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 30, 2001 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: 4,107,878 shares outstanding as of September 30, 2001. STRATTEC SECURITY CORPORATION FORM 10-Q September 30, 2001 INDEX 2
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 Item 1 Financial Statements STRATTEC SECURITY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts) The accompanying notes are an integral part of these consolidated statements. 3
Three Months Ended ------------------ September 30, October 1, 2001 2000 --------------- --------------- (unaudited) Net sales $ 49,455 $ 52,421 Cost of goods sold 39,373 41,118 --------------- --------------- Gross profit 10,082 11,303 Engineering, selling and administrative expenses 4,768 5,033 --------------- ---------------- Income from operations 5,314 6,270 Interest income 155 193 Other income (expense), net 331 (152) --------------- --------------- Income before provision for income taxes 5,800 6,311 Provision for income taxes 2,146 2,430 --------------- --------------- Net income $3,654 $3,881 =============== =============== Earnings per share: Basic $ .90 $ .87 =============== =============== Diluted $ .88 $ .85 =============== =============== STRATTEC SECURITY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands) The accompanying notes are an integral part of these consolidated balance sheets. 4
September 30, July 1, 2001 2001 -------------- --------------- ASSETS (unaudited) Current Assets: Cash and cash equivalents $24,317 $ 15,298 Receivables, net 25,225 27,189 Inventories- Finished products 3,922 1,737 Work in process 10,089 8,456 Raw materials 532 594 LIFO adjustment (2,184) (2,182) -------------- --------------- Total inventories 12,359 8,605 Customer tooling in progress 1,432 2,588 Other current assets 6,337 5,987 -------------- --------------- Total current assets 69,670 59,667 Deferred Income Taxes 130 130 Property, plant and equipment 96,608 96,108 Less: accumulated depreciation 56,038 54,257 -------------- --------------- Net property, plant and equipment 40,570 41,851 -------------- --------------- $110,370 $101,648 ============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $18,276 $ 14,178 Environmental 2,739 2,749 Other accrued liabilities 9,173 9,566 -------------- --------------- Total current liabilities 30,188 26,493 Accrued Pension and Postretirement Obligations 15,683 15,145 Shareholders' equity: Common stock, authorized 12,000,000 shares $.01 par value, issued 6,314,168 shares at September 30, 2001, and 6,195,889 shares at July 1, 2001 63 62 Capital in excess of par value 52,714 49,545 Retained earnings 84,644 80,990 Accumulated other comprehensive loss (2,088) (1,749) Less: treasury stock, at cost (2,206,290 shares at September 30, 2001 and 2,149,800 shares at July 1, 2001) (70,834) (68,838) -------------- --------------- Total shareholders' equity 64,499 60,010 -------------- --------------- $110,370 $101,648 ============== =============== STRATTEC SECURITY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) The accompanying notes are an integral part of these consolidated statements. 5
Three Months Ended ------------------ September 30, October 1, 2001 2000 -------------- --------------- (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,654 $ 3,881 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,068 1,904 Change in operating assets and liabilities: (Increase) decrease in receivables 1,902 (390) Increase in inventories (3,754) (3,504) Decrease in other assets 713 3,131 Increase (decrease) in accounts payable and accrued liabilities 4,394 (4,220) Tax benefit from options exercised 520 108 Other, net (240) 238 -------------- --------------- Net cash provided by operating activities 9,257 1,148 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (892) (1,518) -------------- --------------- Net cash used in investing activities (892) (1,518) CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (2,004) - Exercise of stock options 2,658 302 -------------- --------------- Net cash provided by financing activities 654 302 -------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,019 (68) CASH AND CASH EQUIVALENTS Beginning of period 15,298 13,915 -------------- --------------- End of period $24,317 $13,847 ============== =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Income taxes paid $450 $ 661 Interest paid - - STRATTEC SECURITY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BASIS OF FINANCIAL STATEMENTS STRATTEC SECURITY CORPORATION (the "Company") designs, develops, manufactures and markets mechanical locks, electro-mechanical locks and related access-control products for North American and global 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 30, 2001, 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 30, 2001 presentation. These financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company's 2001 Annual Report. EARNINGS PER SHARE (EPS) A reconciliation of the components of the basic and diluted per-share computations follows (in thousands, except per share amounts): 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:
Three Months Ended ------------------ September 30, 2001 October 1, 2000 ------------------ --------------- Net Per-Share Net Per-Share Income Shares Amount Income Shares Amount ------ ------ ------ ------ ------ ------ Basic Earnings Per Share $3,654 4,081 $0.90 $3,881 4,479 $0.87 ===== ===== Stock Options 72 103 ----- ----- Diluted Earnings Per Share $3,654 4,153 $0.88 $3,881 4,582 $0.85 ===== ===== ===== ===== COMPREHENSIVE INCOME The following table presents the Company's comprehensive income (in thousands):
Exercise Period Ended Shares Price ------------ ------ ----- September 30, 2001 80,000 $45.79 80,000 $45.44 80,000 $43.07 78,623 $37.88 5,000 $35.97 October 1, 2000 80,000 $45.79 80,000 $43.07 78,623 $37.88 5,000 $35.97 6
Three Months Ended ------------------ September 30, 2001 October 1, 2000 ------------------ --------------- Net Income $3,654 $3,881 Change in Cumulative Translation Adjustments, net (339) 203 ------ ------ Total Comprehensive Income $3,315 $4,084 ====== ====== 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 2001 Annual Report. Unless otherwise indicated, all references to years refer to fiscal years. Analysis of Results of Operations Three months ended September 30, 2001 compared to the three months ended October 1, 2000 Net sales for the three months ended September 30, 2001 were $49.5 million, a decrease of 6 percent compared to net sales of $52.4 million for the three months ended October 1, 2000. Sales to the Company's largest customers overall decreased in the current quarter compared to the prior year quarter. The largest sales decreases were attributed to Mitsubishi Motor Manufacturing of America, Inc. at $2.7 million compared to $3.8 million, and Ford Motor Company at $8.9 million compared to $11.6 million. Sales to DaimlerChrysler Corporation increased to $8.7 million compared to $7.8 million. Sales to General Motors Corporation increased slightly to $15.7 million compared to $15.6 million, and sales to Delphi Automotive Systems Corporation increased to $7.1 million compared to $7.0 million in the prior year quarter. Gross profit as a percentage of net sales was 20.4 percent in the current quarter compared to 21.6 percent in the prior year quarter. The decline in the gross profit margin was primarily attributed to additional costs incurred during the early part of the current quarter to expedite past due orders and rebuild inventories depleted during the June 2001 strike at the Milwaukee facility. Engineering, selling and administrative expenses were $4.8 million in the current quarter, compared to $5.0 million in the prior year quarter. The reduction is primarily the result of decreased salary and fringe benefit costs as a result of the March 2001 human resources realignment. Income from operations was $5.3 million in the current quarter, compared to $6.3 million in the prior year quarter. The decreased income from operations was primarily due to the decrease in sales and the decrease in the gross profit margin as discussed above. The effective income tax rate for the current quarter was 37.0 percent compared to 38.5 percent in the prior year quarter. The decrease is due to an increase in the foreign sales benefit. The overall effective rate differs from the federal statutory tax rate primarily due to the effects of state income taxes. Liquidity and Capital Resources The Company generated cash from operating activities of $9.3 million in the three months ended September 30, 2001 compared to $1.1 million in the three months ended October 1, 2000. The increased generation of cash is primarily due to an increase in accounts payable in the current quarter, which is the result of the timing of purchases and payments. Accounts receivable decreased $2.0 million to $25.2 million at September 30, 2001 compared to $27.2 million at July 1, 2001. The decrease is due to the collection of billings for customer tooling in the current quarter. Inventories increased by approximately $3.8 million at September 30, 2001, as compared to July 1, 2001 as the result of an effort to rebuild inventories depleted during the June 2001 strike at the Milwaukee facility. 7 Capital expenditures during the three months ended September 30, 2001 were $892,000 compared to $1.5 million during the three months ended October 1, 2000. The Company anticipates that capital expenditures will be approximately $8 million in 2002, primarily in support of requirements for new product programs and the upgrade and replacement of existing equipment. The Board of Directors of the Company has authorized a stock repurchase program to buy back up to 2,639,395 outstanding shares. A total of 2,232,026 shares have been repurchased as of September 30, 2001, at a cost of approximately $71.5 million. During the quarter ended September 30, 2001, 57,000 shares were repurchased at a cost of approximately $2.0 million. Additional repurchases may occur from time to time. Funding for the repurchases was provided by cash flow from operations and to a lesser extent from borrowings under existing credit facilities. The Company has a $50.0 million unsecured, revolving credit facility (the "Credit Facility"), of which $30 million expires October 31, 2002 and $20 million expires October 31, 2003. There were no outstanding borrowings under the Credit Facility at September 30, 2001. 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 fluctuations in the market price of zinc, which the company uses at a rate of approximately 1 million pounds per month, and inflation in Mexico, which impacts the US dollar costs of the Mexican assembly operations. Mexican Operations The Company has assembly operations in Juarez, Mexico. Since December 28, 1998, the functional currency of the Mexican operation has been 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 Statement of Financial Accounting Standard (SFAS) No. 52, "Foreign Currency Translation." Other On November 28, 2000, the Company signed certain alliance agreements with E. WiTTE Verwaltungsgesellschaft GMBH, and its operating unit, WiTTE-Velbert GmbH & Co. KG ("WiTTE"). WiTTE, of Velbert, Germany, is a privately held, QS 9000 and VDA 6.1 certified automotive supplier with sales of DM313 million in their last fiscal year. WiTTE designs, manufactures and markets components including locks and keys, hood latches, rear compartment latches, seat back latches, door handles and specialty fasteners. WiTTE's primary market for these products has been Europe. The WiTTE-STRATTEC alliance provides a set of cross-licensing agreements for the manufacture, distribution and sale of WiTTE products by the Company in North America, and the manufacture, distribution and sale of the Company's products by WiTTE in Europe. Additionally, a joint venture company ("WiTTE-STRATTEC LLC") in which each company holds a 50 percent interest has been established to seek opportunities to manufacture and sell both companies' products in other areas of the world outside of North America and Europe. These activities did not have a material impact on the September 30, 2001, financial statements. 8 Forward Looking Statements A number of the matters and subject areas discussed in this Form 10-Q contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "expect," "intend," "may," "planned," "potential," "should," "will," and "could." These include expected future financial results, product offerings, global expansion, 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's Discussion and Analysis. 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, in particular, relating to the automotive industry, customer demand for the Company's and its customer's products, competitive and technological developments, customer purchasing actions, foreign currency fluctuations and costs of operations. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this Form 10-Q. 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. 9 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 (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 9, 2001 By /S/ Patrick J. Hansen ------------------------------- Patrick J. Hansen Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Accounting and Financial Officer) 10