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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 October 1, 2000
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: 4,471,454 shares outstanding as of
October 1, 2000.
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STRATTEC SECURITY CORPORATION
FORM 10-Q
October 1, 2000
INDEX
<TABLE>
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Page
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<S> <C> <C>
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
</TABLE>
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Item 1 Financial Statements
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
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October 1, September 26,
2000 1999
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(unaudited)
<S> <C> <C>
Net sales $ 52,421 $ 49,667
Cost of goods sold 41,083 38,979
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Gross profit 11,338 10,688
Engineering, selling and administrative
expenses 5,033 4,888
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Income from operations 6,305 5,800
Interest income 193 388
Other expense, net (187) (108)
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Income before provision for income taxes 6,311 6,080
Provision for income taxes 2,430 2,372
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Net income $ 3,881 $ 3,708
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Earnings per share:
Basic $ .87 $ .67
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Diluted $ .85 $ .65
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</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
October 1, July 2,
2000 2000
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ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 13,847 $ 13,915
Receivables, net 29,174 28,731
Inventories-
Finished products 5,687 3,630
Work in process 13,602 12,374
Raw materials 1,242 1,054
LIFO adjustment (2,685) (2,716)
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Total inventories 17,846 14,342
Customer tooling in progress 1,160 4,248
Other current assets 5,383 5,365
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Total current assets 67,410 66,601
Property, plant and equipment 90,649 89,912
Less: accumulated depreciation 48,696 47,531
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Net property, plant and equipment 41,953 42,381
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$ 109,363 $ 108,982
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 18,311 $ 19,694
Environmental 2,767 2,770
Other accrued liabilities 8,588 11,637
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Total current liabilities 29,666 34,101
Deferred Income Taxes 299 299
Accrued pension and postretirement obligations 14,455 14,132
Shareholders' equity:
Common stock, authorized 12,000,000 shares $.01 par value, issued 6,138,802
shares at October 1, 2000, and
6,120,788 shares at July 2, 2000 61 61
Capital in excess of par value 48,320 47,924
Retained earnings 71,845 67,964
Accumulated other comprehensive loss (2,036) (2,239)
Less: treasury stock, at cost (1,667,348 shares at October 1,
2000 and 1,668,179 shares at July 2, 2000) (53,247) (53,260)
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Total shareholders' equity 64,943 60,450
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$ 109,363 $ 108,982
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</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
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STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
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October 1, September 26,
2000 1999
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(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,881 $ 3,708
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,904 1,843
Change in operating assets and liabilities:
(Increase) decrease in receivables (390) 4,553
Increase in inventories (3,504) (1,876)
(Increase) decrease in other assets 3,131 (201)
Decrease in accounts payable and
accrued liabilities (4,220) (4,887)
Exercise of stock options - tax benefit 108 172
Other, net 238 59
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Net cash provided by operating activities 1,148 3,371
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,518) (1,807)
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Net cash used in investing activities (1,518) (1,807)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock -- (4,778)
Exercise of stock options 302 530
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Net cash provided by (used in) financing activities 302 (4,248)
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NET DECREASE IN CASH AND
CASH EQUIVALENTS (68) (2,684)
CASH AND CASH EQUIVALENTS
Beginning of period 13,915 28,611
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End of period $ 13,847 $ 25,927
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 661 $ 386
Interest paid -- --
</TABLE>
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,
manufactures and markets mechanical locks, electro-mechanical locks and related
access 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 October 1, 2000, 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 October 1, 2000 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):
<TABLE>
<CAPTION>
Three Months Ended
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October 1, 2000 September 26, 1999
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Net Per-Share Net Per-Share
Income Shares Amount Income Shares Amount
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<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share $3,881 4,479 $0.87 $3,708 5,511 $0.67
===== =====
Stock Options 103 160
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Diluted Earnings Per Share $3,881 4,582 $0.85 $3,708 5,671 $0.65
===== ===== ===== =====
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:
<CAPTION>
Exercise
Period Ended Shares Price
------------ ------ -----
<S> <C> <C>
October 1, 2000 80,000 $45.79
80,000 $43.07
78,623 $37.88
5,000 $35.97
September 26, 1999 80,000 $45.79
78,623 $37.88
5,000 $35.97
COMPREHENSIVE INCOME
The following table presents the Company's comprehensive income (in
thousands):
<CAPTION>
Three Months Ended
------------------
October 1, 2000 September 26, 1999
--------------- ------------------
<S> <C> <C>
Net Income $3,881 $3,708
Change in Cumulative Translation
Adjustments, net 203 84
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Total Comprehensive Income $4,084 $3,792
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</TABLE>
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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 2000 Annual Report. Unless otherwise indicated, all
references to years refer to fiscal years.
Analysis of Results of Operations
Three months ended October 1, 2000 compared to the three months ended
September 26, 1999
Net sales for the three months ended October 1, 2000 were $52.4 million, a
increase of 5 percent compared to net sales of $49.7 million for the three
months ended September 26, 1999. Sales to the Company's largest customers
overall increased in the current quarter compared to the prior year quarter,
with Mitsubishi Motor Manufacturing of America, Inc. increasing 95 percent, and
DaimlerChrysler Corporation increasing 7 percent. Sales to General Motors
Corporation, Delphi Automotive Systems Corporation and Ford Motor Company were
flat with the prior year quarter. The impact of the Firestone tire recall on
Ford Explorer and Ranger pickup truck production during the current year quarter
reduced sales to the Ford Motor Company by an estimated $500,000. However,
product mix and content changes for the remainder of the Ford Motor Company
products supplied by the Company offset this reduction. Sales to the Company's
Industrial and Service Products customers increased, primarily with sales of the
Company's new Vehicle Access Control Systems (VACS) product into the delivery
van market.
Gross profit as a percentage of net sales was 21.6 percent in the current
quarter compared to 21.5 percent in the prior year quarter. Gross profit margins
were comparable with the prior year quarter, despite the impact of higher raw
material costs, primarily zinc, as well as continued wage inflation in Mexico
combined with an unfavorable Mexican peso to U.S. dollar exchange rate. The cost
of zinc, which the Company uses at a rate of approximately 1 million pounds per
month, averaged approximately $.60 in the current quarter compared to
approximately $.52 in the prior year quarter. The inflation rate in Mexico for
the 12 months ended October 1 2000 was approximately 9 percent while the U.S.
dollar/Mexican peso exchange remained flat between quarters at approximately
9.35.
Engineering, selling and administrative expenses were $5.0 million in the
current quarter which is consistent with the prior year quarter.
Income from operations was $6.3 million in the current quarter, compared
to $5.8 million in the prior year quarter. The increased income from operations
was primarily due to the increase in sales as previously discussed above.
The effective income tax rate for the current quarter was 38.5 percent
compared to 39 percent in the prior year quarter. The decrease is due to a
decrease in the state effective tax rate. 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 $1.0 million in
the three months ended October 1, 2000 compared to $3.2 million in the three
months ended September 26, 1999. The decreased generation of cash is primarily
due to the collection of significant billings for customer tooling in the prior
year quarter.
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Accounts receivable of $29.2 million at October 1, 2000 is consistent with
the balance at July 2, 2000. Inventories increased by approximately $3.5 million
at October 1, 2000, as compared to July 2, 2000 in support of 2001 model year
changeovers and startup.
Capital expenditures during the three months ended October 1, 2000 were
$1.5 million compared to $1.8 million during the three months ended September
26, 1999. The Company anticipates that capital expenditures will be
approximately $10 million in 2001, 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 2,389,395 outstanding shares. A total of 1,675,710
shares have been repurchased as of October 1, 2000, at a cost of approximately
$53.4 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 $25 million unsecured, revolving credit facility (the
"Credit Facility") which expires October 2001. There were no outstanding
borrowings under the Credit Facility at October 1, 2000. 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 this Management's Discussion and Analysis.
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 October 19, 1999, the Company announced that it had signed a Memorandum
of Understanding with E. WiTTE Verwaltungsgesellschaft GMBH, and its operating
unit, WiTTE-Velbert GmbH & Co. KG ("WiTTE"), which details the intent to form a
strategic alliance and joint venture. WiTTE, of Velbert, Germany, is a privately
held, QS 9000 and VDA 6.1 certified automotive supplier with sales of over DM300
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 proposed WiTTE-STRATTEC alliance
provides 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 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. These activities did not have a material impact on the October 1,
2000, financial statements.
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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, 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 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, in
particular, relating to the automotive industry, consumer demand for the
Company's and its customers' products, competitive and technological
developments, 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.
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.
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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 3, 2000 By /S/ Patrick J. Hansen
------------------------------
Patrick J. Hansen
Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Principal Accounting and Financial Officer)
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