Equity Earnings (Loss) of Joint Ventures

We hold a one-third interest in a joint venture company, VAST LLC, with WITTE and ADAC. VAST LLC exists to seek opportunities to manufacture and sell all three companies’ products in areas of the world outside of North America and Europe. Our investment in VAST LLC, for which we exercise significant influence but do not control and are not the primary beneficiary, is accounted for using the equity method.

The following are summarized statements of operations for VAST LLC (in thousands):

	Three Months Ended					Nine Months Ended
	April 1, 2018			April 2, 2017		April 1, 2018			April 2, 2017
Net Sales	$	44,133		$	30,967	$	127,976		$	89,983
Cost of Goods Sold		34,063			24,776		98,339			71,993
Gross Profit		10,070			6,191		29,637			17,990
Engineering, Selling and Administrative Expenses		7,429			5,067		19,775			14,294
Income From Operations		2,641			1,124		9,862			3,696
Other Income, net		163			259		949			1,430
Income before Provision for Income Taxes		2,804			1,383		10,811			5,126
Provision for Income Taxes		683			50		1,367			627
Net Income	$	2,121		$	1,333	$	9,444		$	4,499
STRATTEC’s Share of VAST LLC Net Income	$	707		$	445	$	3,148		$	1,500
Intercompany Profit Elimination		(4	)		6		(6	)		(17	)
STRATTEC’s Equity Earnings of VAST LLC	$	703		$	451	$	3,142		$	1,483

We hold a 51% ownership interest in a joint venture company, SAL LLC, which was formed to introduce a new generation of biometric security products based upon the designs of Actuator Systems LLC, our partner. SAL LLC is considered a variable interest entity based on loans from STRATTEC as discussed below. STRATTEC is not the primary beneficiary and does not control the entity. Accordingly, our investment in SAL LLC is accounted for using the equity method.

SAL LLC maintains a license agreement with Westinghouse allowing SAL LLC to do business as Westinghouse Security. Payments due Westinghouse under the license agreement were guaranteed by STRATTEC. As of April 1, 2018 and July 2, 2017, STRATTEC has a recorded liability equal to the estimated fair value of the future payments due under this guarantee of $250,000, which is payable by June 30, 2018. The liability is included in Accrued Liabilities: Other in the accompanying Condensed Consolidated Balance Sheets.

Loans were made from STRATTEC to SAL LLC in support of operating expenses and working capital needs. The outstanding loan amounts totaled $2.6 million as of April 1, 2018 and July 2, 2017. As of each balance sheet date, the outstanding loan amount was eliminated against STRATTEC’s Investment in SAL LLC in the preparation of the consolidated financial statements.

Even though we maintain a 51 percent ownership interest in SAL LLC, effective with our fiscal 2015 fourth quarter, 100 percent of the funding for SAL LLC was being made by loans from STRATTEC to SAL LLC. Therefore, STRATTEC recognized 100 percent of the losses of SAL LLC up to our committed financial support through Equity Earnings (Loss) of Joint Ventures in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income for all periods presented in this report. The equity loss reported for the year to date period ended April 1, 2018 reflects a reduction in our estimated required financial support needed to satisfy the liabilities of SAL LLC.

The following are summarized statements of operations for SAL LLC (in thousands):

	Three Months Ended						Nine Months Ended
	April 1, 2018			April 2, 2017			April 1, 2018			April 2, 2017
Net Sales	$	—		$	102		$	227		$	298
Cost of Goods Sold		—			244			408			428
Gross (Loss) Profit		—			(142	)		(181	)		(130	)
Engineering, Selling and Administrative Expenses		19			425			(6	)		1,131
Loss From Operations		(19	)		(567	)		(175	)		(1,261	)
Other Expense, net		(65	)		(47	)		(194	)		(94	)
Net Loss	$	(84	)	$	(614	)	$	(369	)	$	(1,355	)
STRATTEC’s Equity Loss of SAL LLC	$	(84	)	$	(614	)	$	(24	)	$	(1,355	)

Currently, we, along with our joint venture partner, are winding down operating the business of SAL LLC.

We have sales of component parts to VAST LLC and SAL LLC, purchases of component parts from VAST LLC, expenses charged to VAST LLC for engineering and accounting services and expenses charged to us from VAST LLC for general headquarters expenses. The following table summarizes these related party transactions with VAST LLC and SAL LLC for the periods indicated below (in thousands):

	Three Months Ended				Nine Months Ended
	April 1, 2018		April 2, 2017		April 1, 2018		April 2, 2017
Sales to VAST LLC	$	507	$	501	$	2,090	$	1,041
Sales to SAL LLC	$	—	$	63	$	182	$	190
Purchases from VAST LLC	$	29	$	27	$	158	$	129
Expenses Charged to VAST LLC	$	232	$	341	$	615	$	567
Expenses Charged from VAST LLC	$	176	$	375	$	706	$	724