STRATTEC SECURITY CORP

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Strattec Security Corporation (the "Company" or “Strattec”), headquartered in Milwaukee, Wisconsin, is a leading global manufacturer and provider of highly engineered advanced automotive access and security products and solutions. Products include power access solutions, locks & locksets, keys & fobs, engineered latches, vehicle start systems, door handles, and other vehicle access products. Power access solutions provide the motion control for power liftgates, sliding power doors, and power tailgates. While the Company serves major automotive OEMs globally, the majority of sales are to the three largest automobile original equipment manufacturers (“OEMs”) in North America.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial reporting and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated balance sheet data as of June 28, 2026, was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes in the Annual Report.

In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three months ended September 27, 2026, are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 27, 2027. The condensed consolidated financial statements include the results of all wholly owned subsidiaries, as well as the results of a majority owned joint venture.

NOTE 2. RECENTLY ISSUED ACCOUNTING STANDARDS

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion) included in certain expense captions presented on the face of the income statement. The ASU is effective for fiscal years beginning after December 15, 2026, (fiscal 2028) and for interim periods beginning after December 15, 2027 (fiscal 2029). The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

NOTE 3. WARRANTY

The Company generally offers its customers an assurance warranty on products sold, although warranty periods may vary by product type and application. The Company has a warranty reserve related to known and potential exposure to warranty claims in the event products fail to perform as expected and in the event the Company may be required to participate in the repair costs incurred by customers for such products. The estimation of the warranty reserve involves judgment and assumptions and is based on an analysis of historical warranty data as well as current trends and information. Changes in the warranty reserve were as follows (in thousands):

NOTE 4. CREDIT FACILITIES

The Company has a revolving credit agreement with BMO Harris N.A. ("Amended and Restated Credit Agreement"), which provides for a $40 million revolving line of credit maturing October 2028. The facility bears interest at varying rates based on the bank's prime rate or SOFR plus 1.50%. As of September 27, 2026, the Company hadno borrowings outstanding under the facility. The credit facility is secured by U.S. cash balances, accounts receivable, inventory, and fixed assets located in the U.S. and contains a restrictive financial covenant that requires a minimum net worth level.

The Company's joint venture, ADAC-Strattec LLC, has a revolving credit agreement with BMO Harris N.A. ("Amended and Restated JV Credit Facility"), which provides for a $10 million asset-based revolving line of credit, subject to a borrowing base, maturing October 2028. As of September 27, 2026, the Company hadno borrowings outstanding under the facility. The facility bears interest at varying rates based on the bank's prime rate plus 1.00% or SOFR plus 1.75%. The credit facility is secured by substantially all of the joint venture's assets and contains restrictive financial covenants that require a minimum net worth level and a minimum fixed charge coverage ratio.

The Company and the joint venture were in compliance with all financial covenants as of September 27, 2026.

NOTE 5. DERIVATIVE INSTRUMENTS

A significant portion of the Company's manufacturing costs are incurred in Mexican pesos, which causes earnings and cash flows to fluctuate with changes in the U.S. dollar/Mexican peso exchange rate. The Company enters into contracts with a creditworthy counterparty that provide for monthly Mexican peso forward currency contracts for a portion of peso denominated operating costs. The aggregate notional amounts of outstanding foreign currency forward contracts were $103.5 million and $92.3 million at September 27, 2026, and June 28, 2026, respectively. The fair values of derivative instruments not designated as hedging instruments recorded in our consolidated balance sheets were as follows (in thousands):

NOTE 6. INCOME TAXES

The Company's income tax expense and effective tax rate for the three-month periods ended September 27, 2026, and September 28, 2025, were as follows (in thousands and percentage of Income before income taxes and non-controlling interest):

The Company is subject to income taxes in the United States and foreign jurisdictions, primarily Mexico. The Company's income tax positions are based on interpretations of income tax laws and rulings in each of the jurisdictions in which the Company operates. Interim income tax expense is determined based on an estimate of the overall annual effective income tax rate which can vary due to the relationship of foreign and domestic earnings, state taxes and available deductions, credits, and discrete items. The effective tax rate for the three months ended September 27, 2026, is higher than the U.S. federal statutory rate of 21% as a result of profits generated in foreign jurisdictions (Mexico) which has a higher statutory income tax rate and a $0.4 million increase in reserves for uncertain tax positions.

NOTE 7. EARNINGS PER SHARE

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

NOTE 8. STOCK-BASED COMPENSATION

The Company has granted service-based restricted stock awards ("RSAs") and performance stock units ("PSUs") to employees and non-employee directors under existing stock incentive plans. The number of shares of the Company's common stock authorized under thecurrent 2024 Equity Incentive Plan is 550,000. As of September 27, 2026, there were 299,860 shares available for future awards. During the quarter, the Company granted 15,605 PSUs that are subject to performance and market conditions, including the Company’s relative total shareholder return, with grant-date fair value determined using a Monte Carlo simulation model. As of September 27, 2026, there was$2.1 million of unrecognized compensation cost related to nonvested PSUs and $4.2 million of unrecognized compensation cost related to nonvested RSAs, which will be expensed over the remaining vesting period ofapproximately 2 years. As of September 28, 2025, there was $1.7 million of unrecognized compensation cost related to non-vested PSUs and$3.8 million of unrecognized compensation cost related to nonvested RSAs.

A summary of restricted stock award and performance stock unit activity was as follows:

NOTE 9. OTHER EXPENSE, NET

The following table summarizes the components of other expense, net included in the accompanying consolidated statements of income (in thousands):

NOTE 10. ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT

The following tables summarize the changes in accumulated other comprehensive loss (“AOCL”) by component (in thousands):

NOTE 11. RELATED PARTY

The Company owns 51% of a joint venture, which was formed in fiscal 2007 to support customers with painted door handles and exterior trim products from operations in Mexico. The following tables summarize the related party transactions that arise as a result of the joint venture operating agreement (in thousands):

NOTE 12. SEGMENT INFORMATION

The Company's Chief Operating Decision Maker ("CODM") is the Chief Executive Officer. The CODM assesses the performance and makes capital and resource allocation decisions based on net income attributable to Strattec.

The CODM considers the impact of significant segment expenses on this measure to assess profitability and guide strategic decision making including entering into significant contracts, expanding into new markets or launching new products, making significant capital expenditures, hiring and terminating key personnel, and approving operating budgets.

Net sales and significant segment expenses are as follows (in thousands):

Sales by product line were as follows (in thousands):

Sales to and receivables from customers that individually accounted for 10% or more of the Company's total net sales were as follows (in thousands and percent of total):

NOTE 13. COMMITMENTS AND CONTINGENCIES

From time to time, the Company is party to various legal actions, administrative proceedings, and claims arising in the ordinary course of business, including matters related to alleged product defects and warranties, contract disputes, intellectual property, and employment issues. The Company recognizes accruals for such matters in accordance with U.S. GAAP when a loss is probable and reasonably estimable. While the outcome of these matters cannot be predicted with certainty, based on currently available information, management does not believe the ultimate resolution of these proceedings, individually or in the aggregate, will have a material adverse effect on the Company's financial position, results of operations, or cash flows.