Business Context and Reporting Period
Company: Strattec Security Corp.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended June 27, 2010
Industry: Automotive security and access systems (locks, latches, power access systems).
Operations: The Company designs and manufactures vehicle access control systems, including electro-mechanical devices, for major automotive manufacturers. It operates manufacturing facilities in Milwaukee, Wisconsin, and Juarez, Mexico, with a warehouse in El Paso, Texas, and a sales office in Troy, Michigan.
Key Financial Metrics
Note: Specific revenue, profit, cash flow, and debt figures are incorporated by reference from the Company's 2010 Annual Report to Shareholders and are not explicitly stated in the provided text.
- Revenue: Not explicitly stated in the text (incorporated by reference).
- Profit/Loss: Not explicitly stated in the text (incorporated by reference).
- Cash Flow: Not explicitly stated in the text (incorporated by reference).
- Margins: Not explicitly stated in the text (incorporated by reference).
- Debt: A promissory note dated October 31, 2009, with M&I Bank is listed as an exhibit, but the outstanding balance is not provided in the text.
- Liquidity: Not explicitly stated in the text (incorporated by reference).
- Stock Repurchases: No shares were repurchased during the fiscal year ended June 27, 2010. Over the life of the program, 3,655,322 shares have been repurchased at a cost of approximately $136.4 million.
- Research & Development: Approximately $900,000 for fiscal year 2010.
Material Changes and Operational Context
- Customer Concentration: The Company is highly dependent on three major customers: General Motors, Ford Motor Company, and Chrysler Group LLC. These three accounted for approximately 67% of net sales in 2010 (66% in 2009 and 2008).
- Market Recovery: Following the severe downturn in 2009 caused by the bankruptcy filings of Chrysler and GM, North American vehicle production rebounded to 11 million units in fiscal 2010. The Company expects production to reach approximately 12 million units in fiscal 2011.
- Accounting Changes: The Company changed its method of accounting for inventory from LIFO to FIFO and changed its method for noncontrolling interests, applying these changes retrospectively.
- Auditor Change: On February 23, 2010, the Company dismissed Grant Thornton LLP and appointed Deloitte & Touche LLP as its independent public accountants. There were no disagreements with the former auditor regarding accounting principles or practices.
Guidance, Risks, and Contingencies
- Outlook: Management expects North American vehicle build schedules to continue rebounding but not to reach pre-recession levels of 15-16 million vehicles per year within the next five years.
- Key Risks:
- Customer Dependence: Loss of volume or changes in purchasing practices by GM, Ford, or Chrysler could materially adversely affect financial performance.
- Raw Materials: Exposure to price fluctuations in zinc, brass, magnesium, aluminum, and plastic resins. The Company has price adjustment clauses with some customers but does not hedge against Mexican peso exposure.
- Competition: Intense competition in the automotive supply industry, with potential challenges from competitors with specific electronic expertise as products become more sophisticated.
- Environmental: A solvent spill from 1985 at the Milwaukee facility is being monitored; no material adverse impact is currently anticipated.
- Legal Proceedings: The Company is not currently involved in any legal proceedings that would have a material adverse effect on its financial statements.
Investor Verification Checklist
- Verify the specific revenue, net income, and cash flow figures in the "Selected Financial Data" and "Financial Statements" sections of the 2010 Annual Report to Shareholders (incorporated by reference).
- Confirm the current status of the promissory note with M&I Bank and total debt obligations.
- Review the "Risk Factors" section of the Annual Report for detailed analysis of customer concentration risks and raw material price volatility.
- Monitor the progress of North American vehicle production levels against the Company's forecast of 12 million units for fiscal 2011.
- Check for any updates on the environmental remediation of the Milwaukee facility solvent spill.