STRT 10-K & 10-Q changes, risk factors and insider trading

We also make investments in machineryequipment, tooling and equipmentassembly lines used exclusively to manufacture products for specific customer programs. This machinery and equipment is capitalized and depreciated over the expected useful life of each respective asset. Therefore, the loss of any one of our major customers, the loss of specific vehicle models or the early cancellation of a vehicle model could result in impairment in the value of these assets.

Our business depends on, and is directly affected by, the globaldynamics in the automobile industry. Our major customers and many of their suppliers can be significantly impacted by unfavorable global economic and industry conditions. In the past, many of our major customers have instituted production cuts and shuttered plants in light of these unfavorable conditions which adversely impacts demand for our products during these slowdowns and shutdowns. While production has increased and plants have reopened after these events, any additionalAdditional economic slowdowns, global conflicts, pandemics or part supply shortages could bringresult aboutin new production cuts which could have a material adverse effect on our revenue,net operating results, financial condition and cash flows.sales. Furthermore, uncertain economic conditions and inflation may contribute to a reduction in consumer demand, which may reduce vehicle productionproduction. overThe atuse leastand the next several quarters. We cannot be certainconsumption of theour severityproducts andfluctuates length of the continued volatility in the global automotive market, and the extent of the adverse effect that such volatility could havedepending on order forecasts we receive from our resultscustomers. ofThese operations,order financialforecasts condition,can andchange businessdramatically infrom thequarter longto term.quarter.

We manufacture a vast majority of our products in Mexico and rely on a global supply chain to provide raw materials and components that we need to manufacture our products. Our business benefits from certain free trade agreements, such as the United States-Mexico-Canada Agreement ("USMCA"). However, recent shifts in trade policy have resulted in new or higher tariffs on goods imported from numerous countries, and some countries have imposed retaliatory tariffs on imports from the United States, which has created meaningful uncertainty. These changes may result in significantly increased production costs, pricing volatility and administrative complexity in determining country-of-origin compliance for automotive components.

In addition to potential increaseschanges in customs duties and tariffs in the United States and other countries, the future terms of the USMCA isremain subjectuncertain following the July 2026 joint review process. Although the USMCA remains in effect, the United States did not agree to renewalextend the agreement in 2026.its current form. There can be no assurance that thefuture USMCAnegotiations will bepreserve renewedthe or,current ifterms renewed,of the agreement or that any newlymodifications negotiated terms into the USMCAUSMCA, including changes to rules of origin, regional value content requirements, tariff treatment or customs procedures, will not adversely affect our business. Also, China presents unique risks to U.S. automotive manufacturers due to the strain in U.S.-China relations and the level of integration with key components in our global supply chain. It remains unclear what additional actions the current U.S. administration may take with respect to trade issues involving China and other countries.

The automotive component supply industry is highly competitive. OEMs rigorously evaluate our products and performance against competitors on the basis of quality, reliability and cost-effectiveness. New business is typically awarded to the supplier offering the most favorable combination of technological innovation, quality, delivery and price. Our ability to compete successfully depends, in large part, on our success in continuing to innovate and manufacture products that resonate with our customers, differentiating our products from those of our competitors, delivering quality products in the time frames required by our customers and maintaining efficient production. There can be no assurance that we will be able to compete successfully with the products of our competitors. Our competitors' efforts to grow market share could exert downward pressure on our product pricing and margins. Vertical integration by competitors and customers, as well as within our supply chain, could complicate and impact sourcing decisions by our customers and adversely affect our sales. Some of our competitors may have larger customer bases and significantly greater financial, technical, operational and marketingprocurement resourcesscale than we do. These factors may allow our competitors to respond more quickly than we can to new or emerging technologies and changes in customer requirements by devoting greater resources than we can to the development, promotion and sale of automotive aftermarket products. Increased competition could put additional pressure on us to reduce prices or take other actions, which may have an adverse effect on our business, sales, financial condition and results of operations. We may also lose significant customers or lines of business to competitors.

Historically, our operating results have fluctuated by quarter based on the ebbs and flows of automotive vehicle production levels. The automotive market is cyclical and is dependent on consumer spending, on the availability of consumer credit, inflation, labor conditions, interest rates, fuel prices, consumer preference and confidence, geopolitical issues and to a certain extent, on customer sales incentives. Economic factors adversely affecting consumer demand for automobiles and automotive production,production could adversely impact our financial results.

The growth of the Company's business will be dependent on the demand for innovative products. In order to increase sales in current markets and gain entry into new markets, the Company must innovate to maintain and improve existing products while successfully developing and introducing distinctive new and enhanced products that anticipate changing customer and consumer preferences and capitalize upon emerging software technologies, including hybrid and electric vehicle advances. We principally compete for new business at the beginning of the development of new models and upon the redesign of existing models by our customers. New model development generally begins twothree to five years prior to the marketing of such new models. The failure to obtain new business on new vehicle models or to retain or increase business on redesigned existing models could result in reduced net sales. In addition, we may incur significant product development expenses in preparing to meet anticipated customer requirements which may not be recovered.

Certain of our operations are conducted through a joint venture with ADAC Automotive. With respect to our joint venture, we may share ownership and management responsibilities with a partner that may not share our goals and objectives. Operating a joint venture requires us to manage the business pursuant to the terms of the agreementoperating thatagreement. we entered into in fiscal 2007 with our partner, which may require additional organizational formalities, as well as the sharing of information and decision making. Additional risksRisks associated with joint ventures include one or more partners failing to satisfy contractual obligations, the ability to enforce such obligations, conflicts arising between us and our partner, a change in the ownership of any of our partners and a reduced ability to control compliance with applicable rules and regulations. Additionally, our ability to sell our interest in a joint venture may be subject to contractual and other limitations. Accordingly, anyAny such occurrence could adversely affect our financial condition, operating results and cash flows.

We operateconduct manufacturing operations in Mexico. As these operations continue to expand, their success will depend, in part, on our ability to anticipate and effectively manage certain risks inherent in international operations, including: enforcing agreements and collecting receivables through certain foreign legal systems, payment cycles of foreign customers, compliance with foreign tax laws, general economic and political conditions in these countries and compliance with foreign laws and regulations.

Climate Change andChange, Environmental, Social,Social and Governance (ESG) MattersMatters, and Global Health Crises

Natural disasters ordisasters, extreme weather conditions resulting from global climate changechange, or pandemics and infectious disease outbreaks could lead us, our customers or our suppliers to experience disruptions in operations or disruptions in the availability of key components, which could lead to a material adverse impact on our results of operations, financial condition and cash flows. WePandemics couldor alsodisease experienceoutbreaks adversehave impactsdisrupted, and may continue to disrupt, the global economy, and because we and our financialsuppliers conditionmanufacture dueproducts in facilities around the world, we may be vulnerable to volatilityan outbreak of infectious disease in the costregions in which we, or availabilityour of capital, difficulty obtaining new businesscustomers or enteringsuppliers, into new supplier relationships, a possible loss of market share on our current product portfolio, fines and penalties or difficulty attracting and retaining a skilled workforce.operate.

In addition to the increased stakeholdercustomer focus on climatesupply change,chain customer, investor, and employeeresiliency, expectations inon sustainability have been rapidly evolving and increasing. The enhanced stakeholder focus on sustainability requires continuous monitoring of various and evolving regulations and standards and their associated requirements. Our failure, or that of our supply base, to adequately meet stakeholder expectations may result in, among other things, the loss of business, diluted market valuation,or an inability to attract customers orwhich an inability to attract and retain top talent that couldwould adversely affect our business, financial condition or results of operations.

Existing Indebtedness and Ability to Access Capital Markets

From time to time we have relied on our existing credit facilities to provide us with adequate working capital to operate our business and fund our capital expenditures, including any expansion initiatives. Escalation of any global inflationary pressures on our operating results may impact our ability to satisfy our lending covenants in the short term. Additionally, we cannot provide assurance that we will be able to refinance, extend the maturity of, or otherwise amend the terms of our existing credit facilities, or that any refinancing, extension, or amendment will be on terms favorable to us or even on commercially reasonable terms. If our lenders reduce or terminate our access to amounts under our credit facilities, we may not have sufficient capital to fund our working capital needs and/or we may need to secure additional capital or financing to fund our working capital requirements or to repay outstanding debt under our credit facilities. Moreover, new credit facilities resulting from any refinancing of our existing facilities could have a significantly higher rate of interest and greater borrowing costs than our existing facilities. We can make no assurance that we will be successful in ensuring ourthe availability of amounts under our credit facilities or in connection with raising additional capital and that any amount, if raised, will be sufficient to meet our cash flow requirements. If we are not able to maintain our borrowing availability under our credit facilities it may have a negative impact on our business, results of operations, financial condition and cash flows.

We own intellectual property, including patents, trademarks, copyrights, and trade secrets, that are of importanceimportant to our business, in the aggregate.business. Our intellectual property plays an important role in maintaining our competitive position in the markets we serve. We may directly or through a supplied component utilize intellectual property in its products that requiresrequire a license from a third-party. While we believe that such licenses generally can be obtained by us, or a supplier if a supplied component, we may not be able to obtain the necessary licenses on commercially acceptable terms or at all. Failure by us or our suppliers to obtain the right to use third-party intellectual property could preclude us from selling certain products, and developments or assertions by or against us relating to intellectual property rights,rights could have materially adverse effects on our business, operating results, financial condition, and cash flow.

We are involved in various legal and regulatory proceedings and claims that, from time to time, may be significant. These are typically claims that arise in the normal course of business, including, without limitation, commercial or contractual disputes, including disputes with our customers, suppliers or competitors, intellectual property matters, personal injury claims, environmental matters, tax matters, employment matters and antitrust matters. No assurances can be given that such proceedings and claims will not adversely affect our financial condition, operating results and cash flows.

We are currently operating in a period of geopolitical instability, which has significantly contributed to economic uncertainty, capital market disruption and supply chain interruptions in the U.S. and global markets. While the length and impact of the ongoing global conflicts are unpredictable, they could lead to further market disruptions, including supply chain interruptions and significant volatility in commodity prices, and in credit and capital markets. The ongoing conflicts have led to sanctions and other penalties being levied by the U.S., the EU, and other countries. Additional potential sanctions and penalties have also been proposed. These global conflicts, as well as future geopolitical conflicts, could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially further disrupting the supply chain for necessary components and raw materials used by us or our customers in producing product.products. Any of the foregoing factors could have a material adverse effect on our business, operating results, financial condition and cash flows.

The Company's consolidated results of operations for the years ended June 29,28, 20252026 and June 30,29, 20242025 were as follows (in thousands):

Material costs increased $13.7$3.3 million onprimarily due to higher productionsales levelsvolumes, while labor and overhead costs declinedincreased $5.5$0.2 million. ReducedIncreased conversion costs reflectwere due to higher sales volumes and a $13.6$6.5 million benefitheadwind from changes in foreign currency exchange rates a $1.4 million reduction in depreciation expense, $1.5 million of incremental tooling gains and a $1.4 million benefit from completed restructuring actions in the second half of fiscal 2025.rates. These benefitsincreases were partially offset by incremental conversion costs due to higher sales volumes, a $6.2$5.4 million increase in Mexicosavings laborfrom costs,previously $2.5completed restructuring actions and $1.7 million of tariff costs and additionallower provisions for annual bonus expense of $1.6 million.bonuses.

Gross profit was $84.5$95.4 million in fiscal 2025,2026, compared towith $65.5$84.5 million in the comparable prior yearprior-year period. GrossDespite profitunfavorable changes in foreign currency exchange rates, gross margin improved year-over-year from 12.2%15.0% to 15.0% as16.5%, a result150 ofbasis thepoint strengtheningimprovement, of the U.S. dollar, improved leverage ofreflecting our fixedfocused efforts to manage our cost structurestructure, onincremental higher salesproduction volumes and the benefits of pricing and restructuring actions.

Interest income increased $1.5 million due to increased levels of cash and cash equivalents, which are invested in overnight money market funds.funds, while interest expense decreased $0.6 million, the result of debt repayments.

Other income, net decreasedincreased from $2.7 million in fiscal 2024 to $0.8 million in fiscal 2025,2025 theto result$3.3 of changesmillion in fiscal 2026. The increase in Other income, net was primarily due to $4.9 million realized gains on peso forward contracts, partially offset by $1.6 million foreign currency exchangetransaction rateslosses and increased$0.8 million non-service post-employmentpension and postemployment costs.

The effective income tax rate was 23.2%34.4% and 18.7%23.2% for fiscal 20252026 and 2024,2025, respectively. The effective rate for both periods differs from the statutory rate because of the foreign rate differential, state income taxes, research and development tax credits, limitations on the utilization of foreign tax credits and non-deductible items. Additionally, the 2024fiscal 2026 effective tax rate was favorably impacted by changesa in$1.0 themillion estimateincrease ofto ourvaluation 2023allowances foreignand a $2.9 million increase to reserves for uncertain tax creditspositions. associatedSee withNote the6, sale“Income ofTaxes,” ourfor interestadditional in a prior joint venture.information.

At June 29,28, 2025,2026, we had $84.6$108.2 million of cash and cash equivalents, of which $4.8$3.8 million was held by our foreign subsidiaries and $79.8 million was held domestically. Excess cash is held in money market funds.subsidiaries. The following table summarizes our cash flows provided by (used in) operating, investing and financing activities (in millions):

Fiscal 2026 cash flow from operations increased our balance sheet cash position, allowed us to repay all outstanding bank debt, repurchase common stock and continue to invest in the business. Cash flow from operations improvedwas to$46.3 million compared with $71.7 million, from $12.3 million in the prior year. TheCurrent increaseyear cash from operations reflects improved cash earnings, while the prior year benefited from a significant reduction in cashprimary providedworking by operating activities was due to reduced purchasing levels on higher sales, collection of accounts receivablecapital and the recovery of pre-production costs. Net cash used in investing activities was $7.2$5.4 million during fiscal 20252026 compared towith $7.8$7.2 million in the prior yearprior-year period. Capital expenditures to support new product programs and the upgrade and replacement of existing equipment were $7.2$7.3 million inwhich thewas currentpartially yearoffset periodby compared to $9.8$1.9 million in the prior year period. The prior year also included $2.0 million inof proceeds received from the sale of ourproperty, interestplant inand aequipment. previousCurrent joint venture. Netyear cash used in financing activities resulted from the repayment of $5$8.0 million under our joint venture revolving credit agreementagreement, during$7.4 fiscalmillion 2025.repurchases of our common stock and the payment of $1.4 million for taxes withheld for the vesting of share-based awards.

There were no outstanding borrowings and no interest due on theeither Strattec Credit Facility and $8 million drawn on the ADAC-Strattec Credit Facilityfacility as of June 29,28, 2025.2026. AnyThe repayment of any balance drawn on these facilities and the related interest payment obligations are expected to be funded by cash flow from operations and current cash balances. For further information related to our credit facilities, see Note 3, "Credit Facilities," for additional information.

Throughout a vehicle's lifecycle, we receive purchase orders from our customers, which provide the commercial terms for a sale transaction. Revenue is typically recognized at a point in time based on the transaction price and the quantity of parts shipped to the customer. Discrete price adjustments may occur during the vehicle production period in order for the Companyus to remain competitive with market prices or based on changes in product specifications or based on changes in significant input costs for the products. In the event the Company concludes that a portion of the revenue for a given product may vary from the purchase order, thewe Company recordsrecord consideration at the most likely amount to which thewe Company expectsexpect to be entitled based on historical experience and input from customer negotiations.

As a result, these differences and the interplay in tax laws between jurisdictions may cause the Company'sour estimates of income tax liabilities to differ from actual payments or assessments. Some of these differences are permanent, such as expenses that are not tax deductible, while others are temporary differences, such as amortization and depreciation expenses. Temporary differences create deferred tax assets and liabilities, which are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We establish valuation allowances for our deferred tax assets when the amount of expected future taxable income is not large enough to utilize the entire deduction or credit. Relevant factors in determining the realizability of deferred tax assets include future taxable income, the expected timing of the reversal of temporary differences, tax planning strategies and the expiration dates of the various tax attributes. At June 29, 2025 and June 30, 2024, the valuation allowance related to deferred tax assets was $3.9 million and $2.6 million, respectively.

While thewe Company hashave support for the positions it takestaken on tax returns, taxing authorities may assert different interpretations of laws and facts and may challenge cross-jurisdictional transactions. We assess our income tax positions and record tax liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available at the reporting dates. For those tax positions which do not meet the more-likely-than-not threshold regarding the ultimate realization of the related tax benefit, no tax benefit has been recorded in the financial statements. As of June 29, 2025 and June 30, 2024, our liability for unrecognized tax benefits was $1.9 million and $1.6 million, respectively.

Volatility in the North American automotive industry is driven by supply chain disruptions, global inflation, thinning labor availability, rising global commodity costs and a changing global trade and geopolitical climate. These macro conditions, coupled with changes in production volumes by OEMs in response to new vehicle consumer demanddemand, impact our sales and profitability levels. An evolving tariff landscape, combined with heightened geopolitical instability in certain global regions has further disrupted supply chains and has added complexity to production and cost planning across the industry. Lower near term North American light vehicle production estimates, which are subject to change, arereflect athese resultdynamics ofin recentaddition to continued industry-wide supply chain disruptions, tariff uncertainties,disruptions and availability of raw materials including rare earth minerals. As we look forward and navigate these macroeconomic challenges and fluctuating OEM production volumes, we are focused on executing new initiatives to improve our cost structure, continuing to mitigate the impact of incremental tariff costs, driving cash flow through improved working capital utilization and securing new platforms to solidify future sales growth.

Three months ended DecemberMarch 28,29, 20252026 (secondthird quarter fiscal 2026) compared with the three months ended DecemberMarch 29,30, 20242025 (secondthird quarter fiscal 2025)

Interest income increased $0.5$0.4 million due to increased levels of cash and cash equivalents, which are invested in overnight money market funds. Interest expense decreased $0.2 million, the result of thea continued paydownreduction ofin the average amounts outstanding under revolving credit agreements.

Other income (expense) was $1.7 million of income in the current period compared to $0.5$0.7 million of expense in the priorcurrent year.period. Changes in other income (expense), reflect foreign currency transaction gains and losses, changesunrealized inmark-to-market thegains fairand valuelosses ofon pesoforeign currency forward contractscontracts, and non-service post-employment costs.

The effective income tax rate was 23.1%25.1% and 22.4% for the secondthird quarter of fiscal 2026 and 2025, respectively. The effective tax rate for each period presented differs from the U.S. federal statutory rate of 21% primarily due to the accrual of foreign income taxes, which are generally higher than the U.S. federal statutory rate, partially offset by the recognition of U.S. research and development tax credits and discrete income tax benefits associated with share-based payments. The effective tax rate for the third quarter of fiscal 2026 increased primarily due to a shift in the geographic mix of earnings toward higher-tax jurisdictions.

SixNine months ended DecemberMarch 28,29, 20252026 compared with the sixnine months ended DecemberMarch 29,30, 20242025

Year-to-date net sales totaled $289.9$427.6 million, representing an increase of $21.0$14.5 million, or 8%,4%, incompared to the comparable prior year period. The year-over-year increase in net sales was primarily driven by $8.3$9.5 million of pricing (including $1.9$2.6 million of customer recoveries for tariffs), $5.6and a $5 million increase in shipment volumes. Sales volumes reflected a $4.6 million increase on existing platforms and $3.8 million of higher demand, $4.4 million in net new program launcheslaunches, andwhich $2.6were partially offset as sales associated with cancelled EV programs declined $3.4 million ofcompared favorableto mixthe andprior‑year content per vehicle.period.

Year-to-date gross profit was $49.1$71.7 million, compared with $36.1$59.2 million in the comparable prior year period. Despite unfavorable changes in foreign currency exchange rates of $2.1$4.6 million and incremental tariff costs of $1.9 million, gross profit margin improved year-over-year from 13.4%14.3% to 16.9%,16.8%, a 350240 basis point improvement. Material costs increased $9.7$4.9 million on higher production levels while labor and overhead costs decreased $1.8$2.9 million. Lower year-over-year conversion costs on higher sales reflect our focused efforts to manage our cost structure, which includes a $3.0$4.6 million labor cost benefit from completed restructuring actions. Annual merit increases of $2.3 million and incremental freight & logistics costs of $0.4 million (due to supply chain disruptions) were offset by reduced aftermarket royalty costs on reduced demand and a $0.5 million lower provision for annual bonuses.

Selling, administrative, and engineering expenses were 11.6%12.0% of sales for the sixnine months ended DecemberMarch 28,29, 2025,2026, compared with 10.7%10.9% in the prior year period. Year-to-date expenses were $33.7$51.4 million, a $4.9$6.5 million increase year-over-year. The increase in costs reflects $3.0 million associated with headcount additions and higher incentive compensation costs $0.5 million, $2.5 million of business transformation costs ($0.5 million in the prior year period), and efforts to improve our cost structure including one-time restructuring and voluntary retirement costs of $1.3$1.7 million ($0.3 million in the prior year period) and $1.0 million of business transformation costs ($0.2$1.1 million in the prior year period). HigherThese incentive compensation cost of $0.7 million and $1.6 million associated with headcount additionsincreases were partially offset by reduced executive transition costs of $1.6$1.4 million.

Interest income increased $1.0$1.4 million due to increased levels of cash and cash equivalents, which are invested in overnight money market funds. Interest expense decreased $0.3$0.5 million, the result of a continued reduction in the repayment ofaverage amounts outstanding under revolving credit agreements.

Other income (expense) was $1.4$0.7 million of income in the current period compared to $0.4 million of expense in the prior year.period. Changes in other income (expense), reflect foreign currency transaction gains and losses, changesunrealized inmark-to-market thegains fairand valuelosses ofon pesoforeign currency forward contractscontracts, and non-service post-employment costs.

The effective income tax rate was 22.2%22.9% and 27.0%24.0% for the year-to-date period of fiscal 2026 and 2025, respectively. The higher effective tax ratechange in the prioreffective yearrate between period was primarily impacted by earnings mix and the foreign tax rate differential and a limitation on the utilization of our foreign tax credits on non-deductible items.differential.

At DecemberMarch 28,29, 2025,2026, we had $99.0$107.0 million of cash and cash equivalents, of which $3.6$5.3 million was held by our foreign subsidiaries. Excess cash is held in money market funds. The following table summarizes our cash flows provided by (used in) operating, investing and financing activities (in millions):

Cash flow from operations was $25.2$36.7 million, anda increasedecrease of $4.4$4.8 million compared with the prior year. CashCurrent providedyear-to-date bycash operatingfrom activitiesoperations forreflects improved cash earnings, while the year-to-dateprior year period ofbenefited fiscalfrom 2026a reflects$17 cashmillion earningsreduction against flatin operating assets and liabilities.liability, Year-to-date cash flow from operations in both periods reflectsincluding the paymentbenefit of annualextending short-termvendor incentiveaccounts compensation earned in the prior year and a replenishment of our inventory balance partially offset by the collection of receivables.payable. Cash used in investing activities, which includes capital expenditures to support customer programs and modernization of equipment was $3.9$5.7 million year-to-date compared with $3.0$4.2 million in the prior year period. Current year net cash used in financing activities resulted from the repayment of $5.5$7.0 million under the joint venture revolving credit agreement during fiscal 2026 and the payment of $1.3$1.4 million for taxes withheld related to the vesting of share-based awards.

At DecemberMarch 28,29, 2025,2026, no borrowings were outstanding under the $40.0 million Amended & Restated Credit Agreement and $2.5$1.0 million was outstanding under the $18.0 million joint venture revolving credit agreement. The Company was in compliance with all covenants under its credit facilities at December 28, 2025.

We believe that the revolving credit lines, combined with our existing cash and anticipated operating cash flows will be adequate to meet operating, debt service and capital expenditure funding requirementsrequirements. In the short-term., cash generated from operations will be reinvested in bothour thebusiness shortto termfund our transformational efforts and beyond.growth initiatives.

Primary working capital levels at DecemberMarch 28,29, 20252026 wereare consistenthigher withthan the beginning of the fiscal year, as we increased inventory levels $7.2were increased $8.7 million to improve customer deliveries, which was offset by reduced accounts receivable of $12.9 million on sequentially lower sales and a $6.3 million reduction in accounts payable due to timing of inventory purchases and payments.deliveries.