STRATTEC SECURITY CORPORATION — Form 10-K Summary
Reporting period: Fiscal year ended July 1, 2018. The requested period is identified as 2017 Q4, but the provided filing is the fiscal 2018 annual Form 10-K, not a quarterly filing.
Business Context
STRATTEC designs and manufactures automotive access-control products, including locksets, keys and fobs, push-button ignition systems, steering-column lock housings, latches, door handles, power sliding doors, liftgates and related components. Manufacturing and assembly operations are located in the United States and Mexico.
The company is developing electro-mechanical and electronic vehicle-access technologies, including passive-start systems, electronic interlocks, power-access products and systems supporting increasingly autonomous vehicles. Approximately 4,420 full-time employees were employed at July 1, 2018, including approximately 260 union-represented employees.
Financial Metrics and Liquidity
| Metric | Fiscal 2018 information |
|---|---|
| Revenue | The provided filing text does not provide a clear value; the financial statements and annual report pages are incorporated by reference. |
| Net income and earnings per share | The provided filing text does not provide clear values. |
| Operating and free cash flow | The provided filing text does not provide clear values. |
| Margins | The provided filing text does not provide clear gross, operating or net margin values. |
| Borrowings | $51 million outstanding under credit facilities at July 1, 2018, including borrowings of majority-owned ADAC-STRATTEC LLC. |
| Interest expense | $1.1 million for fiscal 2018 related to the credit facilities. |
| Stock repurchases | No shares were repurchased during fiscal 2018. Cumulative repurchases through July 1, 2018 totaled 3,655,322 shares at approximately $136.4 million; 3,839,395 shares remained authorized. |
| Research and development | Approximately $4.8 million in fiscal 2018. |
The filing states that a 10% increase or decrease in borrowing rates would not materially affect financial position, results of operations or cash flows. The text provided does not include cash balances, revolver availability, covenant headroom or other detailed liquidity measures.
Changes Versus Prior Comparable Periods
- Three major customers—General Motors, Ford and Fiat Chrysler—accounted for approximately 59% of fiscal 2018 net sales, compared with 60% in fiscal 2017 and 63% in fiscal 2016.
- Research and development spending increased to approximately $4.8 million in fiscal 2018 from $4.6 million in fiscal 2017.
- Outstanding borrowings at July 1, 2018 were $51 million; the provided text does not give a directly comparable prior-year borrowing balance.
- No shares were repurchased in fiscal 2018.
- Mexican peso forward contracts generated a $1.14 million realized gain and a $1.16 million unrealized loss in fiscal 2018, compared with a $1.65 million realized loss and a $2.01 million unrealized gain in fiscal 2017.
Complete year-over-year changes in revenue, profitability, cash flow, assets, liabilities and margins cannot be calculated from the provided excerpt because those financial statements are incorporated by reference rather than reproduced.
Outlook, Risks and Unusual Items
- The company expects continued investment in electronic vehicle-access products, engineering capabilities and product programs for existing and new customers.
- Automotive production volumes, consumer demand, customer purchasing decisions and the success of specific vehicle models materially affect results.
- Customer concentration is significant, and products are often model-specific. Loss of a major customer, reduced vehicle content or production slowdowns could materially reduce sales.
- Raw-material exposure includes zinc, brass, nickel silver, steel, aluminum and plastic resins. The company concentrates sourcing with one primary vendor for each commodity or purchased component, and customer recovery of cost increases is not assured.
- Mexican operations create foreign-currency exposure. Peso forward contracts with a total notional amount of $6 million were outstanding for July 16 through December 17, 2018, with a fair value liability of $39,000 at July 1, 2018.
- Risks include automotive-industry cyclicality, competition, technological change, tariffs and trade-policy reactions, warranty and product-return claims, labor disruptions, environmental liabilities and foreign-exchange volatility.
- A solvent spill from a former above-ground tank at the Milwaukee facility occurred in 1985 and continues to be monitored. Management does not currently anticipate a material adverse financial impact.
- The collective bargaining agreement covering Milwaukee production employees was effective through September 17, 2018.
- Management concluded that disclosure controls and procedures were effective as of July 1, 2018, and reported no material change in internal control over financial reporting during the fourth quarter.
Important Facts for Investors to Verify
- Obtain the incorporated 2018 Annual Report and verify revenue, net income, EPS, cash flow, balance-sheet liquidity, margins and year-over-year changes.
- Review the credit agreements for borrowing capacity, interest rates, maturity dates, collateral and financial covenants related to the $51 million of borrowings.
- Assess dependence on General Motors, Ford and Fiat Chrysler, including customer-specific vehicle programs and production forecasts.
- Evaluate exposure to raw-material inflation, customer price-adjustment provisions, Mexican peso movements and tariff developments.
- Review the status and financial implications of the Milwaukee environmental matter and the expiration or renewal of the union contract.
- Confirm subsequent events and management’s current outlook because the forward-looking statements in this filing are dated September 6, 2018.