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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 28, 1997
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: 5,702,150 shares outstanding as of
September 28, 1997.
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STRATTEC SECURITY CORPORATION
FORM 10-Q
September 28, 1997
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 and Use of Proceeds 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
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Item 1 Financial Statements
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Three Months Ended
September 28, September 29,
1997 1996
----------- -----------
(unaudited)
Net sales $42,868 $36,214
Cost of goods sold 34,380 29,961
----------- -----------
Gross profit 8,488 6,253
Engineering, selling and administrative
expenses 4,647 4,162
----------- -----------
Income from operations 3,841 2,091
Interest expense 12 80
Other expenses, net 19 59
----------- -----------
Income before provision for income taxes 3,810 1,952
Provision for income taxes 1,412 751
----------- -----------
Net income $ 2,398 $ 1,201
=========== ===========
Earnings per share $ 0.42 $ 0.21
=========== ===========
Weighted average shares outstanding 5,675 5,786
=========== ===========
The accompanying notes are an integral part of these statements.
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4
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 28, June 29,
1997 1997
----------- ----------------
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $ 178 $ 404
Receivables, net 31,477 29,687
Inventories-
Finished products 3,845 3,599
Work in process 11,620 12,446
Raw materials 1,228 1,671
LIFO adjustment (2,837) (2,837)
------- -------
Total inventories 13,856 14,879
Customer tooling in progress 7,301 6,615
Other current assets 4,419 4,390
------- -------
Total current assets 57,231 55,975
Deferred income taxes 186 186
Property, Plant and Equipment 70,812 69,123
Less: accumulated depreciation 31,169 29,615
------- -------
Net property, plant and equipment 39,643 39,508
------- -------
$97,060 $95,669
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $14,093 $12,367
Environmental 2,908 2,911
Other accrued liabilities 7,383 8,298
------- -------
Total current liabilities 24,384 23,576
Borrowings under revolving credit facility 2,375 5,037
Accrued pension and postretirement obligations 11,243 10,963
Shareholders' equity:
Common stock, authorized 12,000,000 shares $.01 par value,
issued shares 5,834,150 at September 28, 1997,
and 5,799,150 at June 29, 1997 58 58
Capital in excess of par value 41,661 41,094
Retained earnings 21,345 18,947
Cumulative translation adjustments (1,863) (1,863)
Less: Treasury stock, at cost (132,000 shares at
September 28, 1997 and June 29, 1997) (2,143) (2,143)
------- -------
Total shareholders' equity 59,058 56,093
------- -------
$97,060 $95,669
======= =======
The accompanying notes are an integral part of these balance sheets.
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SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
September 28, September 29,
1997 1996
--------------- ------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,365 $ 1,201
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 1,741 1,237
Change in operating assets and liabilities:
Increase in receivables (1,782) (7,200)
(Increase) decrease in inventory 1,023 (231)
(Increase) decrease in other assets (711) 2,663
Increase (decrease) in accounts payable
and accrued liabilities 1,067 (2,190)
Other, net 76 12
------ -------
Net cash provided by (used in) operating activities 3,779 (4,508)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,920) (1,374)
------ -------
Net cash used in investing activities (1,920) (1,374)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayment) of borrowings under revolving
credit facility (2,662) 5,660
Exercise of stock options 568 31
------ -------
Net cash provided by (used in) financing activities (2,094) 5,691
EFFECT OF FOREIGN CURRENCY FLUCTUATIONS
ON CASH 9 (3)
------ -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (226) (194)
CASH AND CASH EQUIVALENTS
Beginning of period 404 441
------ -------
End of period $ 178 $ 247
====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 350 $ 103
Interest paid 20 78
The accompanying notes are an integral part of these statements.
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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 28, 1997,
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 28, 1997 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 Company continues
to monitor and evaluate this site and believes, based upon findings-to-date and
known environmental regulations, that the environmental reserve at September
28, 1997, is adequate.
(3) EARNINGS PER SHARE
In February of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
This statement revises the computation and presentation of earnings per share.
In accordance with timing prescribed by the Statement, the Company will adopt
this Statement in the second quarter of fiscal 1998. Had the Company adopted
this Statement for the three months ended September 28, 1997, and September 29,
1996, basic and diluted earnings per share would have been $.42 and $.41, and
$.21 and $.21, respectively.
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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 1997 Annual Report. Unless otherwise indicated, all references to
years refer to fiscal years.
Analysis of Results of Operations
Three months ended September 28, 1997 compared to the three months ended
September 29, 1996
Net sales increased 18 percent to $42.9 million for the three months ended
September 28, 1997, from $36.2 million for the three months ended September 29,
1996. The sales increase is primarily due to increased sales to the Company's
three largest customers in the current quarter compared to prior year levels
with sales to General Motors Corporation increasing $5.1 million or 33 percent,
Chrysler Corporation increasing $1.5 million or 32 percent and Ford Motor
Company increasing $1.3 million or 13 percent. The sales growth was due to
higher value mechanical and electro-mechanical content, and continued strong
production levels of the vehicles the Company supplies.
Gross profit as a percentage of net sales was 19.8 percent in the three
months ended September 28, 1997, compared to 17.3 percent in the three months
ended September 29, 1996. Gross profit margins increased primarily due to
decreased scrap and expedited freight costs in the current quarter as compared
to the prior year quarter. The market cost of zinc, the Company's primary raw
material, continued to rise during the quarter ended September 28, 1997 with a
resulting negative effect on gross profit margins. In early October 1997, the
market cost of zinc declined substantially. Also negatively impacting gross
profits were increased costs of the Company's Mexican assembly operations. The
U.S. dollar/Mexican peso exchange rate has been relatively stable for the past
21 months, while inflationary cost pressures in Mexico, which have recently
moderated as compared to the prior fiscal year, have resulted in higher U.S.
dollar costs.
Engineering, selling and administrative expenses were $4.7 million or 10.8
percent of sales for the three months ended September 28, 1997, compared to
$4.2 million or 11.5 percent of sales for the three months ended September 29,
1996. The dollar increase is primarily due to an increase in engineering
expenses of approximately $300,000 in support of current and future programs.
Income from operations was $3.8 million for the three months ended
September 28, 1997, compared to $2.1 million for the three months ended
September 29, 1996. Income from operations increased reflecting the increased
sales volume and improved gross profit margins as previously described above.
The effective income tax rate for the current quarter was 37.1 percent
compared to 38.5 percent in the prior year quarter. The current quarter rate
is consistent with the rate for the entire 1997 fiscal year. The effective
rate differs from the federal statutory tax rate primarily due to the effects
of state income taxes.
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Liquidity and Capital Resources
Capital expenditures in the first three months of 1998 were $1.9 million
compared to $1.4 million in the first three months of 1997. The Company
anticipates that capital expenditures will be approximately $10 million in
1998, primarily in support of requirements for additional product programs.
The Company's investment in accounts receivable increased by approximately
$1.8 million to $31.5 million at September 28, 1997, as compared to $29.7
million at June 29, 1997, primarily due to increased sales levels. Inventories
decreased by approximately $1.0 million at September 28, 1997, as compared to
June 29, 1997, primarily due to process and system improvements resulting in
improved inventory management.
The Board of Directors of the Company has authorized a stock repurchase
program to buy back up to 289,395 outstanding shares. A total of 132,000
shares have been repurchased as of September 28, 1997, at a cost of
approximately $2.1 million. Additional repurchases may occur from time to
time. Funding for the repurchases was provided by cash flow from operations
and borrowings under existing credit facilities.
The Company has a $25 million unsecured, revolving credit facility (the
"Credit Facility"). Outstanding borrowings under the Credit Facility were $2.4
million at September 28, 1997. 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.
The Company has not been significantly impacted by inflationary pressures
over the last several years, except for zinc and Mexican assembly operations as
noted elsewhere in this Management's Discussion and Analysis.
Mexican Operations
The Company has assembly operations in Juarez, Mexico. Effective December
30, 1996, the functional currency of the Mexican operation was the U.S. dollar,
as Mexico is currently considered to be a highly inflationary economy in
accordance with SFAS No. 52, "Foreign Currency Translation." The effect of
currency fluctuations in the remeasurement process is included in the
determination of income. The effect of currency fluctuations included in the
determination of income is not material. Prior to December 30, 1996, the
functional currency of the Mexican operation was the Mexican Peso. The effects
of currency fluctuations resulted in adjustments to the U.S. dollar value of
the Company's net assets and to the equity accounts in accordance with SFAS No.
52.
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.
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Part II
Other Information
Item 1 Legal Proceedings - None
Item 2 Changes in Securities and Use of Proceeds - 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
27.1 Financial Data Schedule for the quarterly period ended
September 28, 1997
(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 11, 1997 By /S/ John G. Cahill
------------------------------
John G. Cahill
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Principal Accounting Officer)
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5
1,000
3-MOS
JUN-28-1998
JUN-30-1997
SEP-28-1997
178
0
31,727
250
13,856
57,231
70,812
31,169
97,060
24,384
2,375
0
0
58
59,000
97,060
42,868
42,868
34,380
34,380
0
0
12
3,810
1,412
2,398
0
0
0
2,398
.42
.42
