# Dear STRATTEC Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NASDAQ_STRT_2018/NASDAQ_STRT_2018.mmd` · pages 3-9_

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Dear STRATTEC Shareholders,

We made progress on many fronts this year.

Thanks to all of our Associates for their efforts. Over the past two years, we have been challenged to deliver on two to three times the number of product launches than is typical for STRATTEC. I wish that I could say that everything went flawlessly, but that is not the case. We incurred some added costs as we ramped up manufacturing and incurred premium freight in order to properly serve our customers. For this coming year, as we digest the new business, there is opportunity for us to improve our efficiencies at the same time as we add the impact of more sales.

While the new tax law certainly benefitted our bottom line for one half of our fiscal year, we still would have shown significant progress without it. With the encouragement of our Board of Directors, we were pleased to share some of the tax law benefits with our Associates in recognition of their efforts and the progress we made this past year.

## INNOVATION

Despite the short term challenges of delivering on our commitments, we continue to maintain a focus on innovation for the future, thus keeping a pipeline of opportunity ahead of us.

We are very proud of being a winner of the very prestigious PACE Award and for being featured on the front page of the April 16 edition of Automotive News Magazine for our Invis-A-Rise power tailgate system (see inside cover for a description of benefits). We competed against many companies, many much larger than STRATTEC.

In addition to creating an innovative concept, it took the cooperation of the engineers at Honda to make modifications to their Odyssey vehicle and put it in production to make us eligible for the award. While there was a dedicated group of people involved, it was an opportunity for the entire company to celebrate and take pride in our collective accomplishments.

We also drew much attention by introducing a power end gate on the Chevrolet Silverado pick-up truck at the Detroit Auto Show in January 2018. This product allows the consumer to both lower and raise the gate on the back of their pick-up truck automatically. This is a new product in a market segment with very significant growth potential, with production beginning this fiscal year.

We continue to see many opportunities in offering more power assisted products. Convenience continues to be an increasing expectation. It also appears that power doors which automatically open and close will play an important role in the longer term development of autonomous vehicles.

## OPERATIONS

With the unusually high number of program launches recently, it stretched our organization to deliver product launches on a timely basis. We are now in the phase of moving from a time when we spent significant money and effort on developing products for new business to a time where those new projects will evolve into sales. That now gives us the opportunity to focus on improved process efficiency and asset utilization. It also gives us the opportunity to redeploy our people to focus on new initiatives.

Our capital spending was higher than normal. We invested in equipment to support new business as well as improve efficiencies. We should soon benefit from lower rates of

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capital expenditures and the higher utilization of new equipment, thus helping both earnings and cash flow.

The Leon, Mexico plant is still in its start-up phase. While we are beginning to produce painted door handles, it is still negatively impacting our profitability. We expect to see continued improvement as operational performance is enacted and additional volume is realized.

We had another good year of winning business. While it will take some time for these wins to convert into sales, it makes us confident that we will continue to be busy.

With the current talk of tariffs and trade wars, it is certainly a concern which may negatively impact overall market volumes. How it may specifically impact our primary customers is difficult to predict. Whatever happens in the overall market, any negative impacts on STRATTEC will be tempered by our increase in content per vehicle.

## VAST

This unique partnership, that was formed nearly two decades ago, continues to grow and create opportunities. It is interesting to see how more partnerships are now being formed in automotive and other industries. More companies are recognizing the opportunity to mutually benefit each other without trying to blend organizations together or taking on debt to finance an acquisition.

With our family owned partners, WITTE Automotive of Germany and ADAC Automotive of Michigan, we continue to find ways to better collaborate with each other. We originally created an alliance to give each of us global support of our North American and European customers. That included joint investments in China and India. We are now experiencing the benefits of the rapidly growing Chinese market. Through cooperative efforts and support, our VAST China operations experienced significant growth in sales and profitability this year and we are optimistic that this trend will continue.

## SUMMARY

In 1908, Steve Briggs and Harry Stratton saw a time full of change and opportunity in the early days of the automobile industry. While the path was not always smooth, they launched a business that has grown into what STRATTEC is today. We are thankful for their foresight and perseverance.

As we celebrate our 110th anniversary, we are part of an automotive industry which is vastly different. It is full of rapid global and technological shifts, but once again, full of change and opportunity.

I am pleased to report that this 110th year was both a year of significant progress and a year that positions us to take advantage of more opportunity in the future.

Thank you to our Shareholders, our Directors, our Customers and our Associates.

Sincerely,

![](images/4_0.jpg)

Frank J. Krejci

President & Chief Executive Officer