STRATTEC SECURITY CORPORATION — Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended July 3, 2016, with comparisons to fiscal years ended June 28, 2015 and June 29, 2014. The request metadata references 2015 Q4, but the supplied filing is the fiscal 2016 annual report.
STRATTEC designs and manufactures automotive access-control products, including locksets, keys and fobs, ignition systems, steering-column lock housings, latches, power sliding-door and liftgate systems, door handles and related components. Manufacturing and assembly operations are located primarily in the United States and Mexico.
General Motors, Ford and Fiat Chrysler represented approximately 63% of fiscal 2016 net sales, compared with 65% in 2015 and 70% in 2014. The company had approximately 3,877 full-time employees at July 3, 2016.
Financial metrics, liquidity and capital resources
- The supplied filing text incorporates the consolidated financial statements and Management’s Discussion and Analysis by reference to the 2016 Annual Report to Shareholders; it does not provide clear values for fiscal 2016 revenue, operating income, net income, earnings per share, cash flow, margins, cash balances or working capital.
- Outstanding borrowings under secured revolving credit facilities were $20 million at July 3, 2016. Fiscal 2016 interest expense on those borrowings was $176,000.
- The filing does not provide a clear amount of total available borrowing capacity or unused liquidity.
- No shares were repurchased during fiscal 2016. The repurchase program had 3,839,395 shares authorized and unused at July 3, 2016; cumulative repurchases totaled 3,655,322 shares at an aggregate cost of approximately $136.4 million.
- Research and development expense was approximately $430,000 in 2016, $280,000 in 2015 and $700,000 in 2014.
Material changes versus comparable periods
- Customer concentration decreased: sales to GM, Ford and Fiat Chrysler declined from approximately 65% of net sales in 2015 to 63% in 2016, after 70% in 2014.
- The company began using Mexican peso forward contracts in fiscal 2016; none were in place during fiscal 2015 or 2014. At July 3, 2016, contracts had $30 million of aggregate notional amounts, with a $996,000 current liability and a $107,000 long-term asset recorded at fair value.
- Fiscal 2016 currency contracts generated a realized loss of $1.196 million and an unrealized loss of $889,000, recorded in other income, net.
- ADAC-STRATTEC de Mexico purchased land in Leon, Mexico, and began constructing a facility expected to paint and assemble door-handle products. The facility was expected to become operational at the end of fiscal 2017.
- Research and development spending increased from fiscal 2015 but remained below fiscal 2014 levels.
Outlook, risks, contingencies and unusual items
- Management is pursuing electro-mechanical vehicle-access technologies, including advanced latches, remote-entry keys and passive-start ignition systems. The company expects these technologies to expand its potential customer base and product offerings.
- Automotive production volumes, customer purchasing decisions, loss of vehicle programs, pricing pressure and the financial condition of major customers are significant business risks. Products are generally model-specific, and replacement of lost customer volume may not be possible.
- Raw-material exposure includes zinc, brass, nickel silver, steel, aluminum and plastic resins. The company sources each commodity primarily from one vendor and has obtained quarterly zinc-price adjustments from some, but not all, customers.
- Foreign-exchange exposure arises from Mexican peso-denominated manufacturing costs. The company uses non-speculative peso forward contracts that are not designated as hedges, causing fair-value changes to affect current earnings.
- The company is exposed to competition, technological change, warranty and recall claims, product returns, labor disruptions, environmental liabilities and general automotive-industry conditions.
- A Milwaukee facility remains subject to monitoring for contamination from a 1985 solvent spill. Management does not currently anticipate a material adverse financial impact, but acknowledges that material environmental liabilities could arise.
- No material pending legal proceeding was identified in the supplied text. Disclosure controls and internal control over financial reporting were reported effective as of July 3, 2016, with no material change during the final quarter.
Important facts for investors to verify
- Retrieve the incorporated 2016 Annual Report pages containing revenue, profitability, cash flow, balance-sheet liquidity, margins and the full MD&A, which are not included clearly in the supplied filing text.
- Confirm the terms, maturities, borrowing capacity and covenants of the company and ADAC-STRATTEC revolving credit facilities.
- Assess the effect of the $2.085 million combined realized and unrealized peso-contract losses on fiscal 2016 earnings.
- Evaluate customer concentration and the production outlook for GM, Ford and Fiat Chrysler vehicle programs.
- Monitor the Leon, Mexico facility’s construction cost, completion status and expected contribution.
- Review raw-material pricing provisions, single-supplier exposure, environmental monitoring and potential warranty or recall obligations.