XML 26 R8.htm IDEA: XBRL DOCUMENT

Organization and Summary of Significant Accounting Policies

12 Months Ended

Jul. 02, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Summary of Significant Accounting Policies

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

STRATTEC SECURITY CORPORATION designs, develops, manufactures and markets automotive access control products including mechanical locks and keys, electronically enhanced locks and keys, fobs, 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 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, along with our VAST LLC partners, provide full service and aftermarket support for each VAST Automotive Group partner’s products. As noted below, effective as of June 30, 2023 we sold our one-third ownership interest in VAST LLC to WITTE and entered into a cooperation framework agreement with WITTE related to VAST LLC which provides a framework for the parties to collaborate on global programs related to product development and manufacturing.

The accompanying 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. Effective June 30, 2023, STRATTEC POWER ACCESS LLC became a wholly owned subsidiary of STRATTEC SECURITY CORPORAITON as a result of the purchase of the remaining non-controlling interest. 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 in Juarez and Leon, Mexico. Effective June 30, 2023, we sold our equity investment in Vehicle Access Systems Technology to WITTE. Prior to the sale, equity investments in Vehicle Access Systems Technology LLC (“VAST LLC”) for which we exercised significant influence but did not control and were not variable interest entities of STRATTEC, were accounted for using the equity method. VAST LLC consisted 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 were reported on a one-month lag basis. We have only one reporting segment.

During December 2022, management determined that a previously unrecorded liability for postretirement death benefits was required to be recognized in accordance with ASC 715. Eligible participants for this death benefit include all salaried retirees who retired prior to October 1, 2001 and all hourly retirees who were hired prior to June 27, 2005 and retired prior to January 1, 2010. As such, this actuarially calculated liability and the unrecognized actuarial losses impacting Accumulated Other Comprehensive Loss are reported in the Consolidated Balance Sheets. Additionally, interest cost and amortization of actuarial losses are reported in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.

Additionally, management identified a correction to previously reported Equity Earnings of Joint Ventures in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income, which correction also impacts the previously reported Investment in Joint Ventures amount reported in the Consolidated Balance Sheets. While prior period amounts have been corrected for comparability, the corrections for both of these items, both individually and in total, were not material to the previously reported consolidated financial statements.

The impact of the prior period corrections on the Consolidated Balance Sheets, the related components of Stockholders’ Equity, and the related components of Accumulate Other Comprehensive Loss is as follows (thousands of dollars):


	July 3, 2022
	Previously Reported			Adjustment			As Reported
ASSETS
Investment in joint ventures	$	26,344		$	310		$	26,654
Deferred income taxes		6,937			144			7,081
Total assets	$	318,680		$	454		$	319,134

LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued Liabilities: Payroll and benefits	$	17,905		$	54		$	17,959
Total current liabilities		81,475			54			81,529
Accrued postretirement obligations		463			866			1,329

Retained earnings		241,504			(535	)		240,969
Accumulated other comprehensive loss		(18,657	)		69			(18,588	)
Total STRATTEC SECURITY CORPORATION shareholders' equity		188,866			(466	)		188,400
Total shareholders' equity		220,413			(466	)		219,947
Total liabilities and shareholders' equity	$	318,680		$	454		$	319,134

Accumulated Other Comprehensive Loss:
Foreign currency translation adjustments	$	(16,723	)	$	(10	)	$	(16,733	)
Retirement and Postretirement Benefit Plans		(1,934	)		79			(1,855	)
Accumulated other comprehensive loss	$	(18,657	)	$	69		$	(18,588	)

	June 27, 2021
	Previously Reported			Adjustment			As Reported
Retained earnings	$	234,472		$	(519	)	$	233,953
Accumulated other comprehensive loss		(16,797	)		(117	)		(16,914	)
Total STRATTEC SECURITY CORPORATION shareholders' equity		181,646			(636	)		181,010
Total shareholders' equity	$	213,433		$	(636	)	$	212,797

Accumulated Other Comprehensive Loss:
Foreign currency translation adjustments	$	(14,685	)	$	2		$	(14,683	)
Retirement and Postretirement Benefit Plans		(2,112	)		(119	)		(2,231	)
Accumulated other comprehensive loss	$	(16,797	)	$	(117	)	$	(16,914	)

The impact of the prior period corrections on the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income is as follows (thousands of dollars):


	Year Ended July 3, 2022
	Previously Reported			Adjustment			As Reported
Equity earnings of joint ventures	$	181		$	(4	)	$	177
Other income (expense), net		423			(17	)		406
Income before provision for income taxes and non-controlling interest		9,280			(21	)		9,259
Provision for income taxes		420			(5	)		415
Net income		8,860			(16	)		8,844
Net income attributed to STRATTEC SECURITY CORPORATION	$	7,032		$	(16	)	$	7,016

Comprehensive Income:
Net income	$	8,860		$	(16	)	$	8,844
Currency translation adjustments, net of tax		(2,306	)		(12	)		(2,318	)
Pension and postretirement plans, net of tax		178			198			376
Other comprehensive income (loss), net of tax		(2,128	)		186			(1,942	)
Comprehensive income		6,732			170			6,902
Comprehensive income attributed to STRATTEC SECURITY CORPORATION	$	5,172		$	170		$	5,342

Earnings per share attributed to STRATTEC SECURITY CORPORATION: diluted	$	1.80		$	(0.01	)	$	1.79

The correction of prior period amounts had no impact on total operating, investing, and financing activities on the Consolidated Statements of Cash Flows for the year ended July 3, 2022. In conjunction with the correction of the prior period amounts, the following footnotes, which were impacted by the above adjustments, were also corrected: Shareholders’ Equity, Other (Expense) Income, net, Earnings Per Share, Pension and Postretirement Benefits, and Accumulated Other Comprehensive Loss.

Reclassifications: For consistency with current year presentation, reclassifications have been made to the Consolidated Balance Sheet for the fiscal year ended July 3, 2022 in order to separately state Value Added Tax Recoverable and Value Added Tax Payable. These reclassifications had no effect on the reported results of operations and cash flows.

Risks and Uncertainties: Due to the evolving global economic conditions since 2020, initially as a result of the COVID-19 pandemic, the automotive industry experienced a decline in global customer sales and production volumes. Although industry production has recovered modestly, production remains well below recent historic levels. Moreover, since 2020, industry and economic conditions have been influenced directly and indirectly by macroeconomic events such as the COVID-19 pandemic and, beginning in February 2022, the Russia-Ukraine conflict, resulting in unfavorable conditions. These conditions have severely restricted the level of economic activity in many countries, and continue to adversely impact global economic activity, including with respect to customer purchasing actions and supply chain continuity and disruption, and in particular the supply of semiconductor chips, transponders and related components to the automotive industry.

STRATTEC’s operating performance is subject to global economic conditions, inflationary pressures and levels of consumer spending specifically within the automotive industry. Our 2022 net sales were negatively impacted by a global semiconductor chip shortage (especially as it relates to the automotive industry). Additionally, inflationary pressures resulted in increased raw material and purchased part costs as well as increased wage rates in Mexico beginning in calendar 2021. Such increases negatively impacted our 2023 and 2022 operating results.

Inflationary pressures in the U.S. and global economy continue to adversely impact our operating results and may continue to impact the supply chain and our operations, including impacting our customers, workforce and suppliers, any of which may continue to disrupt and limit sourcing of semiconductor chips, transponders and other critical supply chain components needed by us and our customers to meet expected production schedules. Moreover, these events may continue to create added inflationary pressures on our operations, including related to wages and the prices of raw materials and purchased parts. All of these foregoing matters, including their scope and duration are uncertain and cannot be predicted as to timing and cost impacts. These changing conditions may also affect the estimates and assumptions made by our management in our financial statements. Such estimates and assumptions affect, among other things, our long-lived asset valuations, assessment of our annual effective tax rate, valuation of deferred income taxes, assessment of excess and obsolete inventory reserves, and assessment of collectability of trade receivables.

Significant Accounting Policies: The significant accounting policies followed in the preparation of these financial statements, as summarized in the following paragraphs, are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).

Principles of Consolidation and Presentation: The accompanying consolidated financial statements include the accounts of STRATTEC SECURITY CORPORATION, its wholly owned Mexican subsidiary and its majority owned subsidiaries. Equity investments for which STRATTEC exercises significant influence but does not control and are not variable interest entities of STRATTEC are accounted for using the equity method. All significant inter-company transactions and balances have been eliminated.

New Accounting Standards: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The update revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, the update was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, Financial Instruments – Credit Losses, Derivatives and Hedging, and Leases. This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are planning to adopt this standard in the first quarter of our fiscal 2024. The adoption of this pronouncement will not have a material impact on our consolidated financial statements.

Subsequent Event: On August 22, 2023, STRATTEC entered into an agreement, which is effective September 6, 2023, with BMO Harris Bank N.A. to renew the term of its current $40 million secured credit facility until August 1, 2026. Under the terms of the new agreement, interest on borrowings under the credit facility will be at varying rates based, at our option, on Term SOFR plus 1.85 percent or the bank’s prime rate. Refer to the discussion of Credit Facilities herein.

Fiscal Year: Our fiscal year ends on the Sunday nearest June 30. The year ended July 2, 2023 is comprised of 52 weeks. The year ended July 3, 2022 is comprised of 53 weeks.

Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the periods presented. These estimates and assumptions could also affect the disclosure of contingencies. Actual results and outcomes may differ from management’s estimates and assumptions.

Cash and Cash Equivalents: Cash and cash equivalents include all short-term investments with an original maturity of three months or less due to the short-term nature of the instruments. Excess cash balances are placed in short-term commercial paper and short-term certificates of deposit.

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 2022 and 2023, we had contracts with Bank of Montreal that provide for monthly Mexican peso currency forward contracts for a portion of our estimated peso denominated operating costs. Our objective in entering into 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 consolidated financial statements at fair value and changes in the fair value are reported in current earnings as part of Other (Expense) Income, net. No Mexican peso forward contracts were outstanding as of July 2, 2023.

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


	July 2, 2023		July 3, 2022
Not designated as hedging instruments:
Other current assets:
Mexican peso forward contracts	$	—	$	627

The pre-tax effects of the Mexican peso forward contracts on the accompanying Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income consisted of the following (thousands of dollars):


	Other (Expense) Income, net
	Years Ended
	July 2, 2023		July 3, 2022
Not Designated as Hedging Instruments:
Realized gain	$	1,022	$	434
Realized (loss)	$	—	$	(73	)
Unrealized gain	$	—	$	384

Fair Value of Financial Instruments: The fair value of our cash and cash equivalents, accounts receivable, accounts payable and borrowings under our credit facilities approximated their book value as of July 2, 2023 and July 3, 2022. 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 for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. There is an established fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. Level 1 – Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 – Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments. Level 3 – Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of July 2, 2023 and July 3, 2022 (thousands of dollars):


	July 2, 2023								July 3, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Rabbi Trust assets:
Stock index funds:
Small cap	$	161	$	—	$	—	$	161	$	142	$	—	$	—	$	142
Mid cap		327		—		—		327		291		—		—		291
Large cap		492		—		—		492		416		—		—		416
International		503		—		—		503		447		—		—		447
Fixed income funds		1,022		—		—		1,022		1,023		—		—		1,023
Cash and cash equivalents		—		113		—		113		—		961		—		961
Mexican peso forward contracts		—		—		—		—		—		627		—		627
Total assets at fair value	$	2,505	$	113	$	—	$	2,618	$	2,319	$	1,588	$	—	$	3,907

The Rabbi Trust assets fund our supplemental executive retirement plan and are included in Other Long-Term Assets in the accompanying Consolidated Balance Sheets as of July 2, 2023. Of the July 3, 2022 $3.3 million Rabbi Trust asset balance, $863,000 was included in Other Current Assets and $2.4 million was included in Other Long-Term Assets in the accompanying Consolidated Balance Sheets. Refer to discussion of Mexican peso forward contracts under Derivative Instruments above. The fair value of the Mexican peso forward contracts considers the remaining term, current exchange rate and interest rate differentials between the two currencies.

Receivables: Receivables consist primarily of trade receivables due from Original Equipment Manufacturers in the automotive industry and locksmith/dealership distributors relating to our service and aftermarket sales. We evaluate the collectability of receivables based on a number of factors. An allowance for doubtful accounts is recorded for significant past due receivable balances based on a review of the past due items, general economic conditions (including with respect to the impact of the Ukraine conflict and the supply chain disruptions on our customers) and the industry as a whole. The allowance for doubtful accounts totaled $500,000 at July 2, 2023 and July 3, 2022.

Inventories: Inventories are comprised of material, direct labor and manufacturing overhead, and are stated at net realizable value using the first-in, first-out (“FIFO”) cost method of accounting. Inventories consisted of the following (thousands of dollars):


	July 2, 2023			July 3, 2022
Finished products	$	17,196		$	19,499
Work in process		17,492			18,263
Purchased materials		50,024			48,209
		84,712			85,971
Excess and obsolete reserve		(7,115	)		(5,489	)
Inventories, net	$	77,597		$	80,482

We record a reserve for excess and obsolete inventory based on historical and estimated future demand and market conditions. The reserve level is determined by comparing inventory levels of individual materials and parts to historical usage and estimated future sales by analyzing the age of the inventory in order to identify specific materials and parts that are unlikely to be sold. Technical obsolescence and other known factors are also considered in evaluating the reserve level. The activity related to the excess and obsolete inventory reserve was as follows (thousands of dollars):


	Balance, Beginning of Year		Provision Charged to Expense		Amounts Written Off / (Recoveries)			Balance, End of Year
Year ended July 2, 2023	$	5,489	$	1,457	$	(169	)	$	7,115
Year ended July 3, 2022	$	5,380	$	962	$	853		$	5,489

Customer Tooling in Progress: We incur costs related to tooling used in component production and assembly. Costs for development of certain tooling, which will be directly reimbursed by the customer whose parts are produced from the tool, are accumulated on the balance sheet and are then billed to the customer. The accumulated costs are billed upon formal acceptance by the customer of products produced with the individual tool. Other tooling costs are not directly reimbursed by the customer. We capitalize and amortize these other tooling costs over the life of the related product based on the fact that the related tool will be used over the life of the supply arrangement. To the extent that estimated costs exceed expected reimbursement from the customer we recognize a loss.

Property, Plant and Equipment: Property, plant and equipment are stated at cost. Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets as follows:


Classification		Expected Useful Lives
Land improvements		20 years
Buildings and improvements		15 to 35 years
Machinery and equipment		3 to 15 years

Property, plant and equipment consisted of the following (thousands of dollars):


	July 2, 2023			July 3, 2022
Land and improvements	$	6,963		$	6,041
Buildings and improvements		41,218			37,158
Machinery and equipment		251,995			235,050
		300,176			278,249
Less: accumulated depreciation		(205,730	)		(186,520	)
	$	94,446		$	91,729

Depreciation expense was as follows for the periods indicated (thousands of dollars):


Fiscal Year	Depreciation Expense
2023	$	17,485
2022	$	19,379

The gross and net book value of property, plant and equipment located outside of the United States, primarily in Mexico, were as follows (thousands of dollars):


	July 2, 2023		July 3, 2022
Gross book value	$	178,592	$	159,909
Net book value	$	68,240	$	64,645

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such indicators are present, the recoverability of assets to be held and used is assessed by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If an asset is determined to not be recoverable, the impairment recognized is calculated as the excess of the carrying amount of the asset over the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less estimated costs to sell. There were no impairments recorded in the years ended July 2, 2023 or July 3, 2022.

Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated. Upon retirement or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income.

Leases: Our right-of-use operating lease assets are recorded at the present value of future minimum lease payments, net of amortization. We have an operating lease for our El Paso, Texas finished goods and service parts distribution warehouse. During fiscal 2023, the El Paso warehouse lease was amended, which resulted in a lease modification that changed future payments for the existing premises. The amended lease has a current lease term through December 2028. The lease does not contain an option to extend the lease term, material residual value guarantees or restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease term.

As the lease does not provide an implicit rate, we used our incremental borrowing rate at lease commencement to determine the present value of our lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest we would pay to borrow over a similar term with similar payments.

The operating lease asset and obligation related to our El Paso warehouse lease included in the accompanying Consolidated Balance Sheets are presented below (thousands of dollars):


	July 2, 2023		July 3, 2022
Right-of-Use Asset Under Operating Lease:
Other Long-Term Assets	$	4,465	$	3,021
Lease Obligation Under Operating Lease:
Current Liabilities: Accrued Liabilities: Other	$	465	$	403
Other Long-Term Liabilities		4,000		2,618
	$	4,465	$	3,021

Future minimum lease payments, by our fiscal year, including options to extend that are reasonably certain to be exercised, under the non-cancelable lease are as follows as of July 2, 2023 (thousands of dollars):


2024	$	730
2025		941
2026		988
2027		1,037
Thereafter		1,647
Total Future Minimum Lease Payments		5,343
Less: Imputed Interest		(878	)
Total Lease Obligations	$	4,465

Cash flow information related to the operating lease is shown below (thousands of dollars):


	Years Ended
	July 2, 2023		July 3, 2022
Operating Cash Flows:
Cash Paid Related to Operating Lease Obligation	$	497	$	484

The weighted average remaining lease term and discount rate for the El Paso, Texas operating lease are shown below:


	July 2, 2023			July 3, 2022
Weighted Average Remaining Lease Term, (in years)		5.5			6.3
Weighted Average Discount Rate		6.2	%		3.3	%

Operating lease expense for the years ended July 2, 2023 and July 3, 2022 totaled $497,000 and $484,000, respectively.

Supplier Concentrations: The following inventory purchases were made from major suppliers during each fiscal year noted:


Fiscal Year	Percentage of Inventory Purchases			Number of Suppliers
2023		39	%		6
2022		38	%		6

We have long-term contracts or arrangements with most of our suppliers to assist in guaranteeing the availability of raw materials and component parts.

Labor Concentrations: We had approximately 3,361 full-time associates as of July 2, 2023. Approximately 178 or 5.3 percent of our full time associates were represented by a labor union at July 2, 2023 at our Milwaukee facility, which associates account for all production associates at our Milwaukee, WI facility. The current contract with our Milwaukee unionized associates is effective through November 1, 2025. Additionally, approximately 102 or 3.0 percent of our full time associates were represented by a labor union at our Leon, Mexico facility. The current contract with our Leon unionized associates is effective through April 8, 2024.

Revenue Recognition: We generate revenue from the production of parts sold to automotive and light-truck Original Equipment Manufacturers (“OEMs”), or Tier 1 suppliers at the direction of the OEM, under long-term supply agreements supporting new vehicle production. Such agreements also require related production of service parts subsequent to the initial vehicle production periods. Additionally, we generate revenue from the production of parts sold in aftermarket service channels and to non-automotive commercial customers.

Revenue Recognition:

Our contracts with customers under long-term supply agreements do not commit the customer to a specified quantity of parts. However, we are generally required to fulfill our customers’ purchasing requirements for the production life of the vehicle. Contracts do not become a performance obligation until we receive either a purchase order and/or customer release for a specific number of parts at a specified price. While long-term supply agreements may range from four to six years for new vehicle production and ten to fifteen subsequent years for service parts production, contracts may be terminated by customers at any time. Historically, terminations have been minimal. Contracts may also provide for annual price reductions over the production life of the vehicle, and prices are adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors.

Revenue is recognized at a point in time when control of the parts produced are transferred to the customer according to the terms of the contract, which is usually when the parts are shipped or delivered to the customer’s premises. Customers are generally invoiced upon shipment or delivery and payment generally occurs within 45 to 90 days after the shipment date. The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for those products based on purchase orders, annual price reductions and ongoing price adjustments, some of which are accounted for as variable consideration. We use the most likely amount method, the single most likely outcome of the contract, to estimate the amount to which we expect to be entitled. There were no significant changes to our estimates of variable consideration during the reporting periods referenced in our accompanying financial statements and significant changes to our estimates of variable consideration are not expected in future periods.

We do not have an enforceable right to payment at any time prior to when the parts are shipped or delivered to the customer. Therefore, we recognize revenue at the point in time we satisfy a performance obligation by transferring control of a part to a customer. Amounts billed to customers related to shipping and handling costs are included in Net Sales in the accompanying Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. Shipping and handling costs are accounted for as fulfillment costs and are included in Cost of Goods Sold in the accompanying Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.

Tooling and Pre-Production Engineering Costs Related to Long-Term Supply Arrangements:

We incur pre-production engineering and tooling costs related to the products produced for our customers under long-term supply agreements. Customer reimbursements for tooling and pre-production engineering activities that are part of a long-term supply arrangement are accounted for as a reduction of cost in accordance with ASC 340, Other Assets and Deferred Costs. Pre-production costs related to long-term supply agreements with a contractual guarantee for reimbursement are included in Other Current Assets in the accompanying Consolidated Balance Sheets. We expense all pre-production engineering costs for which reimbursement is not contractually guaranteed by the customer. All pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for which we do not have a non-cancelable right to use the tooling is also expensed when incurred.

Receivables, net:

Receivables, net include amounts billed and currently due from customers. We maintain an allowance for doubtful accounts to provide for estimated amounts of receivables not expected to be collected. We continually assess our receivables for collectability and any allowance is recorded based upon age of the outstanding receivables, historical payment experience, customer creditworthiness and general economic conditions.

Contract Balances:

We had no material contract assets or contract liabilities as of July 2, 2023 or July 3, 2022.

Product Sales and Sales and Receivable Concentration:

Refer to Product Sales and Sales and Receivable Concentration included herein for revenue by product group and revenue by customer.

Research and Development Costs: Expenditures relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. Research and development expenditures were approximately $15.9 million in 2023 and $12.2 million in 2022.

Other (Expense) Income, Net: Net other (expense) income included in the accompanying Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income primarily included foreign currency transaction gains and losses, realized and unrealized gains and losses on our Mexican peso currency forward contracts, the components of net periodic benefit cost other than the service cost component related to our pension and postretirement plans and Rabbi Trust gains and losses. Foreign currency transaction gains and losses resulted from activity associated with foreign denominated assets and liabilities held by our Mexican subsidiaries. The Rabbi Trust assets fund our amended and restated supplemental executive retirement plan. The investments held in the Trust are considered trading securities. We entered into the Mexican peso currency forward contracts during fiscal 2023 and 2022 to reduce earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. Pension and postretirement plan costs include the components of net periodic benefit cost other than the service cost component. The impact of these items for the periods presented was as follows (thousands of dollars):


	Years Ended
	July 2, 2023			July 3, 2022
Foreign currency transaction (loss) gain	$	(2,935	)	$	237
Rabbi Trust Assets gain (loss)		202			(304	)
Unrealized gain on Mexican peso forward contracts		—			384
Realized gain on Mexican peso forward contracts, net		1,022			361
Pension and postretirement plans cost		(722	)		(505	)
Other		255			233
	$	(2,178	)	$	406

Warranty Reserve: We have a warranty reserve recorded related to our known and potential exposure to warranty claims in the event our products fail to perform as expected, and in the event we may be required to participate in the repair costs incurred by our customers for such products. The recorded warranty reserve balance involves judgment and estimates. Our reserve estimate is based on an analysis of historical warranty data as well as current trends and information. During 2023, we recorded warranty provisions associated with customer-specific warranty claims involving our product. As additional information becomes available, actual results may differ from recorded estimates, which may require us to adjust the amount of our warranty provision.

Changes in the warranty reserve were as follows (thousands of dollars):


	Balance, Beginning of Year		Provision Charged to Expense		Payments		Balance, End of Year
Year ended July 2, 2023	$	8,100	$	2,405	$	780	$	9,725
Year ended July 3, 2022	$	8,425	$	265	$	590	$	8,100

Foreign Currency Translation: The financial statements of our foreign subsidiaries and equity investees are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the average exchange rate for each applicable period for sales, costs and expenses. Foreign currency translation adjustments are included as a component of accumulated other comprehensive loss. Foreign currency transaction gains and losses are included in other (expense) income, net in the accompanying Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.

Accumulated Other Comprehensive Loss (“AOCL”): The following tables summarize the changes in AOCL for the years ended July 2, 2023 and July 3, 2022 (thousands of dollars):


	Year Ended July 2, 2023
	Foreign Currency Translation Adjustments			Retirement and Postretirement Plans			Total
Balance July 3, 2022	$	16,733		$	1,855		$	18,588
Other comprehensive loss before reclassifications		(4,698	)		(559	)		(5,257	)
Income Tax		(636	)		132			(504	)
Net other comprehensive loss before reclassifications		(5,334	)		(427	)		(5,761	)
Reclassifications:
Sale of interest in VAST LLC		(830	)		—			(830	)
Actuarial losses (A)		—			(342	)		(342	)
Total reclassifications before tax		(830	)		(342	)		(1,172	)
Income Tax		—			80			80
Net reclassifications		(830	)		(262	)		(1,092	)
Other comprehensive loss		(6,164	)		(689	)		(6,853	)
Other comprehensive loss attributable
to non-controlling interest		(2,459	)		—			(2,459	)
Balance July 2, 2023	$	13,028		$	1,166		$	14,194


	Year Ended July 3, 2022
	Foreign Currency Translation Adjustments		Retirement and Postretirement Plans			Total
Balance June 27, 2021	$	14,683	$	2,231		$	16,914
Other comprehensive loss before reclassifications		1,712		(82	)		1,630
Income Tax		606		19			625
Net other comprehensive loss before reclassifications		2,318		(63	)		2,255
Reclassifications:
Actuarial losses (A)		—		(409	)		(409	)
Total reclassifications before tax		—		(409	)		(409	)
Income Tax		—		96			96
Net reclassifications		—		(313	)		(313	)
Other comprehensive loss		2,318		(376	)		1,942
Other comprehensive loss attributable
to non-controlling interest		268		—			268
Balance July 3, 2022	$	16,733	$	1,855		$	18,588

(A)

Amounts reclassified are included in the computation of net periodic benefit cost, which is included in Other (Expense) Income, net in the accompanying Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. See Retirement Plans and Postretirement Costs note to these Notes to Financial Statements below.

Stock-Based Compensation: We maintain an omnibus stock incentive plan. This plan provides for the granting of stock options, shares of restricted stock and stock appreciation rights. The Board of Directors has designated 2 million shares of common stock available for the grant of awards under the plan. Remaining shares available to be granted under the plan as of July 2, 2023 were 134,769. Awards that expire or are cancelled without delivery of shares become available for re-issuance under the plan. We issue new shares of common stock to satisfy stock option exercises.

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

No stock options were granted during 2023 or 2022, and all compensation cost related to previously granted options was recognized prior to 2022. Accordingly, no compensation cost related to stock options was recorded during 2023 or 2022. The fair value of each restricted stock grant was based on the market price of the underlying common stock as of the date of grant. The resulting compensation cost is amortized on a straight-line basis over the vesting period. We record stock based compensation only for those awards that are expected to vest.

Unrecognized compensation cost as of July 2, 2023 related to restricted stock granted under the plan was as follows (thousands of dollars):


	Compensation Cost		Weighted Average Period over which Cost is to be Recognized (in years)
Restricted stock granted	$	1,370		0.9

Unrecognized compensation cost will be adjusted for any future changes in estimated and actual forfeitures.

Cash received from stock option exercises and the related income tax benefit were as follows (thousands of dollars):


Fiscal Year	Cash Received from Stock Option Exercises		Income Tax Benefit
2023	$	109	$	—
2022	$	827	$	74

The intrinsic value of stock options exercised and the fair value of options vested were as follows (thousands of dollars):


	Years Ended
	July 2, 2023		July 3, 2022
Intrinsic value of options exercised	$	31	$	451
Fair value of stock options vested	$	—	$	—

The range of options outstanding as of July 3, 2022 was as follows:


	Number of Options Outstanding and Exercisable		Weighted Average Exercise Price Outstanding and Exercisable		Weighted Average Remaining Contractual Life Outstanding (In Years)
$38.71		24,491	$	38.71	0.13
$79.73		8,070	$	79.73	1.13
		32,561	$	48.88

Income Taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered, settled or utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. We recognize the benefit of an income tax position only if it is more likely than not (greater than 50 percent) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. Additionally, we accrue interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest and penalties on uncertain tax positions are classified in the (Benefit) Provision for Income Taxes in the accompanying Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.