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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 March 31, 2019

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 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      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.

 

Large Accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

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: 3,755,022 shares outstanding as of April 1, 2019 (which number includes all restricted shares previously awarded that have not vested as of such date).

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading symbol

 

Name of exchange on which registered

Common stock, $.01 par value

 

STRT

 

The Nasdaq Global Stock Market

 

 

 

 

 


STRATTEC SECURITY CORPORATION

FORM 10-Q

March 31, 2019

INDEX

 

 

 

Page

Part I - FINANCIAL INFORMATION

 

Item 1

Financial Statements

 

 

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income

3

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Condensed Consolidated Financial Statements

6-19

Item 2

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

20-31

Item 3

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4

Controls and Procedures

32

 

 

 

Part II - OTHER INFORMATION

 

Item 1

Legal Proceedings

33

Item 1A  

Risk Factors

33

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3

Defaults Upon Senior Securities

33

Item 4

Mine Safety Disclosures

33

Item 5

Other Information

33

Item 6

Exhibits

33

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, 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 with the Securities and Exchange Commission for the year ended July 1, 2018.

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

 

 

 

 


 

Item 1 Financial Statements

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

March 31,

2019

 

 

April 1,

2018

 

 

March 31,

2019

 

 

April 1,

2018

 

Net sales

$

128,230

 

 

$

116,823

 

 

$

358,302

 

 

$

322,465

 

Cost of goods sold

 

112,548

 

 

 

101,626

 

 

 

314,701

 

 

 

281,159

 

Gross profit

 

15,682

 

 

 

15,197

 

 

 

43,601

 

 

 

41,306

 

Engineering, selling and administrative expenses

 

11,721

 

 

 

10,839

 

 

 

33,222

 

 

 

31,033

 

Income from operations

 

3,961

 

 

 

4,358

 

 

 

10,379

 

 

 

10,273

 

Interest income

 

 

 

 

1

 

 

 

 

 

 

8

 

Equity earnings of joint ventures

 

66

 

 

 

619

 

 

 

2,451

 

 

 

3,118

 

Interest expense

 

(413

)

 

 

(305

)

 

 

(1,224

)

 

 

(761

)

Pension Termination Settlement Charge

 

 

 

 

 

 

 

(32,434

)

 

 

 

Other income (expense), net

 

209

 

 

 

158

 

 

 

(298

)

 

 

354

 

Income (loss) before provision (benefit) for income taxes and

     non-controlling interest

 

3,823

 

 

 

4,831

 

 

 

(21,126

)

 

 

12,992

 

Provision (benefit) for income taxes

 

786

 

 

 

899

 

 

 

(6,994

)

 

 

1,956

 

Net income (loss)

 

3,037

 

 

 

3,932

 

 

 

(14,132

)

 

 

11,036

 

Net income attributable to non-controlling

     Interest

 

1,307

 

 

 

963

 

 

 

2,835

 

 

 

2,729

 

Net income (loss) attributable to STRATTEC SECURITY

      CORPORATION

$

1,730

 

 

$

2,969

 

 

$

(16,967

)

 

$

8,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

3,037

 

 

$

3,932

 

 

$

(14,132

)

 

$

11,036

 

Pension and postretirement plans, net of tax

 

(1

)

 

 

338

 

 

 

19,992

 

 

 

893

 

Currency translation adjustments

 

1,037

 

 

 

3,487

 

 

 

39

 

 

 

1,193

 

Other comprehensive income, net of tax

 

1,036

 

 

 

3,825

 

 

 

20,031

 

 

 

2,086

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share attributable to STRATTEC

     SECURITY CORPORATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.47

 

 

$

0.82

 

 

$

(4.62

)

 

$

2.29

 

Diluted

$

0.46

 

 

$

0.80

 

 

$

(4.62

)

 

$

2.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

3,684

 

 

 

3,634

 

 

 

3,670

 

 

 

3,625

 

Diluted

 

3,728

 

 

 

3,708

 

 

 

3,670

 

 

 

3,702

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

$

0.14

 

 

$

0.14

 

 

$

0.42

 

 

$

0.42

 

 

 

 

 

 

 

 

 

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

3


 

 

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Amounts)

 

 

 

March 31,

2019

 

 

July 1,

2018

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,202

 

 

$

8,090

 

Receivables, net

 

 

87,847

 

 

 

73,832

 

Inventories:

 

 

 

 

 

 

 

 

Finished products

 

 

12,544

 

 

 

13,410

 

Work in process

 

 

11,485

 

 

 

10,059

 

Purchased materials

 

 

26,948

 

 

 

27,185

 

Excess and obsolete reserve

 

 

(4,155

)

 

 

(4,000

)

Inventories, net

 

 

46,822

 

 

 

46,654

 

Other current assets

 

 

15,609

 

 

 

22,527

 

Total current assets

 

 

159,480

 

 

 

151,103

 

Investment in joint ventures

 

 

23,876

 

 

 

22,192

 

Deferred Income Taxes

 

 

1,210

 

 

 

 

Other long-term assets

 

 

10,877

 

 

 

17,338

 

Property, plant and equipment

 

 

282,660

 

 

 

269,716

 

Less: accumulated depreciation

 

 

(164,819

)

 

 

(153,174

)

Net property, plant and equipment

 

 

117,841

 

 

 

116,542

 

 

 

$

313,284

 

 

$

307,175

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

46,207

 

 

$

38,439

 

Accrued Liabilities:

 

 

 

 

 

 

 

 

Payroll and benefits

 

 

12,761

 

 

 

13,393

 

Environmental

 

 

1,279

 

 

 

1,291

 

Warranty

 

 

7,995

 

 

 

7,800

 

Other

 

 

10,563

 

 

 

7,870

 

Total current liabilities

 

 

78,805

 

 

 

68,793

 

Borrowings under credit facilities

 

 

44,000

 

 

 

51,000

 

Deferred income taxes

 

 

 

 

 

961

 

Accrued pension obligations

 

 

1,645

 

 

 

1,553

 

Accrued postretirement obligations

 

 

677

 

 

 

826

 

Other long-term liabilities

 

 

831

 

 

 

796

 

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

 

Capital in excess of par value

 

 

96,215

 

 

 

95,140

 

Retained earnings

 

 

221,696

 

 

 

236,162

 

Accumulated other comprehensive loss

 

 

(17,737

)

 

 

(33,439

)

Less: treasury stock, at cost (3,614,479 shares at March 31, 2019 and

   3,616,734 shares at July 1,2018)

 

 

(135,742

)

 

 

(135,778

)

Total STRATTEC SECURITY CORPORATION shareholders’ equity

 

 

164,505

 

 

 

162,158

 

Non-controlling interest

 

 

22,821

 

 

 

21,088

 

Total shareholders’ equity

 

 

187,326

 

 

 

183,246

 

 

 

$

313,284

 

 

$

307,175

 

 

 

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)

 

 

 

Nine Months Ended

 

 

 

March 31,

2019

 

 

April 1,

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

 

Foreign currency transaction loss

 

 

261

 

 

 

173

 

Unrealized (gain) loss on peso forward contracts

 

 

(116

)

 

 

687

 

Stock based compensation expense

 

 

867

 

 

 

871

 

Equity earnings of joint ventures

 

 

(2,451

)

 

 

(3,118

)

Pension Termination Settlement Charge

 

 

32,434

 

 

 

 

Deferred income taxes

 

 

(8,131

)

 

 

(1,710

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(14,411

)

 

 

(5,206

)

Inventories

 

 

(168

)

 

 

(7,505

)

Other assets

 

 

7,553

 

 

 

(8,277

)

Accounts payable and accrued liabilities

 

 

10,753

 

 

 

6,244

 

Other, net

 

 

(281

)

 

 

(44

)

Net cash provided by operating activities

 

 

24,721

 

 

 

3,702

 

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

)

Proceeds received on sale of property, plant, and equipment

 

 

12

 

 

 

12

 

Net cash used in investing activities

 

 

(13,738

)

 

 

(19,195

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Borrowings under credit facility

 

 

2,000

 

 

 

21,000

 

Repayment of borrowings under credit facility

 

 

(9,000

)

 

 

(3,000

)

Dividends paid to non-controlling interests of subsidiaries

 

 

(1,384

)

 

 

(2,217

)

Dividends paid

 

 

(1,546

)

 

 

(1,525

)

Exercise of stock options and employee stock purchases

 

 

244

 

 

 

217

 

Net cash (used in) provided by financing activities

 

 

(9,686

)

 

 

14,475

 

Foreign currency impact on cash

 

 

(185

)

 

 

(306

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

1,112

 

 

 

(1,324

)

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

 

 

 

 

 

 

 

Beginning of period

 

 

8,090

 

 

 

8,361

 

End of period

 

$

9,202

 

 

$

7,037

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Income taxes

 

$

230

 

 

$

2,356

 

Interest

 

$

1,229

 

 

$

716

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Change in capital expenditures in accounts payable

 

$

(405

)

 

$

(1,825

)

 

 

 

 

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 Automotive Group” brand name (as more fully described herein). STRATTEC products are shipped to customer locations in the United States, Canada, Mexico, Europe, South America, Korea, China and India, and we provide full service and aftermarket support for each VAST Automotive Group partner’s products. We also maintain a 51 percent interest in a joint venture, STRATTEC Advanced Logic, LLC (“SAL LLC”), which exists to introduce a new generation of biometric security products based on the designs of Actuator Systems, our partner and the owner of the remaining ownership interest. The business of SAL LLC has been wound down to sell only commercial biometric locks.

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

In the opinion of management, the accompanying condensed consolidated balance sheets as of March 31, 2019 and July 1, 2018, 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, which was filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on September 6, 2018.

 

 

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. 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.

 

6


 

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 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.

 

 

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. During the three and nine month periods ended March 31, 2019 and April 1, 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 is to minimize our earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. The Mexican peso forward contracts are not used for speculative purposes and are not designated as hedges. As a result, all currency forward contracts are recognized in our accompanying condensed consolidated financial statements at fair value and changes in the fair value are reported in current earnings as part of Other Income (Expense), net.

The following table quantifies the outstanding Mexican peso forward contracts as of March 31, 2019 (thousands of dollars, except average forward contractual exchange rates):

 

 

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

 

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

 

 

 

March 31,

2019

 

 

July 1,

2018

 

Not Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

Other Current Assets (Liabilities):

 

 

 

 

 

 

 

 

Mexican Peso Forward Contracts

 

$

77

 

 

$

(39

)

 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

2019

 

 

April 1,

2018

 

 

March 31,

2019

 

 

April 1,

2018

 

Not Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized Gain

 

$

122

 

 

$

322

 

 

$

344

 

 

$

981

 

Unrealized Gain (Loss)

 

$

23

 

 

$

392

 

 

$

116

 

 

$

(687

)

 

 

 

7


 

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 March 31, 2019 and July 1, 2018. Fair value is defined as the exchange price that would be received for an asset or paid for a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 (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

 

$

268

 

 

$

 

 

$

 

Mid Cap

 

 

281

 

 

 

 

 

 

 

Large Cap

 

 

565

 

 

 

 

 

 

 

International

 

 

841

 

 

 

 

 

 

 

Fixed Income Funds

 

 

889

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

 

 

 

 

4

 

 

 

 

Mexican Peso Forward Contracts

 

 

 

 

 

77

 

 

 

 

Total Assets at Fair Value

 

$

2,844

 

 

$

81

 

 

$

 

 

The Rabbi Trust assets fund our amended and restated supplemental executive retirement plan and are included in Other Long-term Assets in the accompanying Condensed Consolidated Balance Sheets. Refer to discussion of Mexican peso forward contracts under Derivative Instruments above. The fair value of the Mexican peso forward contracts considers the remaining term, current exchange rate, and interest rate differentials between the 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.

 

 

Equity Earnings 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

 

 

Nine Months Ended

 

 

March 31,

2019

 

 

April 1,

2018

 

 

March 31,

2019

 

 

April 1,

2018

 

Net Sales

$

35,771

 

 

$

44,133

 

 

$

123,546

 

 

$

127,976

 

Cost of Goods Sold

 

29,303

 

 

 

34,063

 

 

 

98,173

 

 

 

98,339

 

Gross Profit

 

6,468

 

 

 

10,070

 

 

 

25,373

 

 

 

29,637

 

Engineering, Selling and Administrative Expenses

 

7,377

 

 

 

7,429

 

 

 

20,246

 

 

 

19,775

 

(Loss) income From Operations

 

(909

)

 

 

2,641

 

 

 

5,127

 

 

 

9,862

 

Other Income, net

 

882

 

 

 

163

 

 

 

3,186

 

 

 

949

 

(Loss) Income before (Benefit) Provision for Income  

    Taxes

 

(27

)

 

 

2,804

 

 

 

8,313

 

 

 

10,811

 

(Benefit) Provision for Income Taxes

 

(64

)

 

 

683

 

 

 

1,061

 

 

 

1,367

 

Net Income

$

37

 

 

$

2,121

 

 

$

7,252

 

 

$

9,444

 

STRATTEC’s Share of VAST LLC Net Income

$

12

 

 

$

707

 

 

$

2,417

 

 

$

3,148

 

Intercompany Profit Elimination

 

13

 

 

 

(4

)

 

 

10

 

 

 

(6

)

STRATTEC’s Equity Earnings of VAST LLC

$

25

 

 

$

703

 

 

$