1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission File Number 0-25150
STRATTEC SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1804239
(State of Incorporation) (I.R.S. Employer Identification No.)
3333 WEST GOOD HOPE ROAD, MILWAUKEE, WI 53209
(Address of principal executive offices)
(414) 247-3333
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock, par value $0.01 per share: 5,787,900 shares outstanding as of
September 29, 1996.
2
STRATTEC SECURITY CORPORATION
FORM 10-Q
September 29, 1996
INDEX
Page
----
Part I - FINANCIAL INFORMATION
Item 1 Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Results
of Operations and Financial Condition 7-8
Part II - OTHER INFORMATION
Item 1 Legal Proceedings 9
Item 2 Changes in Securities 9
Item 3 Defaults Upon Senior Securities 9
Item 4 Submission of Matters to a Vote of Security-Holders 9
Item 5 Other Information 9
Item 6 Exhibits and Reports on Form 8-K 9
2
3
Item 1 Financial Statements
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Three Months Ended
--------------------------
September 29, October 1,
1996 1995
----------- ----------
(unaudited)
Net sales $36,214 $27,817
Cost of goods sold 29,961 23,051
----------- ----------
Gross profit 6,253 4,766
Engineering, selling and administrative
expenses 4,162 3,794
----------- ----------
Income from operations 2,091 972
Interest expense 80 22
Other (income) expense, net 59 (48)
----------- ----------
Income before provision for income taxes 1,952 998
Provision for income taxes 751 398
----------- ----------
Net income $ 1,201 $ 600
=========== ==========
Earnings per share $ 0.21 $ 0.10
=========== ==========
The accompanying notes are an integral part of these statements.
3
4
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 29, June 30,
1996 1996
----------- ---------
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $ 247 $ 441
Receivables, net 26,012 18,809
Inventories-
Finished products 3,063 3,926
Work in process 12,262 10,415
Raw materials 1,252 1,591
LIFO adjustment (2,940) (2,526)
---------- ----------
Total inventories 13,637 13,406
Customer tooling in progress 5,352 7,346
Other current assets 4,609 5,277
---------- ----------
Total current assets 49,857 45,279
Property, Plant and Equipment 65,047 63,672
Less: accumulated depreciation 27,316 26,081
---------- ----------
Net property, plant and equipment 37,731 37,591
---------- ----------
$87,588 $82,870
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $11,627 $13,017
Environmental 2,936 2,966
Other accrued liabilities 6,473 7,600
---------- ----------
Total current liabilities 21,036 23,583
Deferred Income Taxes 52 52
Borrowings under revolving credit facility 7,090 1,430
Accrued pension and postretirement obligations 9,869 9,507
Shareholders' equity:
Common stock, authorized 12,000,000 shares $.01 par value,
issued and outstanding 5,787,900 shares 58 58
Capital in excess of par value 40,940 40,909
Retained earnings 10,328 9,127
Cumulative translation adjustments (1,785) (1,796)
---------- ----------
Total shareholders' equity 49,541 48,298
---------- ----------
$87,588 $82,870
========== ==========
The accompanying notes are an integral part of these balance sheets.
4
5
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
--------------------------
September 29, October 1,
1996 1995
------------- ----------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,201 $ 600
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation 1,237 821
Change in operating assets and liabilities:
Increase in receivables (7,200) (5,251)
Increase in inventories (231) (1,692)
Decrease in other assets 2,663 1,754
Decrease in accounts payable and
accrued liabilities (2,190) (2,392)
Other, net 12 209
---------- ----------
Net cash used in operating activities (4,508) (5,951)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,374) (3,040)
---------- ----------
Net cash used in investing activities (1,374) (3,040)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from borrowings under revolving credit facility 5,660 4,875
Exercise of stock options 31 -
---------- ----------
Net cash provided by financing activities 5,691 4,875
EFFECT OF FOREIGN CURRENCY FLUCTUATIONS
ON CASH (3) (27)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (194) (4,143)
CASH AND CASH EQUIVALENTS
Beginning of period 441 4,262
---------- ----------
End of period $ 247 $ 119
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 103 $ 1,673
Interest paid 78 22
The accompanying notes are an integral part of these statements.
5
6
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF FINANCIAL STATEMENTS
STRATTEC SECURITY CORPORATION (the "Company") designs, develops,
manufacturers and markets mechanical locks, electro-mechanical locks and
related security products for North American automotive manufacturers. The
accompanying financial statements reflect the consolidated results of the
Company, its wholly owned Mexican subsidiary, and its foreign sales
corporation.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments which are of a normal recurring nature,
necessary to present fairly the financial position as of September 29, 1996,
and the results of operations and cash flows for the period then ended. All
significant intercompany transactions have been eliminated. Interim financial
results are not necessarily indicative of operating results for an entire year.
Certain amounts previously reported have been reclassified to conform to
the September 29, 1996 presentation.
(2) ENVIRONMENTAL MATTERS
In 1995, the Company recorded a provision of $3 million for estimated
costs to remediate a site at the Company's Milwaukee facility that was
contaminated by a solvent spill which occurred in 1985. The environmental
reserve reflects this provision.
6
7
Item 2
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following Discussion and Analysis should be read in conjunction with
the Company's accompanying Financial Statements and Notes thereto and the
Company's 1996 Annual Report. Unless otherwise indicated, all references to
years refer to fiscal years.
Analysis of Results of Operations
Three months ended September 29, 1996 compared to the three months ended
October 1, 1995
Net sales increased 30 percent to $36.2 million for the three months ended
September 29, 1996, from $27.8 million for the three months ended October 1,
1995. The sales increase is primarily due to sales to the Ford Motor Company,
which totaled $9.9 million in the current quarter compared to $2.4 million in
the prior year quarter. During the current quarter, the Company made
production volume shipments for all vehicle programs which it supplies to Ford.
Production on the majority of these programs was phased in during the prior
fiscal year. Sales to General Motors Corporation and Chrysler Corporation
increased by a total of approximately 7 percent compared to the prior year
quarter due to increased vehicle production at these customers and increased
product content and features in the locksets supplied by the Company.
Gross profit as a percentage of net sales was 17.3 percent in the three
months ended September 29, 1996, compared to 17.1 percent in the three months
ended October 1, 1995. Scrap levels and expedited freight costs have decreased
in the current quarter compared to fiscal 1996 as the Company has focused on
identifying and correcting the causes for these problems.
Engineering, selling and administrative expenses were $4.2 million or 11.5
percent of sales for the three months ended September 29, 1996, compared to
$3.8 million or 13.6 percent of sales for the three months ended October 1,
1995.
Income from operations was $2.1 million for the three months ended
September 29, 1996, compared to $1.0 million for the three months ended October
1, 1995. Income from operations increased reflecting the increased sales
volume as previously described above.
The effective income tax rate for the current quarter was 38.5 percent
compared to 39.9 percent in the prior year quarter. The current quarter rate
is consistent with the prior fiscal year rate. The effective rate differs from
the federal statutory tax rate primarily due to the effects of state income
taxes.
Liquidity and Capital Resources
Capital expenditures in the first three months of 1997 were $1.4 million
compared to $3.0 million in the first three months of 1996. The decrease in
capital expenditures compared to the prior year is due to the timing of
expenditures for new product programs. The Company anticipates that capital
expenditures will be approximately $11 million in fiscal 1997 primarily in
support of additional product programs, and the upgrade and replacement of
existing equipment at the Milwaukee facility.
7
8
The Company's investment in accounts receivable increased by approximately $7.2
million to $26 million at September 29, 1996, as compared to $18.8 million at
June 30, 1996, due to the receipt of normal payments from significant customers
subsequent to September 29, 1996, and an increase in outstanding billings for
customer tooling. Inventory levels at September 29, 1996, were consistent with
the levels at June 30, 1996.
The Company has a $25 million unsecured, revolving credit facility (the
"Credit Facility"). Outstanding borrowings under the Credit Facility were $7.1
million at September 29, 1996 primarily due to the increase in accounts
receivable as previously discussed above. The Company believes that the Credit
Facility will be adequate, along with cash flow from operations, to meet its
anticipated capital expenditure, working capital and operating expenditure
requirements. Funding of the environmental remediation at the Milwaukee
facility is not expected to impact ongoing operations.
The Board of Directors of the Company has authorized a stock repurchase
program to buy back up to 5 percent of the 5.8 million outstanding shares.
Shares will be repurchased from time to time in open market transactions and
will be held as Treasury Shares. The stock repurchase program will be funded
through the Credit Facility along with cash flow from operations.
The Company has not been significantly impacted by inflationary pressures
over the last several years. Primary raw materials are high grade zinc and
brass which are generally subject to commodity pricing and variations in the
market prices of these materials.
Mexican Operations
The Company has assembly operations in Juarez, Mexico. The functional
currency of the Mexican operation is the Mexican Peso. The effects of currency
fluctuations result in adjustments to the U.S. dollar value of the Company's
net assets and to the equity accounts in accordance with FAS No. 52, "Foreign
Currency Translation."
A number of the matters and subject areas discussed in this Form 10-Q that
are not historical or current facts deal with potential future circumstances
and developments. These include expected future financial results, liquidity
needs, financing ability, management's or the Company's expectations and
beliefs and similar matters discussed in the Company's Management Discussion
and Analysis of Results of Operations and Financial Condition. The discussions
of such matters and subject areas are qualified by the inherent risk and
uncertainties surrounding future expectations generally, and also may
materially differ from the Company's actual future experience. The Company's
business, operations and financial performance are subject to certain risks and
uncertainties which could result in material differences in actual results from
the Company's current expectations. These risks and uncertainties include, but
are not limited to, general economic conditions, demand for the Company's
products and costs of operations.
8
9
Part II
Other Information
Item 1 Legal Proceedings - None
Item 2 Changes in Securities - None
Item 3 Defaults Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of Security-Holders - None
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
3.1* Amended and Restated Articles of Incorporation of the Company
3.2* By-Laws of the Company
4.1* Rights Agreement dated as of February 6, 1995 between the
Company and Firstar Trust Company, as Rights Agent
(b) Reports - None
- ------------------
* Incorporated by reference to Amendment No. 2 to the Company's Form 10 filed
on February 6, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STRATTEC SECURITY CORPORATION (Registrant)
Date: November 12, 1996 By /S/ John G. Cahill
---------------------------
John G. Cahill
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Principal Accounting Officer)
9
5
1,000
3-MOS
JUN-29-1997
JUL-01-1996
SEP-29-1996
247
0
26,262
250
13,637
49,857
65,047
27,316
87,588
21,036
7,090
0
0
58
49,483
87,588
36,214
36,214
29,961
29,961
0
0
80
1,952
751
1,201
0
0
0
1,201
.21
.21
