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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 March 30, 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: 5,671,150 shares outstanding as of
March 30, 1997.
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STRATTEC SECURITY CORPORATION
FORM 10-Q
March 30, 1997
INDEX
Page
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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
Part II - OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 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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3
Item 1 Financial Statements
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
--------- --------- --------- ---------
(unaudited) (unaudited)
Net sales $41,836 $37,500 $115,976 $100,854
Cost of goods sold 32,800 28,819 92,159 78,735
--------- --------- --------- ---------
Gross profit 9,036 8,681 23,817 22,119
Engineering, selling and administrative
expenses 4,412 4,333 12,930 12,087
--------- --------- --------- ---------
Income from operations 4,624 4,348 10,887 10,032
Interest expense (30) (117) (167) (259)
Other income, net 12 48 26 270
--------- --------- --------- ---------
Income before provision for income taxes 4,606 4,279 10,746 10,043
Provision for income taxes 1,704 1,656 4,045 3,948
--------- --------- --------- ---------
Net income $2,902 $2,623 $6,701 $6,095
========= ========= ========= =========
Earnings per share $0.51 $0.45 $1.17 $1.05
========= ========= ========= =========
Weighted Average Shares Outstanding 5,670 5,785 5,731 5,785
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)
March 30, June 30,
1997 1996
----------- ---------
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $ 433 $ 441
Receivables, net 21,589 18,809
Inventories-
Finished products 4,946 3,926
Work in process 10,293 10,415
Raw materials 1,063 1,591
LIFO adjustment (3,126) (2,526)
---------- ---------
Total inventories 13,176 13,406
Customer tooling in progress 6,602 7,346
Other current assets 4,783 5,277
---------- ---------
Total current assets 46,583 45,279
Property, Plant and Equipment 68,152 63,672
Less: accumulated depreciation 28,638 26,081
---------- ---------
Net property, plant and equipment 39,514 37,591
---------- ---------
$ 86,097 $ 82,870
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 11,117 $ 13,017
Environmental 2,934 2,966
Other accrued liabilities 8,185 7,600
---------- ---------
Total current liabilities 22,236 23,583
Deferred Income Taxes 52 52
Borrowings under revolving credit facility 135 1,430
Accrued pension and postretirement obligations 10,600 9,507
Shareholders' equity:
Common stock, authorized 12,000,000 shares $.01 par value,
issued 5,789,150 shares 58 58
Capital in excess of par value 40,958 40,909
Retained earnings 15,828 9,127
Cumulative translation adjustments (1,863) (1,796)
---------- ---------
54,981 48,298
Less: Treasury stock, at cost (118,000 shares at
March 30, 1997) (1,907) -
---------- ---------
Total shareholders' equity 53,074 48,298
---------- ---------
$ 86,097 $ 82,870
========== =========
The accompanying notes are an integral part of these balance sheets.
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5
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
-----------------
March 30, March 31,
1997 1996
---------- ----------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,701 $ 6,095
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 4,039 2,733
Change in operating assets and liabilities:
Increase in receivables (2,795) (6,091)
(Increase) decrease in inventories 230 (5,979)
Decrease in other assets 1,228 1,237
Increase (decrease) in accounts payable and
accrued liabilities (198) 857
Other, net 74 122
-------- ---------
Net cash provided by (used in) operating activities 9,279 (1,026)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,136) (8,367)
-------- ---------
Net cash used in investing activities (6,136) (8,367)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from borrowings under revolving credit facility (1,295) 5,250
Purchase of treasury stock (1,907) -
Exercise of stock options 49 -
-------- ---------
Net cash provided by (used in) financing activities (3,153) 5,250
EFFECT OF FOREIGN CURRENCY FLUCTUATIONS
ON CASH 2 4
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (8) (4,139)
CASH AND CASH EQUIVALENTS
Beginning of period 441 4,262
-------- ---------
End of period $ 433 $ 123
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 2,612 $ 4,579
Interest paid 182 220
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 March 30, 1997, and
the results of operations and cash flows for the periods 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 March 30, 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 environmental
reserve reflects this provision.
(3) EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which
specifies computation, presentation and disclosure requirements for earnings
per share (EPS). The statement is effective for the Company's 1998 fiscal year
and requires restatement of prior years' EPS. The adoption of this statement
is not expected to have a material effect on the Company's EPS calculation.
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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 1996 Annual Report. Unless otherwise indicated, all references to
years refer to fiscal years.
Analysis of Results of Operations
Three months ended March 30, 1997 compared to the three months ended March 31,
1996
Net sales increased 12 percent to $41.8 million for the three months ended
March 30, 1997, from $37.5 million for the three months ended March 31, 1996.
The sales increase is primarily due to an increase in sales to General Motors
Corporation of approximately $4.3 million. Sales to General Motors in the
prior year quarter were negatively affected by a labor strike at a General
Motors component plant. In addition, sales to the Ford Motor Company increased
approximately $1.9 million in the current year quarter compared to the prior
year quarter. The increase is primarily due to increased vehicle production
for the programs which the Company supplies to Ford. Also, 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 Chrysler Corporation were
comparable to the prior year quarter.
Gross profit as a percentage of net sales was 21.6 percent in the three
months ended March 30, 1997, compared to 23.1 percent in the three months ended
March 31, 1996. Gross profit margins decreased from the prior year primarily
due to increased costs of zinc, which is the Company's primary raw material,
and increased costs of the Company's Mexican assembly operations. The U.S.
Dollar/Mexican Peso exchange rate has been relatively stable for the past
fifteen months while inflationary cost pressures in Mexico have resulted in
higher U.S. Dollar costs. Scrap and expedited freight costs were reduced from
prior year levels.
Engineering, Selling and Administrative expenses were $4.4 million in the
current quarter compared to $4.3 million in the prior year quarter. Product
engineering costs in support of current and future vehicle programs increased
approximately $250,000 while administrative and selling expenses declined.
Income from operations was $4.6 million for the three months ended March
30, 1997, compared to $4.4 million for the three months ended March 31, 1996.
Income from operations increased reflecting the increased sales volume as
previously discussed above.
Nine months ended March 30, 1997 compared to the nine months ended March 31,
1996
Net sales increased 15 percent to $116.0 million for the nine months ended
March 30, 1997, compared to $100.9 million for the nine months ended March 31,
1996. The increase is primarily due to sales to the Ford Motor Company which
increased approximately $14.0 million compared to the prior year period.
During the nine months ended March 30, 1997, 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 increased approximately $3.2 million in the
current year period compared to the prior year period. Although sales to
General Motors were negatively affected during both the second quarter of 1997
and the third quarter of 1996 due to General Motors' labor disruptions, the
negative impact was more significant during the prior year period. Sales to
Chrysler Corporation were comparable to the prior year period.
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Gross profit as a percentage of net sales was 20.5 percent in the nine
months ended March 30, 1997, compared to 21.9 percent in the nine months ended
March 31, 1996. Gross profit margins decreased from the prior year primarily
due to increased costs of zinc, which is the Company's primary raw material,
and increased costs of the Company's Mexican assembly operations. The U.S.
Dollar/Mexican Peso exchange rate has been relatively stable for the past
fifteen months while inflationary cost pressures in Mexico have resulted in
higher U.S. Dollar costs. Scrap and expedited freight costs were reduced from
prior year levels.
Engineering, selling and administrative expenses were 12.9 million for the
nine months ended March 30, 1997, compared to 12.1 million for the nine months
ended March 31, 1996. The increase is primarily due to increased engineering
expenses in support of current and future vehicle programs.
Income from operations was $10.9 million in the nine months ended March
30, 1997, compared to $10.0 million in the nine months ended March 31, 1996.
Income from operations increased reflecting the increased sales volume as
previously discussed above.
The effective income tax rate for the nine months ended March 30, 1997,
was 37.6 percent compared to 39.3 percent for the nine months ended March 31,
1996. The reduction in the effective rate for the nine month period is due to
changes in state apportionment factors as a result of the phase-in of sales to
the Ford Motor Company during fiscal 1996 as well as the reinstatement of the
federal research and development tax credit for fiscal 1997. 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 during the nine months ended March 30, 1997 were $6.1
million compared to $8.4 million during the nine months ended March 31, 1996.
The Company anticipates that capital expenditures will be approximately $9
million to $10 million in fiscal 1997 in support of additional product
programs, and the upgrade and replacement of existing equipment at the
production facilities.
The Company's investment in accounts receivable increased by approximately
$2.8 million to $21.6 million at March 30, 1997, as compared to $18.8 million
at June 30, 1996, primarily due to increased sales volumes in the current
quarter. Inventory levels at March 30, 1997, 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
approximately $135,000 at March 30, 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. Funding of the environmental remediation at the Milwaukee
facility is not expected to have a material impact on ongoing operations.
The Board of Directors of the Company has authorized a stock repurchase
program to buy back up to five percent of the 5.8 million outstanding shares.
A total of 118,000 shares have been repurchased as of March 30, 1997, at a cost
of approximately $1.9 million. The stock repurchase program is funded through
the Credit Facility along with cash flow from operations.
The Company has been impacted by inflationary cost pressures in Mexico
over the last several months as discussed under Analysis of Results of
Operations above. 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. The market price of zinc has increased over the last
several months negatively affecting gross profit margins as discussed under
Analysis of Results of Operations above.
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Mexican Operations
The Company has assembly operations in Juarez, Mexico. The functional
currency of the Mexican operation through December 29, 1996 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 FAS No. 52, "Foreign Currency Translation." Effective December
30, 1996, the functional currency of the Mexican operation is the U.S. dollar
as Mexico is considered to be a highly inflationary economy in accordance with
FAS No. 52. The effect of currency fluctuations in the remeasurement process
are included in the determination of income. The effects of currency
fluctuations included in the determination of income are not material.
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 - 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 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: May 9, 1997 By /S/ John G. Cahill
----------------------------
John G. Cahill
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Principal Accounting and Financial Officer)
10
5
1000
9-MOS
JUN-29-1997
JUL-01-1996
MAR-30-1997
433
0
21,839
250
13,176
46,583
68,152
28,638
86,097
22,236
135
0
0
58
53,016
86,097
115,976
115,976
92,159
92,159
0
0
167
10,746
4,045
6,701
0
0
0
6,701
1.17
1.17
