STRATTEC SECURITY CORP (STRT)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

The following Management's Discussion and Analysis should be read in conjunction with the accompanying condensed consolidated financial statements and notes.

Business Overview

Strattec is a global automotive access company that designs and delivers safe, secure, and highly engineered access solutions for the automotive and mobility industries. Built on generations of access and security engineering expertise, Strattec partners closely with OEMs to create differentiated, system‑level access experiences for end consumers. Strattec’s portfolio spans the access journey from Permission, enabling secure vehicle entry through advanced mechanical and electronic systems; to Motion, delivering effortless, reliable powered access that enhances everyday usability; and through to Hold, providing precision‑engineered latching solutions that give drivers confidence through proven strength, safety, and durability trusted by OEMs worldwide. As access becomes increasingly intelligent, connected, and central to vehicle experience, Strattec’s strategy is to expand its market share, further diversify its customers and geographic reach while becoming the most trusted access partner to drive long‑term growth across global automotive and mobility markets.

Our strategic priority is to execute a business transformation to strengthen the Company’s profitability and deliver sustainable sales growth. We expect to improve our business with upgraded systems and processes, modernization of our support functions and a focus on productivity and efficiencies in our manufacturing operations. We believe this will result in an optimized cost structure and consistent cash generation through improved working capital velocity and efficient asset utilization. In the short term, cash generated from our operations will be reinvested in our business to fund our transformational efforts and growth initiatives. To drive organic growth, we will leverage our technical engineering expertise, market-leading positions and strong customer relationships to generate innovative solutions and capture more content on current platforms, win new platforms with current customers, gain new customers both domestically and abroad and build opportunities in the broader transportation industry.

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 demand, 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, reflect these dynamics in addition to continued industry-wide supply chain 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.

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Analysis of Results of Operations

Three months ended March 29, 2026 (third quarter fiscal 2026) compared with the three months ended March 30, 2025 (third quarter fiscal 2025)

The Company's consolidated results of operations were as follows (in thousands):

Third quarter fiscal 2026 sales were $137.6 million, representing a decrease of $6.5 million or 4.5%, compared to the prior year, primarily due to lower OEM production volumes and the cancellation of certain customer programs. Third quarter North American automotive industry production declined 2.7% as OEMs managed supply chain challenges and dealer inventory levels. In addition, certain customer programs were cancelled or significantly reduced as OEMs adjusted electric vehicle (“EV”) production plans and product portfolios, which resulted in a $3.5 million reduction in year-over-year third quarter sales. Partially offsetting these volume declines was $1.3 million of pricing, including $0.6 million of US tariff cost recoveries.

Gross profit was $22.7 million in the third quarter of fiscal 2026, compared to $23.1 million in the comparable prior year quarter. Despite lower volumes and the unfavorable impact of changes in foreign currency exchange rates of $2.5m, gross margin improved from 16.0% in the prior year to 16.5% in the current year. The improvement primarily reflects the benefits of cost reduction initiatives (including $1.7 million of savings from restructuring actions), productivity improvements of $1.6 million, net pricing realization of $1.0 million and $0.3 million of lower tariff costs. Third quarter fiscal 2026 gross profit also benefited from a $0.6 million recovery of previously expensed costs associated with OEM cancelled EV programs.

Selling, administrative, and engineering expenses were $17.6 million, a $1.6 million increase year-over-year. Increased costs in the current quarter were the result of incremental employee costs of $1.0 million, as higher benefit costs were partially offset by lower bonus provisions and timing of outside service spend. The current quarter also includes $0.7 million of incremental business transformation costs and a $0.7 million recovery associated with customer program cancellations.

Interest income increased $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 a continued reduction in the average amounts outstanding under revolving credit agreements.

Other income (expense) was $0.7 million of expense in the current period. Changes in other income (expense) reflect foreign currency transaction gains and losses, unrealized mark-to-market gains and losses on foreign currency forward contracts, and non-service post-employment costs.

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The effective income tax rate was 25.1% and 22.4% for the third 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.

Nine months ended March 29, 2026 compared with the nine months ended March 30, 2025

The Company's consolidated results of operations were as follows (in thousands):

Year-to-date net sales totaled $427.6 million, representing an increase of $14.5 million, or 4%, compared to the prior year period. The year-over-year increase in net sales was primarily driven by $9.5 million of pricing (including $2.6 million of customer recoveries for tariffs), and a $5 million increase in shipment volumes. Sales volumes reflected a $4.6 million increase on existing platforms and $3.8 million of net new program launches, which were partially offset as sales associated with cancelled EV programs declined $3.4 million compared to the prior‑year period.

Year-to-date gross profit was $71.7 million, compared with $59.2 million in the comparable prior year period. Despite unfavorable changes in foreign currency exchange rates of $4.6 million and incremental tariff costs

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis should be read in conjunction with the accompanying audited consolidated financial statements and notes.

Business Overview

Strattec is a global automotive access company that designs and delivers safe, secure, and highly engineered access solutions for the automotive and mobility industries. Built on generations of access and security engineering expertise, Strattec partners closely with OEMs to create differentiated, system‑level access experiences for end consumers. Strattec’s portfolio spans the access journey from Permission, enabling secure vehicle entry through advanced mechanical and electronic systems; to Motion, delivering effortless, reliable powered access that enhances everyday usability; and through to Hold, providing precision‑engineered latching solutions that give drivers confidence through proven strength, safety, and durability trusted by OEMs worldwide. As access becomes increasingly intelligent, connected, and central to vehicle experience, Strattec’s strategy is to expand its market share, further diversify its customers and geographic reach while becoming the most trusted access partner to drive long‑term growth across global automotive and mobility markets. While the Company serves major automotive OEMs globally, the majority of sales are to the three largest automobile original equipment manufacturers in North America.

Current Business Update

Our strategic priority is to execute on a business transformation to strengthen the Company’s profitability and deliver sustainable sales growth. We expect to improve our business with upgraded systems and processes, modernization of our support functions and focus on productivity and efficiencies in our manufacturing operations. We believe this will result in an optimized cost structure and consistent cash generation through improved working capital velocity and efficient asset utilization. To drive organic growth, we will leverage our technical engineering expertise, market leading positions and strong customer relationships to generate innovative solutions and capture more content on current platforms, win new platforms with current customers, gain new customers both domestically and abroad and build opportunities in the broader transportation industry. The strength of our balance sheet also supports continued investments in process modernization, automation and new product innovation, as well as the flexibility needed to navigate through industry cycles.

Fiscal 2026 Financial Highlights

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Grew net sales 3% to $579.4 million driven by pricing and volume increases

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Expanded gross margin 150 basis points to 16.5%

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Delivered a 10% increase in net income to $20.6 million, or $5.00 per diluted share

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Generated $46.3 million of cash flow from operations driven by cash earnings and working capital management

•
Returned $7.4 million of capital to shareholders through the repurchase of over 2% of our outstanding common stock

Business Transformation

During fiscal 2026, we continued executing on our multi-year business transformation. We made significant progress on organizational restructuring actions, operational improvements and investments in business processes and technology. We reduced total headcount by approximately 7% during the year while maintaining support for customer programs and key growth initiatives. Operationally, we continued implementing initiatives designed to improve efficiency and cost competitiveness, including manufacturing automation, freight optimization and supply chain resiliency projects. These efforts contributed to improved gross profit margin despite foreign exchange headwinds and fluctuating customer production schedules. We also advanced several foundational process and technology initiatives intended to strengthen decision-making, improve data visibility, and increase organizational effectiveness.

Commercially, we continued efforts to strengthen customer engagement, improve quoting and program management processes, refine our product portfolio and pursue opportunities to win new business from both existing and prospective customers. The automotive industry is characterized by long product development and customer sourcing cycles. New vehicle programs are typically awarded several years before the start of production, requiring suppliers to invest significant engineering, validation, tooling and program management resources well in advance of realizing sales. Customer relationships are often developed over an extended period, and it may take five to seven years or longer to establish new OEM relationships, demonstrate technical capabilities, earn customer trust and secure meaningful production awards. As a result, we are actively working to be included on vehicle platforms scheduled for production in model years 2030 and beyond. We are also working to expand our reach to a broader customer set than we have addressed historically. Our strategic initiatives are aimed at building a more predictable business that can generate consistent cash flow across industry cycles.

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We believe these transformational initiatives, combined with ongoing investments in organizational capabilities, will better position the Company to respond in a changing automotive market.

Capital Allocation

Over the past two years we have driven significant cash flow from operations which has resulted in the repayment of all existing debt and continued strengthening of our balance sheet. We are committed to a disciplined capital allocation approach, designed to maximize long-term shareholder value while maintaining financial flexibility through industry cycles. Our first priority is to maintain a strong balance sheet and sufficient liquidity to support working capital requirements and capital expenditures, and allow us to navigate potential market volatility. Given the cyclical nature of the automotive industry and ongoing macroeconomic uncertainty, we believe maintaining a strong balance sheet enhances our ability to invest through economic cycles and respond to changing customer and market conditions. Our second priority is investing in the business to support long-term growth and operational improvement. These investments include customer program launches, product development, manufacturing automation, cost reduction initiatives, information technology investments, and other strategic initiatives intended to improve our competitiveness and margins. Third, we evaluate opportunities to return excess capital to shareholders. Subject to market conditions and investment opportunities we may repurchase shares on an opportunistic basis and to offset dilution associated with equity compensation programs. We also allocate capital to pursue strategic acquisition opportunities that enhance our capabilities, expand customer relationships, increase scale, improve margins, or otherwise support our long-term strategic objectives.

Market & Macro Environment

The North American automotive market continues to experience uncertainty driven by evolving trade policies, foreign exchange fluctuations, changing vehicle affordability dynamics, shifting OEM production schedules and emerging Chinese OEMs. Industry production levels remained below historical peak levels during fiscal 2026, and third-party forecasts indicate a modest (2% to 3%) decline in North American light vehicle production in fiscal 2027, while our primary customers are expected to decline 5% to 6% over the next year. Recent production forecasts have been impacted by tariff-related uncertainty, consumer demand trends, and a reduced number of scheduled vehicle launches by certain OEMs. Several of our largest customers, including Ford, General Motors, and Stellantis, continue to operate in a highly competitive environment characterized by declining market share positions, ongoing electrification strategy adjustments, and efforts to optimize vehicle inventories and production schedules. Industry participants remain focused on balancing production with retail demand following the inventory rebuilding experienced after the COVID-19 supply disruptions.

The global trade environment also remains dynamic. During fiscal 2026, the United States implemented and modified tariffs on certain imported goods, while other countries introduced reciprocal measures and trade restrictions. In addition, the ongoing review of the United States‑Mexico‑Canada Agreement ("USMCA") and potential future changes to regional content requirements, rules of origin, and tariff treatment have contributed to uncertainty across the North American automotive supply chain. These developments have required us to evaluate sourcing strategies, localization opportunities, and supply chain resiliency initiatives.

Foreign currency movements, particularly fluctuations in the Mexican peso relative to the U.S. dollar, remain an important factor affecting our operating results. Because a significant portion of the Company's manufacturing operations are located in Mexico, peso appreciation increases labor and manufacturing costs when translated into U.S. dollars. During fiscal 2026, changes in foreign exchange rates affected both operating costs and the mark-to-market valuation of the Company's foreign currency hedging program. The Company continues to utilize forward currency contracts to reduce a portion of its exposure to Mexican peso fluctuations.

While macroeconomic uncertainty, fluctuating OEM production volumes, tariffs, and foreign exchange volatility remain challenges, we believe the actions taken during fiscal 2026 have improved profitability and enhanced cash generation. As we enter fiscal 2027, we remain focused on continuing to advance our strategic priorities, executing the business transformation, strengthening operational performance, and delivering long-term value for shareholders.

Analysis of Results of Operations

The following discussion is a comparison between fiscal 2026 and fiscal 2025 results. For a discussion of our results of operations comparing fiscal 2025 to fiscal 2024, refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 29, 2025, which was filed with the SEC on August 25, 2025 and is available on our website.

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Year ended June 28, 2026 (fiscal 2026) compared with the year ended June 29, 2025 (fiscal 2025)

The Company's consolidated results of operations for the years ended June 28, 2026 and June 29, 2025 were as follows (in thousands):

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