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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 27, 1998
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: 5,609,653 shares outstanding as of
September 27, 1998.
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STRATTEC SECURITY CORPORATION
FORM 10-Q
September 27, 1998
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 7-9
Item 3 Quantitative and Qualitative Disclosures About Market Risk 9
Part II - OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Changes in Securities and Use of Proceeds 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
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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 27, September 28,
1998 1997
------------ ------------
(unaudited)
Net sales $ 40,362 $ 42,868
Cost of goods sold 31,527 34,380
------------ -----------
Gross profit 8,835 8,488
Engineering, selling and administrative
expenses 4,686 4,647
----------- -----------
Income from operations 4,149 3,841
Interest income 244 9
Interest expense - 12
Other income (expense), net 72 (28)
------------ -----------
Income before provision for income taxes 4,465 3,810
Provision for income taxes 1,652 1,412
------------ -----------
Net income $ 2,813 $ 2,398
============ ===========
Earnings per share:
Basic $ .49 $ .42
============ ===========
Diluted $ .48 $ .41
============ ===========
The accompanying notes are an integral part of these consolidated
statements.
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4
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 27, June 28,
1998 1998
------------ -----------
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $ 10,629 $ 14,754
Receivables, net 29,113 25,301
Inventories-
Finished products 3,780 5,114
Work in process 12,774 11,204
Raw materials 1,159 1,179
LIFO adjustment (2,705) (2,535)
------------ -----------
Total inventories 15,008 14,962
Customer tooling in progress 9,323 8,692
Other current assets 4,304 4,349
------------ -----------
Total current assets 68,377 68,058
Property, plant and equipment 76,130 75,197
Less: accumulated depreciation 36,924 35,257
------------ -----------
Net property, plant and equipment 39,206 39,940
------------ -----------
$ 107,583 $107,998
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 13,313 $ 12,457
Environmental 2,847 2,873
Other accrued liabilities 8,480 9,775
------------ -----------
Total current liabilities 24,640 25,105
Deferred Income Taxes 357 357
Accrued pension and postretirement obligations 12,527 12,138
Shareholders' equity:
Common stock, authorized 12,000,000 shares $.01 par value,
issued 5,879,650 shares at September 27, 1998, and
5,877,150 shares at June 28, 1998 59 59
Capital in excess of par value 42,554 42,489
Retained earnings 35,249 32,436
Cumulative translation adjustments (1,863) (1,863)
Less: treasury stock, at cost (269,997 shares at September 27,
1998 and 152,307 shares at June 28, 1998) (5,940) (2,723)
----------- -----------
Total shareholders' equity 70,059 70,398
------------ -----------
$107,583 $107,998
============ ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
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5
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
------------------
September 27, September 28,
1998 1997
------------ -----------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,813 $ 2,398
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,728 1,741
Change in operating assets and liabilities:
Increase in receivables (3,866) (1,782)
(Increase) decrease in inventories (46) 1,023
Increase in other assets (638) (711)
Increase in accounts payable and
accrued liabilities 63 1,067
Other, net (27) 52
---------- -------
Net cash provided by operating activities 27 3,788
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,000) (1,920)
---------- -------
Net cash used in investing activities (1,000) (1,920)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on borrowings under revolving
credit facility - (2,662)
Purchase of treasury stock (3,230) -
Exercise of stock options 78 568
---------- -------
Net cash used in financing activities (3,152) (2,094)
---------- -------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (4,125) (226)
CASH AND CASH EQUIVALENTS
Beginning of period 14,754 404
---------- -------
End of period $ 10,629 $ 178
========== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 195 $ 350
Interest paid - 20
The accompanying notes are an integral part of these consolidated
statements.
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STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF FINANCIAL STATEMENTS
STRATTEC SECURITY CORPORATION (the "Company") designs, develops,
manufacturers and markets mechanical locks, electro-mechanical locks and related
security products for major 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 27, 1998, 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 27, 1998 presentation.
EARNINGS PER SHARE (EPS)
A reconciliation of the components of the basic and diluted per-share
computations follows (in thousands, except per share amounts):
Three Months Ended
------------------
September 27, 1998 September 28, 1997
------------------ ------------------
Net Per-Share Net Per-Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Basic Earnings Per Share $2,813 5,701 $0.49 $2,398 5,675 $0.42
===== =====
Stock Options 159 135
----- -----
Diluted Earnings Per Share $2,813 5,860 $0.48 $2,398 5,810 $0.41
===== ===== ===== =====
Options to purchase the following shares of common stock were
outstanding as of each date indicated but were not included in the computation
of diluted EPS because the options' exercise prices were greater than the
average market price of the common shares:
Exercise
Shares Price
------ -----
September 27, 1998 80,000 $31.98
5,000 $31.63
80,070 $37.88
September 28, 1997 5,000 $23.63
80,000 $31.98
5,000 $23.25
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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 Management's Discussion and Analysis should be read in
conjunction with the Company's accompanying Financial Statements and Notes
thereto and the Company's 1998 Annual Report. Unless otherwise indicated, all
references to years refer to fiscal years.
Analysis of Results of Operations
Three months ended September 27, 1998 compared to the three months ended
September 28, 1997
Net sales for the three months ended September 27, 1998 were $40.4 million,
a decrease of 6 percent compared to net sales of $42.9 million for the three
months ended September 28, 1997. Sales to Chrysler Corporation increased $1.4
million or 30 percent in the current quarter compared to the prior year quarter.
The increase was primarily due to Chrysler's increased vehicle production
schedules and higher value mechanical and electrical content in the locksets
which the Company supplies. Labor disruptions early in the quarter at General
Motors Corporation reduced sales to this customer by approximately $4.4 million
or 22 percent compared to the prior year quarter. Sales to Ford Motor Company
were comparable to the prior quarter levels. During the current quarter the
Company began production volume shipments to Mitsubishi Motor Manufacturing of
America in support of the launch of the 1999 Gallant. This is the Company's
initial program with Mitsubishi.
Gross profit as a percentage of net sales was 21.9 percent in the current
quarter compared to 19.8 percent in the prior year quarter. Gross profit margins
improved primarily due to the cost of zinc, which the Company uses at a rate of
approximately 1 million pounds per month, being substantially lower than the
prior year quarter levels. The average price per pound was approximately $.61 in
the current quarter compared to approximately $.79 in the prior year quarter.
The cost of zinc declined in the second quarter of fiscal 1998 after increasing
dramatically over the previous 12 months. Also contributing to the improved
gross profit margins is the devaluation of the Mexican peso which resulted in
lower U.S. dollar costs for the Mexican assembly operations. The rate of
inflation in Mexico during the 12 months ended September, 1998 was approximately
14 percent. However, the average U.S. dollar/Mexican peso exchange rate
increased to approximately 9.50 in the current quarter from approximately 7.85
in the prior year quarter. The rate of inflation in Mexico during calendar 1997
and 1996 was approximately 16 and 28 percent, respectively while the U.S.
dollar/Mexican peso exchange rate remained relative stable during this period
ranging from approximately 7.40 to 8.40.
Engineering, selling and administrative expenses were $4.7 million in the
current quarter which is consistent with the prior year quarter.
Income from operations was $4.2 million in the current quarter, compared to
$3.9 million in the prior year quarter. Income from operations increased
reflecting the improved gross profit margins as previously discussed above.
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Liquidity and Capital Resources
The Company generated cash from operating activities of $27,000 in the
three months ended September 27, 1998. In the three months ended September 28,
1997, the Company generated $3.8 million in cash from operating activities. The
decreased generation of cash is primarily due to the reduction in sales to
General Motors during the period June 1998 through August 1998 as a result of
previously discussed labor disruptions at this customer.
The Company's investment in accounts receivable increased by approximately
$3.8 million to $29.1 million at September 27, 1998, as compared to $25.3
million at June 28, 1998, primarily due to decreased sales to General Motors
during June 1998. Inventories of $15.0 million at September 27, 1998, are
consistent with the June 28, 1998 levels.
Capital expenditures during the three months ended September 27, 1998 were
$1.0 million compared to $1.9 million during the three months ended September
28, 1997. The Company anticipates that capital expenditures will be
approximately $9 million in 1999, primarily in support of requirements for new
product programs.
In October 1996, the Board of Directors of the Company authorized a stock
repurchase program to buy back up to 289,395 outstanding shares. A total of
271,500 shares have been repurchased as of September 27, 1998, at a cost of
approximately $6.0 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. In October 1998, the Board of
Directors of the Company authorized the repurchase of an additional 300,000
outstanding shares.
The Company has a $25 million unsecured, revolving credit facility (the
"Credit Facility") which expires October 2000. There are no outstanding
borrowings under the Credit Facility at September 27, 1998. Interest on
borrowings under the Credit Facility are at varying rates based, at the
Company's option, on the London Interbank Offering Rate, the Federal Funds Rate,
or the bank's prime rate. The credit facility contains various restrictive
covenants including covenants that require the Company to maintain minimum
levels for certain financial ratios such as tangible net worth, ratio of
indebtedness to tangible net worth and fixed charge coverage. 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 the Management's Discussion and Analysis.
Other
The Company has developed a plan to address company-wide Year 2000
readiness. The plan addresses operating systems, manufacturing operations,
customers and suppliers. The Company has made significant progress toward
completion of this plan and anticipates being Year 2000 compliant during fiscal
1999. The Company is participating in a program coordinated by the Automotive
Industries Action Group ("AIAG"), a group sponsored by General Motors
Corporation, Chrysler Corporation and the Ford Motor Company. Based upon the
guidelines of a Year 2000 Readiness Self-Assessment developed by the AIAG, the
Company is classified as a low risk supplier in relation to Year 2000
compliance.
The Company implemented a new business information system in February 1997.
Significant modifications to the software to be compliant with the requirements
to process transactions in the Year 2000 are not required. Therefore, the
Company does not expect that its cost to become Year 2000 compliant will be
material to its financial condition or results of operations.
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Mexican Operations
The Company has assembly operations in Juarez, Mexico. Since December 30,
1996, the functional currency of the Mexican operation has been the U.S. dollar,
as Mexico is currently considered to be a highly inflationary economy in
accordance with Statement of Financial Accounting Standard (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.
Forward Looking Statements
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, planned capital expenditures, 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, competitive and technological developments,
foreign currency fluctuations, Year 2000 compliance issues and costs of
operations.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments which would expose the Company to
significant market risk. The Company has not had outstanding borrowings since
December 1997. The Company has been in an investment position since this time
and expects to remain in an investment position for the foreseeable future.
There is therefore no significant exposure to market risk for changes in
interest rates. The Company is subject to foreign currency exchange rate
exposure related to the Mexican assembly operations as discussed in the
Management's Discussion and Analysis of Results of Operations and Financial
Condition.
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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 Financial Data Schedule
(b) Reports on Form 8-K - 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 10, 1998 By /S/ John G. Cahill
-------------------------
John G. Cahill
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Principal Accounting and Financial Officer)
10
5
1,000
3-MOS
JUN-27-1999
JUN-29-1998
SEP-27-1998
10,629
0
29,363
250
15,008
68,377
76,130
36,924
107,583
24,640
0
0
0
59
70,000
107,583
40,362
40,362
31,527
31,527
0
0
0
4,465
1,652
2,813
0
0
0
2,813
.49
.48
