Business Context and Reporting Period
Company: Strattec Security Corp.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended July 3, 2011
Business Overview: Strattec is a supplier of automotive vehicle access systems, including locksets, steering column lock housings, latches, and power access systems (liftgates, sliding doors). The company is transitioning toward electro-mechanical devices and electronic vehicle access control. It operates as a Tier 2 supplier for some lines while maintaining Tier 1 status for others.
Key Financial Metrics
Note: Specific revenue, profit, and cash flow figures for the fiscal year are incorporated by reference from the 2011 Annual Report to Shareholders and are not explicitly stated in the provided text.
- Research & Development (R&D): Approximately $1.5 million for fiscal 2011 (compared to $900,000 in 2010 and $670,000 in 2009).
- Stock Repurchases: No shares were repurchased during the fiscal year ended July 3, 2011. Over the life of the program, 3,655,322 shares have been repurchased at a cost of approximately $136.4 million.
- Debt and Liquidity: The company has not had outstanding borrowings with third parties since December 1997. It maintains a line of credit but currently has no significant exposure to interest rate risk.
- Market Capitalization: As of December 26, 2010, the aggregate market value of voting common stock held by non-affiliates was approximately $102.7 million.
- Outstanding Shares: 3,289,660 shares of Common Stock were outstanding as of August 13, 2011.
- Equity Compensation: As of July 3, 2011, 297,400 options were outstanding with a weighted-average exercise price of $28.32. 228,543 shares were available for future issuance.
Material Changes and Operational Highlights
- Customer Concentration: Sales remain highly concentrated. General Motors, Ford Motor Company, and Chrysler Group LLC accounted for approximately 66% of net sales in 2011 (67% in 2010 and 66% in 2009).
- Accounting Firm Change: The company dismissed Grant Thornton LLP and appointed Deloitte & Touche LLP as its independent public accountants on February 23, 2010. There were no disagreements regarding accounting principles or practices.
- Foreign Exchange Hedging: Effective January 2011, the company entered into Mexican peso currency option contracts to minimize earnings volatility from exchange rate fluctuations affecting its Mexican operations. Additional contracts were entered into in August 2011.
- Employee Count: Approximately 2,556 full-time employees as of July 3, 2011, with 8.5% (216 employees) represented by a labor union at the Milwaukee facility.
Guidance, Risks, and Contingencies
Forward-Looking Statements: The filing contains forward-looking statements regarding future financial results, product offerings, and global expansion. These are subject to risks and uncertainties that could cause actual results to differ materially.
Key Risks:
- Customer Dependence: Significant loss of volume from the "Big Three" automakers (GM, Ford, Chrysler) would have a detrimental effect on financial performance.
- Raw Materials: Primary materials include zinc, brass, nickel silver, steel, aluminum, and plastic resins. The company relies on one primary vendor for each commodity.
- Competition: The automotive supply industry is highly competitive. Competitors include Huf North America, Valeo, Magna, and others. Price pressure is strong during the supplier selection process.
- Foreign Currency: Earnings and cash flows are subject to fluctuations in the U.S. dollar/Mexican peso exchange rate.
- Environmental: A solvent spill from 1985 at the Milwaukee facility is being monitored. The company does not currently anticipate a materially adverse impact but acknowledges inherent risks.
Unusual Items: The company recognized gains and losses on Mexican peso currency option contracts in current earnings as part of "Other (Expense) Income, net" because they were not designated as hedges.
Investor Verification Checklist
- Verify the specific Net Sales, Net Income, and Operating Cash Flow figures in the "Selected Financial Data" and "Financial Statements" sections of the 2011 Annual Report to Shareholders (incorporated by reference).
- Confirm the status of contracts with General Motors, Ford, and Chrysler, given they represent 66% of sales.
- Review the "Risk Factors" section of the Annual Report for detailed analysis of raw material price volatility and labor relations.
- Check the "Notes to Financial Statements" for details on the Milwaukee facility environmental remediation costs and customer tooling reimbursements.
- Monitor the effectiveness of the currency hedging strategy against actual peso exchange rate movements in subsequent quarters.