What changed in this filing

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Item 1. Business

2020-09-03 compared with 2019-09-05 · 63 added, 59 removed, 237 unchanged (34% of the section changed)

Basic Business

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 side door systems, power lift gate systems, power deck lid systems, door handles and related products for North American automotive customers.

We also supply global automotive manufacturers through a unique strategic joint venture relationship with WITTE Automotive (“WITTE”) of Velbert, Germany and ADAC Plastics Inc., doing business as ADAC Automotive (“ADAC”), of Grand Rapids, Michigan called VAST Automotive Group (“VAST”).

Under this unique strategic 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 Vehicle Access Systems Technology LLC herein).

STRATTEC’s 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 partners’ products.

STRATTEC SECURITY CORPORATION designs, develops, manufactures and markets automotive access control products including mechanical locks and keys, electronically enhanced locks and keys, passive entry passive start systems (PEPS), steering column and instrument panel ignition lock housings, latches, power sliding side door systems, power tailgate 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 Plastics Inc., doing business as ADAC Automotive (“ADAC”), of Grand Rapids, Michigan called VAST Automotive Group (“VAST”).

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 partners’ products.

The product line that became STRATTEC was part of Briggs & Stratton Corporation’s founding business in 1908.

In 1995, STRATTEC was spun off from Briggs & Stratton through a tax-free distribution to the then-existing Briggs & Stratton shareholders and has been an independent public company for over twenty-four years.

Our history in the automotive security business spans over 110 years.

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Most of the vehicles we currently supply are using keys with sophisticated radio frequency identification technology for additional theft prevention.

Keys with remote entry devices integrated into a single unit and bladeless electronic keys have been added to our product line and are gaining in popularity.

Keys with remote entry devices integrated into a single unit and bladeless electronic keys as well as turn-key passive entry passive start systems (PEPS) have been added to our product line and are gaining in popularity.

Ignition lock housings represent another access control product for us.

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We have developed and are continuing to develop access control products, including trunk latches, lift gate latches, tailgate latches, hood latches, side door latches and related hardware.

With our acquisition of Delphi Corporation’s Power Products Group in fiscal 2009, we are now supplying power access devices for sliding side doors, lift gates and trunk lids.

With our acquisition of Delphi Corporation’s Power Products Group in fiscal 2009, we are now supplying power access devices for sliding side doors, tailgates, lift gates and trunk lids.

Through a joint venture formed with ADAC Automotive during fiscal 2007, we also supply painted and non-painted door handles and components and related vehicle access hardware.

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STRATTEC’s customer-focused structure and formalized product development process helps us identify and meet customer needs in the shortest time possible.

Form concept and design, through implementation and into the aftermarket, STRATTEC delivers products that provide the optimum value solution to security and access control requirements.

From concept and design, through implementation and into the aftermarket, STRATTEC delivers products that provide the optimum value solution to security and access control requirements.

We have a comprehensive Products & Solutions portfolio that can be viewed on our website at www.strattec.com (see “Available Information” below for additional information).

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While some exporting is done to Tier 1 and automotive assembly plants in Europe, Asia and South America, we are in the process of expanding our presence in these markets and elsewhere through the Vehicle Access Systems Technology LLC (VAST LLC) joint venture we jointly own with WITTE Automotive and ADAC Automotive.

VAST is described in more detail on pages 4, 5, 43 and 44 in this Form 10-K.

VAST is described in more detail on pages 4, 5, and 43 through 45 in this Form 10-K.

OEM service and replacement parts are sold to the OEM’s own service operations.

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Customer Sales Focus

To bring the proper focus to the relationships with our major customers, we have seven customer-focused teams, each with a Director of Sales, one or two Engineering Program Managers and various Customer Application Engineers.

To bring the proper focus to the relationships with our major customers, we have six customer-focused teams, each with a Director of Sales, one or two Engineering Program Managers and various Customer Application Engineers.

In addition to customer teams for General Motors, Ford and Fiat Chrysler, we currently have teams for New Domestic Vehicle Manufacturers (primarily the Japanese and Korean automotive manufactures), Driver Control/Ignition Lock Housing customers, Tier 1 customers, and Service and Aftermarket customers.

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1 houses assembly operations for locksets and ignition lock housings.

2 was built during fiscal 2009 to replace a leased facility.

It houses our key finishing and plastic injection molding operations, as well as containing dedicated space for the assembly operations of ADAC-STRATTEC de Mexico.

3 was purchased in fiscal 2015 and houses both latch and power access assembly operations for STRATTEC Power Access de Mexico.

2 houses our key finishing and plastic injection molding operations, as well as containing dedicated space for the assembly operations of ADAC-STRATTEC de Mexico.

3 houses both latch and power access assembly operations for STRATTEC Power Access de Mexico.

4 is in Leon, Mexico and houses our custom paint system for door handles and assembly for ADAC-STRATTEC de Mexico and is owned by the ADAC-STRATTEC de Mexico joint venture.

This facility became operational during the second quarter of fiscal year 2018.

Vehicle Access Systems Technology LLC

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This was an important step which gives STRATTEC a one-third interest in VAST China’s activities in the important growing Chinese/Asian market for manufacturing and assembly of painted door handles, locksets and latch products.

VAST China currently operates out of two manufacturing facilities in Taicang and Fuzhou, China and is in the process of constructing a new third manufacturing facility in Jingzhou, China, which is expected to be operational during the fourth quarter of our fiscal 2020 to support new growth in the China market.

In March, 2014, VAST LLC purchased the remaining 49 percent interest of its local partner in Brazil, which had annual net sales of approximately $724,000 and $1 million during fiscal years 2019 and 2018, respectively.

VAST China currently operates out of two manufacturing facilities in Taicang and Fuzhou, China and is in the process of constructing a third manufacturing facility in Jingzhou, China, which became operational during the fourth quarter of our fiscal 2020 to support new growth in the China market.

In March, 2014, VAST LLC purchased the remaining 49 percent interest of its local partner in Brazil, which had annual net sales of approximately $1.4 million and $724,000 during fiscal years 2020 and 2019, respectively.

On April 30, 2015 VAST LLC executed a purchase agreement to become a 50:50 Joint Venture partner with Minda Management Services Limited, an affiliate of both Minda Corporation Limited and Spark Minda, Ashok Minda Group of New Delhi, India (collectively, “Minda”).

As part of this transaction, VAST acquired a fifty percent equity interest in the former Minda-Valeo Security Systems joint venture entity, based in Pune, India, for approximately $12 million.

As part of this transaction, VAST acquired a fifty percent equity interest in the former Minda-Valeo Security Systems joint venture entity, based in Pune, India.

This joint venture entity was renamed Minda-VAST Access Systems (“Minda-VAST”).

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Minda-VAST financial results are accounted for on the equity method of accounting by VAST LLC.

For further VAST LLC financial information, see “Equity Earnings of Joint Ventures” included in Notes to Financial Statements under Item 8 in this Form 10-K.

For further VAST LLC financial information, see “Equity (Loss) Earnings of Joint Ventures” included in Notes to Financial Statements under Item 8 in this Form 10-K.

VAST is the embodiment of STRATTEC’s, WITTE’s and ADAC’s globalization strategy.

We are developing VAST as a global brand with which we are jointly pursuing business with identified global customers.

Those identified customers are General Motors, Ford, Fiat/Chrysler, Volkswagen, Honda, Toyota, Renault/Nissan and Hyundai/Kia.

Those identified customers are General Motors, Ford, Fiat/Chrysler, Volkswagen, Honda, Volvo, Renault/Nissan and Hyundai/Kia.

To manage our customer relationships and coordinate global ventures and activities, we have established a VAST Management Group led by a President.

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4 is in Leon, Mexico and houses our custom paint system for door handles and assembly for ADAC-STRATTEC de Mexico.

This facility became operational during the second quarter of fiscal year 2018.

STRATTEC POWER ACCESS LLC and STRATTEC POWER ACCESS de MEXICO

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Financial results for SPA are consolidated in STRATTEC’s financial statements.

For fiscal years ending 2019 and 2018, SPA was profitable and represented $92.7 million and $86.4 million, respectively, of our consolidated net sales.

For fiscal year 2020, SPA was unprofitable due to the COVID-19 pandemic (COVID-19) and represented $63.8 million of our net sales.

For fiscal year 2019, SPA was profitable and represented $92.7 million of our consolidated net sales.

STRATTEC Advanced Logic LLC

During the fourth quarter of fiscal year 2013, we formed a new joint venture with Actuator Systems LLC called NextLock LLC subsequently renamed STRATTEC Advanced Logic LLC.

The initial capitalization of the joint venture was $1.5 million.

The purpose of this joint venture is to assemble and sell the next generation of biometric security products based upon the residential and commercial designs of Actuator Systems.

During the fourth quarter of fiscal year 2013, we formed a new joint venture with Actuator Systems LLC called NextLock LLC, which was subsequently renamed STRATTEC Advanced Logic LLC.

STRATTEC owned 51% of this joint venture and its financial results were accounted for on the equity method of accounting.

The purpose of this joint venture was to assemble and sell the next generation of biometric security products based upon the residential and commercial designs of Actuator Systems.

This joint venture had minimal sales activity in both fiscal 2020 and 2019.

During fiscal 2018, we, along with our joint venture partner, reduced operating the business of STRATTEC Advanced Logic LLC to winding down and selling only RTS commercial biometric locks.

STRATTEC owns 51% of this joint venture and its financial results are accounted for on the equity method of accounting.

During fiscal 2018, we, along with our joint venture partner, reduced operating the business of STRATTEC Advanced Logic LLC to selling only RTS commercial biometric locks.

STRATTEC Advanced Logic LLC was dissolved during the fourth quarter of fiscal 2020.

Seasonal Nature of the Business

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PASSENGER CARS

Chevrolet Impala

Lincoln Continental

Chevrolet Corvette

Aston Martin DB 11*

Chevrolet Malibu

Lincoln Continental

Aston Martin DBX *

Chevrolet Onix *

Aston Martin Rapide *

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Chevrolet Spin *

Maserati Quattroporte *

Maserati MC *

Aston Martin Vantage *

Maserati Quattroporte *

Buick Excelle *

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Dodge Charger

Opel Cascada *

Buick Regal *

Open Insignia *

Cadillac ATS *

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Chevrolet Camaro

Chevrolet Corvette

LIGHT TRUCKS, VANS AND SPORT UTILITY VEHICLES

Chrysler Voyager

Dodge Durango

Honda Odyssey

Dodge Grand Caravan

Jeep Cherokee

Buick Enclave

Dodge Journey

Dodge Grand Caravan

Honda Odyssey

Buick Encore*

Jeep Gladiator

Jeep Cherokee

Buick Envision*

Jeep Grand Cherokee

Ford Bronco Sport

Cadillac Escalade

Jeep Gladiator

Cadillac Escalade ESV

Jeep Grand Cherokee

Ford Expedition

Jeep Wrangler/Wrangler

Cadillac Escalade ESV

Ford Explorer

Kia Carnival *

Ford F-Series Pickup

Chevrolet Blazer

Ford F-Series Pickup

Chevrolet Colorado *

Ford F-Series Super Duty

Lincoln Avaitor

Chevrolet Colorado *

Lincoln Corsair

Chevrolet Equinox

Lincoln Corsair

Chevrolet Express Van

Ford Transit Connect *

Ford Mustang Mach-E

Lincoln Nautilus

Chevrolet Silverado &

Lincoln Navigator

Silverado HD Pickup

Lincoln Nautilus

Ford Transit Connect *

Maserati Levante *

Chevrolet Suburban

Lincoln Navigator

Chevrolet Tahoe

Maserati Levante *

Ram 1500 Pickup

Chevrolet Tracker *

Ram 1500 Classic Pickup

Chevrolet Trail Blazer *

GMC Sierra & Sierra HD

Ram Heavy Duty Lineup

Chevrolet Trax *

Ram 1500/2500/3500

GMC Sierra & Sierra HD

Volkswagen Tiguan

Chevrolet Traverse

GMC Yukon and Yukon XL

Chrysler Pacifica

Volkswagen Tiguan

Chrysler Voyager

GMC Yukon and Yukon XL

* Vehicles produced outside of North America, or both in and outside North America.

Emerging Technologies

Automotive vehicle access systems, which are both theft deterrent and consumer friendly, are trending toward electro-mechanical devices.

Automotive vehicle access systems, which are both theft deterrent and consumer friendly, are trending toward electro-mechanical and connected devices.

Electronic companies are developing user identification systems such as bio-systems, card holder (transmitter) systems, etc., while mechanical locks, keys, housings, and latches are evolving to accommodate electronics.

We believe we are positioning ourselves as a vehicle access control supplier by building our product, engineering and manufacturing expertise in the required electro-mechanical products, which include vehicle access latches, keys with remote entry electronic systems, and ignition interface systems with passive start capabilities.

As the automotive industry continues developing various levels of autonomous vehicles, we believe that we are well positioned to continue the development and incorporation of power sliding doors, power end gates and other consumer convenience features into these types of vehicles.

These technologies benefit us by increasing its potential customer base as a Tier 2 supplier while maintaining our Tier 1 status on some product lines and by adding additional product line availability.

We believe we are positioning ourselves as a vehicle access control supplier by building our product, engineering and manufacturing expertise in the required electro-mechanical products, which include vehicle access latches, keys with remote entry electronic systems, ignition interface systems with passive start and phone as a key (PaaK) capabilities.

In both 2018 and 2019, we were awarded the Automotive News Pace Award for Excellence and Innovation for our Invis-A-Rise TM Power Liftgate and Invis-A-Rise TM Power Tailgate products.

As the automotive industry continues developing various levels of autonomous vehicles, we believe that we are well positioned to continue the development and incorporation of power sliding doors, power tailgates and other consumer convenience features into these types of vehicles.

These technologies benefit us by increasing our potential customer base as a Tier 2 supplier while maintaining our Tier 1 status on some product lines and by adding additional product line availability.

Sources and Availability of Raw Materials

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These materials are generally available from a number of suppliers, but we have chosen to concentrate our sourcing with one primary vendor for each commodity.

We believe our sources for raw materials are very reliable and adequate for its needs.

We believe our sources for raw materials are very reliable and adequate for our needs.

We have not experienced any significant long term supply problems in our operations and do not anticipate any significant supply problems in the foreseeable future.

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Sales and Marketing;

We provide our customers with engineered access control products including locksets, fobs, push button passive entry passive start ignition systems, steering column lock housings, electromechanical latches, power sliding door systems, power liftgate systems, power decklids, painted and non-painted door handles, door handle components and trim and other access products which are unique to specific vehicles.

We provide our customers with engineered access control products including locksets, fobs, push button passive entry passive start ignition systems, steering column lock housings, electromechanical latches, power sliding door systems, power tailgate systems, power liftgate systems, power decklids, painted and non-painted door handles, door handle components and trim and other access products which are unique to specific vehicles.

Any given vehicle will typically take 1 to 3 years of development and engineering design time prior to being offered to the public.

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We are also working with several electronics suppliers to jointly develop and supply these advanced products.

Our lockset, steering column lock housing, latches and power access competitors include Huf North America, Ushin, Valeo, Tokai-Rika, Alpha-Tech, Honda Lock, Shin Chang, Magna, Edscha, Stabilus, Aisin, Brose, Mitsuba, Ohi, Kiekert, Inteva, Key Plastics and Gecom.

For additional information related to competition, see the information set forth under “Risk Factors-Highly Competitive Automotive Supply Industry” included under Item 1A of this Form 10-K.

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In addition, specialized data collection equipment is developed to facilitate increased product development efficiency and continuous quality improvements.

For fiscal years 2019 and 2018, we spent approximately $13.8 million and $4.8 million, respectively, on research and development.

For fiscal years 2020 and 2019, we incurred approximately $9.8 million and $13.8 million, respectively, on research and development.

We believe that, historically, we have committed sufficient resources to research and development and we intend to continue to invest in the future as required to support additional product programs associated with both existing and new customers.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business