted

   Stock Awards

 

 

 

 

70

 

 

 

 

 

 

 

(1

)

 

 

85

 

 

 

 

 

 

Diluted Earnings Per Share

$

2,456

 

 

 

3,681

 

 

$

0.67

 

 

$

1,541

 

 

 

3,661

 

 

$

0.42

 

 

The calculation of earnings per share excluded 63,550 and 14,010 share-based payment awards as of October 1, 2017 and October 2, 2016, respectively, because their inclusion would have been anti-dilutive.  

 

 

12


 

Stock-based Compensation

We maintain an omnibus stock incentive plan. This plan provides for the granting of stock options, shares of restricted stock and stock appreciation rights. As of October 1, 2017, 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 October 1, 2017 were 179,164. Awards that expire or are canceled without delivery of shares become available for re-issuance under the plan. We issue new shares of common stock to satisfy stock option exercises.

Nonqualified and incentive stock options and shares of restricted stock have been granted to our officers, outside directors and specified associates under our stock incentive plan. Stock options granted under the plan may not be issued with an exercise price less than the fair market value of the common stock on the date the option is granted. Stock options become exercisable as determined at the date of grant by the Compensation Committee of the Board of Directors. The options expire 10 years after the grant date unless an earlier expiration date is set at the time of grant. The options vest 1 to 4 years after the date of grant as determined by the Compensation Committee of the Board of Directors. Shares of restricted stock granted under the plan are subject to vesting criteria determined by the Compensation Committee of the Board of Directors at the time the shares are granted and have a minimum vesting period of one year from the date of grant. Unvested restricted shares granted have voting rights, regardless of whether the shares are vested or unvested, but only have the right to receive cash dividends after such shares become vested. Prior to August 2016, the restricted stock grants issued vest 3 to 5 years after the date of grant. As of August 2016, restricted stock grants issued vest 1 to 5 years after the date of grant as determined by the Compensation Committee of the Board of Directors.

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

There was no stock option activity under our stock incentive plan for the three months ended October 1, 2017. Options outstanding as of October 1, 2017 were as follows:

 

 

 

Shares

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Remaining

Contractual

Term (years)

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Outstanding, July 2, 2017

 

 

138,508

 

 

$

29.23

 

 

 

 

 

 

 

 

 

Outstanding, October 1, 2017

 

 

138,508

 

 

$

29.23

 

 

 

4.2

 

 

$

1,967

 

Exercisable, October 1, 2017

 

 

138,508

 

 

$

25.71

 

 

 

4.2

 

 

$

1,967

 

 

The intrinsic value of stock options exercised and the fair value of stock options that vested during the three month periods presented below were as follows (in thousands):

 

 

Three Months Ended

 

 

 

October 1,

2017

 

 

October 2,

2016

 

Intrinsic Value of Options Exercised

 

$

 

 

$

71

 

Fair Value of Stock Options Vesting

 

$

315

 

 

$

596

 

 

No options were granted during the three month period ended October 1, 2017 or October 2, 2016.  

 

A summary of restricted stock activity under our omnibus stock incentive plan for the three months ended October 1, 2017 was as follows:

 

 

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

Nonvested Balance, July 2, 2017

 

 

75,850

 

 

$

60.61

 

Granted

 

 

27,950

 

 

$

33.30

 

Vested

 

 

(30,400

)

 

$

62.99

 

Forfeited

 

 

(2,175

)

 

$

56.91

 

Nonvested Balance, October 1, 2017

 

 

71,225

 

 

$

48.99

 

 

13


 

As of October 1, 2017, all compensation cost related to outstanding stock options granted under our omnibus stock incentive plan has been recognized. As of October 1, 2017, there was approximately $1.9 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 1.1 years. Total unrecognized compensation cost will be adjusted for any future changes in estimated and actual forfeitures of awards granted under our omnibus stock incentive plan.

 

 

Pension and Postretirement Benefits

We have a qualified, noncontributory defined benefit pension plan (“Qualified Pension Plan”) covering substantially all U.S. associates employed by us prior to January 1, 2010. Benefits under the Qualified Pension Plan are based on credited years of service and final average compensation. Our policy is to fund the Qualified Pension Plan with at least the minimum actuarially computed annual contribution required under the Employee Retirement Income Security Act of 1974 (ERISA). Plan assets consist primarily of listed equity and fixed income securities. Effective December 31, 2009, the Board of Directors amended the Qualified Pension Plan to freeze benefit accruals and future eligibility. The Board of Directors has approved the termination of the Qualified Pension Plan with a proposed termination date of December 31, 2017. The termination of the Qualified Pension Plan is contingent upon receipt of an IRS determination letter that the Qualified Pension Plan was qualified upon termination and approval by the Pension Benefit Guaranty Corporation (“PBGC”). The date the termination will be approved and benefits can be distributed will not be known until we receive all required regulatory approvals. On or about October 13, 2017, we submitted a request to the IRS for a determination letter that the Qualified Pension Plan is qualified upon termination prior to the end of the 2017 calendar year. Depending on the time receipt of IRS and PBGC approval, we intend to distribute Qualified Pension Plan assets prior to the end of the 2018 calendar year.  Additionally, in connection with preparing for the termination of the Qualified Pension Plan, we have amended the plan to provide that participants are 100 percent vested in their accrued benefits as of the effective date of the plan termination, to adopt a new standard for disability benefits that will apply when the plan’s assets are distributed due to the termination, to add a lump sum distribution for employees and terminated vested participants who are not in payment status when Qualified Pension Plan assets are distributed due to the termination and to make certain other conforming amendments to the Qualified Pension Plan to comply with applicable laws that may be required by the IRS or may be deemed necessary or advisable to improve the administration of the Qualified Pension Plan or facilitate its termination and liquidation.  We will contribute to the Trust Fund for the Qualified Pension Plan as necessary to ensure there are sufficient assets to provide all Qualified Pension Plan benefits as required by the PBGC.  The financial impact of the Qualified Pension Plan termination will be recognized as a settlement of the Qualified Pension Plan liabilities.  The settlement date and related financial impact have not yet been determined.

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 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 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 $2.7 million at October 1, 2017 and $2.6 million at July 2, 2017, respectively, and are included in Other Long-Term Assets in the accompanying Condensed Consolidated Balance Sheets.

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

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

14


 

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

 

 

 

October 1,

2017

 

 

October 2,

2016

 

 

October 1,

2017

 

 

October 2,

2016

 

Service cost

 

$

17

 

 

$

14

 

 

$

3

 

 

$

3

 

Interest cost

 

 

964

 

 

 

981

 

 

11

 

 

 

14

 

Expected return on plan assets

 

 

(1,528

)

 

 

(1,464

)

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

3

 

 

 

3

 

 

 

(191

)

 

 

(191

)

Amortization of unrecognized net loss

 

509

 

 

 

807

 

 

120

 

 

 

135

 

Net periodic benefit cost (credit)

 

$

(35

)

 

$

341

 

 

$

(57

)

 

$

(39

)

 

 

 

No voluntary contributions were made to the Qualified Pension Plan during the three month period ended October 1, 2017. Voluntary contributions of $3 million were made to the Qualified Pension Plan during the three month period ended October 2, 2016. Additional contributions totaling $3 million are anticipated to be made during the remainder of fiscal 2018.

 

 

 

Accumulated Other Comprehensive Loss

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

 

 

 

Three Months Ended October 1, 2017

 

 

 

Foreign

Currency

Translation

Adjustments