STRATTEC Security Corporation — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2013. The request references “2012 Q4,” but the supplied filing is the fiscal 2013 Form 10-K and does not provide a standalone fourth-quarter financial summary.
Business Context
STRATTEC designs and manufactures automotive access-control products, including locksets, keys and fobs, ignition systems, latches, door handles, power liftgate and sliding-door systems, and related components. The company operates manufacturing and assembly facilities in Milwaukee, Wisconsin, and Juarez, Mexico, with additional warehouse, sales, and engineering facilities.
The company is developing electro-mechanical vehicle-access technologies, including passive-start ignition systems, electronic authorization systems, and electronically integrated locks and latches. It had approximately 2,670 full-time employees at June 30, 2013.
Financial Metrics and Liquidity
- The supplied filing text does not provide clear values for fiscal 2013 revenue, operating income, net income, earnings per share, gross margin, operating margin, or operating cash flow. These amounts are incorporated by reference to the 2013 Annual Report to Shareholders.
- Outstanding borrowings under secured revolving credit facilities were $2.25 million at June 30, 2013. Fiscal 2013 interest expense on those borrowings was $34,000.
- Management stated that a 10% change in borrowing rates would not materially affect financial position, results of operations, or cash flows.
- Research and development expense was approximately $1.3 million in fiscal 2013, compared with $1.2 million in fiscal 2012 and $1.5 million in fiscal 2011.
- The company had 3,432,946 common shares outstanding on August 9, 2013.
- Since inception of its repurchase program, the company had repurchased 3,655,322 shares for approximately $136.4 million. No shares were repurchased during fiscal 2013 or its fourth quarter.
Material Changes Versus Prior Comparable Period
- Fiscal 2013 research and development spending increased approximately 8% from fiscal 2012.
- The three largest customers—General Motors, Ford, and Chrysler—represented approximately 66% of fiscal 2013 net sales, down from 68% in fiscal 2012 and equal to 66% in fiscal 2011.
- Mexican peso option contracts expired on June 28, 2013; no such contracts were outstanding at June 30, 2013, compared with a fair-value liability of $395,000 at July 1, 2012.
- The filing reports fiscal 2013 realized currency-option gains of $27,000 and realized losses of $39,000, compared with gains of $18,000 and losses of $438,000 in fiscal 2012. Unrealized effects were a $395,000 gain in fiscal 2013 versus a $640,000 loss in fiscal 2012.
- No material changes occurred in internal control over financial reporting during the quarter ended June 30, 2013, and disclosure controls were considered effective at a reasonable-assurance level.
Outlook, Risks, Contingencies, and Unusual Items
- Management expects continued investment in product development and engineering to support existing and new automotive programs. Product programs generally require one to three years of development before production begins.
- Key risks include dependence on General Motors, Ford, and Chrysler; customer production slowdowns; loss of vehicle programs or market share; intense price competition; raw-material cost volatility; Mexican peso fluctuations; foreign operations; labor disruptions; and technological changes in electronic access systems.
- The company generally sources each major commodity from one primary vendor. Although management considers supply adequate, interruptions or price increases in zinc, brass, nickel silver, steel, aluminum, and plastic resins could adversely affect results if not recovered from customers.
- The company has obtained quarterly zinc-price adjustments in some, but not all, customer contracts.
- A Milwaukee facility remains subject to monitoring for contamination from a 1985 solvent spill. Management does not currently expect a material adverse financial impact, but environmental liabilities could arise.
- The company reported no unresolved SEC staff comments and no legal proceeding expected to have a material adverse effect on its financial statements.
- Forward-looking statements are subject to general economic and automotive-industry conditions, customer demand, competition, technology, purchasing decisions, currency movements, and operating-cost fluctuations.
Investor Verification Items
- Verify fiscal 2013 and fiscal 2012 revenue, net income, EPS, margins, balance-sheet liquidity, and cash-flow figures in the incorporated Annual Report and financial statements.
- Assess the concentration and durability of sales to General Motors, Ford, and Chrysler, including vehicle-program awards and production schedules.
- Review debt-facility terms, borrowing capacity, covenants, and cash balances, which are not fully presented in the supplied text.
- Evaluate exposure to zinc and other commodity prices, including the extent of customer pass-through provisions.
- Review the status and estimated exposure of the Milwaukee environmental contamination matter and any other commitments or contingencies.
- Confirm the impact of the expiration of Mexican peso options and the company’s current foreign-exchange risk-management policy.