STRATTEC SECURITY CORPORATION (NASDAQ:STRT) today reported
operating results for the fiscal second quarter ended December 30,
2018 and a $32.4 million non-cash pre-tax pension settlement charge
that reduced diluted earnings per share in the current year quarter
by $6.67. Without the charge adjusted diluted earnings per share in
the current year quarter would have been $0.71.
Net sales for the Company’s fiscal second
quarter ended December 30, 2018 were $112.9 million, compared to
net sales of $103.2 million for the prior year quarter ended
December 31, 2017. Net loss for the current year quarter was
$22.2 million, compared to net income of $2.9 million in the prior
year quarter. Diluted loss per share for the current year
quarter was $5.96 compared to diluted earnings per share of $0.78
in the prior year quarter.
During the current year quarter, the Company
completed a substantial portion of terminating the STRATTEC Pension
Plan that was frozen on December 31, 2009. A non-cash pre-tax
pension settlement charge of $32.4 million was recorded during the
current year quarter ($24.8 million or $6.67 diluted per share
after tax). A remaining non-cash compensation expense charge
of approximately $8 million on a pre-tax basis (approximately $6.1
million after tax) is expected to be recorded in future periods
when the Plan is fully terminated and the excess Plan assets are
transferred to a STRATTEC defined contribution plan and
subsequently paid out.
For the six months ended December 30, 2018, net
sales were $230.1 million compared to net sales of $205.6 million
during the prior year six month period. Net loss during the current
year six month period was $18.7 million compared to net income of
$5.3 million during the prior year six month period. Diluted loss
per share was $5.03 for the current year six month period ended
December 30, 2018 compared to diluted earnings per share of $1.44
for the prior year six month period ended December 31, 2017.
As previously described, the non-cash pre-tax settlement charge of
$32.4 million or $24.8 million after tax impacted the six month
results ended December 30, 2018. See the following table for
further explanation.
STRATTEC SECURITY
CORPORATION |
RECONCILIATION OF NON-GAAP PERFORMANCE MEASURES
TO GAAP PERFORMANCE MEASURES |
(in thousands, except share and earnings per share
data) |
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
December 30, |
|
December 31, |
|
December 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
|
|
|
|
|
|
|
|
Net (loss) income (GAAP
measure) |
$ |
(22,164) |
$ |
2,882 |
$ |
(18,697) |
$ |
5,338 |
|
|
|
|
|
|
|
|
|
Pension termination
settlement charge, net of tax |
|
24,812 |
|
- |
|
24,812 |
|
- |
|
|
|
|
|
|
|
|
|
Adjusted net
income |
$ |
2,648 |
$ |
2,882 |
$ |
6,115 |
$ |
5,338 |
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings
per share (GAAP measure) |
$ |
(5.96) |
$ |
0.78 |
$ |
(5.03) |
$ |
1.44 |
|
|
|
|
|
|
|
|
|
Pension termination
settlement charge, net of tax |
|
6.67 |
|
- |
|
6.68 |
|
- |
|
|
|
|
|
|
|
|
|
Adjusted diluted
earnings per share |
$ |
0.71 |
$ |
0.78 |
$ |
1.65 |
$ |
1.44 |
Net sales to each of our customers or customer
groups in the current year quarter and prior year quarter were as
follows (in millions):
|
|
Three Months Ended |
|
|
December 30, 2018 |
|
December 31, 2017 |
|
|
|
|
|
Fiat Chrysler
Automobiles |
$ |
25.7 |
$ |
22.0 |
General Motors
Company |
|
23.8 |
|
21.4 |
Ford Motor Company |
|
16.1 |
|
16.1 |
Tier 1 Customers |
|
18.5 |
|
16.5 |
Commercial and Other
OEM Customers |
|
21.4 |
|
19.8 |
Hyundai / Kia |
|
7.4 |
|
7.4 |
TOTAL |
$ |
112.9 |
$ |
103.2 |
The sales to Fiat Chrysler Automobiles in the
current year quarter increased compared to the prior year quarter
due to higher content on the components we supply on certain
vehicles, in particular the Dodge Ram pickup truck. The
increase in sales to General Motors Company in the current year
quarter was primarily attributed to higher vehicle production
volumes and content on products we supply. Sales to Ford
Motor Company and Hyundai/Kia in the current year quarter were flat
compared to the prior year quarter. Sales to Tier 1 Customers
increased in the current year quarter due to higher production
volumes. Sales to Commercial and Other OEM Customers during the
current year quarter increased in comparison to the prior year
quarter mainly due to new customer programs at Volkswagen.
These customers, along with the Tier 1 Customers, primarily
represent purchasers of vehicle access control products such as
latches, fobs, driver controls and door handles, that we have
developed in recent years to complement our historic core business
of locks and keys.
The gross profit margins were 11.3 percent in
the current year quarter compared to 12.3 percent in the prior year
quarter. The decrease in gross profit margin in the current
year quarter compared to the prior year quarter was attributed to a
continuation from our previous quarter of higher production and
expediting costs associated with new product launches occurring in
fiscal year 2019 and to changes in product mix. The gross profit
margins in the current year quarter were positively impacted by a
favorable Mexican Peso to U.S. Dollar exchange rate affecting our
operations in Mexico.
Engineering, Selling and Administrative expenses
as a percentage of net sales decreased to 9.3 percent in the
current year quarter from 9.8 percent in the prior year
quarter.
Included in “Other Income, Net” in the current
year quarter compared to the prior year quarter were the following
items (in thousands of dollars):
|
|
December 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
Equity Earnings of VAST
LLC Joint Venture |
$ |
1,487 |
$ |
1,404 |
Equity (Loss) Earnings
of STRATTEC Advanced Logic LLC Joint Venture |
|
(11) |
|
69 |
Net Foreign Currency
Transaction Gain (Loss) |
|
277 |
|
(64) |
Other |
|
(539) |
|
173 |
|
$ |
1,214 |
$ |
1,582 |
Frank Krejci, President and CEO commented:
“I am very pleased, that after years of planning and effort,
in this quarter we took the major step of contractually
transferring our pension obligations to an insurance company, and
did so without having to contribute any additional funds.
Some companies are struggling with, or even worse, deferring focus
on the enormous problem of unfunded pension
liabilities. We have now eliminated that liability and
its attendant risks from STRATTEC’s financial future.
We believe that we have created significant
shareholder value by eliminating the risk of stock market
volatility affecting our pension assets. If there is a
downturn in the economy and the stock market, we no longer need to
worry about having to make pension contributions when we may be
least able to afford them. This is a very positive
achievement, despite the ugly pension accounting treatment
associated with a transaction of this type, and well worth
the non-cash accounting hit in this quarter.”
STRATTEC designs, develops, manufactures and
markets automotive Access Control Products, including mechanical
locks and keys, electronically enhanced locks and keys, steering
column and instrument panel ignition lock housings, latches, power
sliding side door systems, power lift gate systems, power deck lid
systems, door handles and related products. These products are
provided to customers in North America, and on a global basis
through a unique strategic relationship with WITTE Automotive of
Velbert, Germany and ADAC Automotive of Grand Rapids,
Michigan. Under this relationship, STRATTEC, WITTE and ADAC
market our companies' products to global customers under the “VAST”
brand name. STRATTEC’s history in the automotive business
spans over 110 years.
Certain statements contained in this release are
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements may be
identified by the use of forward-looking words or phrases such as
“anticipate,” “believe,” “could,” “expect,” “intend,” “may,”
“planned,” “potential,” “should,” “will,” and “would.”
Such forward-looking statements in this release are inherently
subject to many uncertainties in the Company’s operations and
business environment. These uncertainties include general
economic conditions, in particular, relating to the automotive
industry, consumer demand for the Company’s and its customers’
products, competitive and technological developments, customer
purchasing actions, changes in warranty provisions and customer
product recall policies, foreign currency fluctuations,
uncertainties stemming from U.S. trade policies, tariffs and
reaction to same from foreign countries and costs of operations
(including fluctuations in the cost of raw materials).
Shareholders, potential investors and other readers are urged to
consider these factors carefully in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements
made herein are only made as of the date of this press release and
the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or
circumstances occurring after the date of this release. In
addition, such uncertainties and other operational matters are
discussed further in the Company’s quarterly and annual filings
with the Securities and Exchange Commission.
Non-GAAP Financial Measures
This press release contains financial measures
not prepared in accordance with generally accepted accounting
principles (referred to as Non-GAAP), specifically “adjusted net
income” and “adjusted diluted earnings per share.” “Adjusted
net income” is defined as net (loss) income attributable to
STRATTEC SECURITY CORPORATION shareholders excluding the pension
termination settlement charge, net of tax. “Adjusted diluted
earnings per share” is defined as “Adjusted net income” divided by
average diluted shares of common stock outstanding. The
Company believes that these Non-GAAP measures, when presented in
conjunction with comparable GAAP measures, provide additional
information for evaluating STRATTEC’s performance and are important
measures by which STRATTEC’s management is able to assess the
profitability and liquidity of STRATTEC’s business. These Non-GAAP
measures should be considered in addition to, not as a substitute
for or superior to, net income (loss) as a measure of operating
performance. These Non-GAAP measures may be different than Non-GAAP
financial measures used by other companies.
STRATTEC SECURITY CORPORATION |
Condensed Results of Operations |
(In Thousands except per share
amounts) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended |
|
Six Months Ended |
|
|
|
December 30, 2018 |
|
December 31, 2017 |
|
December 30, 2018 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
$ |
112,913 |
$ |
103,182 |
$ |
230,072 |
$ |
205,642 |
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
|
100,177 |
|
90,536 |
|
202,153 |
|
179,533 |
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
12,736 |
|
12,646 |
|
27,919 |
|
26,109 |
|
|
|
|
|
|
|
|
|
|
|
Engineering, Selling
& Administrative Expenses |
|
10,470 |
|
10,152 |
|
21,501 |
|
20,194 |
|
|
|
|
|
|
|
|
|
|
|
Income from
Operations |
|
2,266 |
|
2,494 |
|
6,418 |
|
5,915 |
|
|
|
|
|
|
|
|
|
|
|
Interest Income |
|
- |
|
3 |
|
- |
|
7 |
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
(404) |
|
(253) |
|
(811) |
|
(456) |
|
|
|
|
|
|
|
|
|
|
|
Pension Termination
Settlement Charge |
|
(32,434) |
|
- |
|
(32,434) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
Other Income, Net |
|
1,214 |
|
1,582 |
|
1,878 |
|
2,695 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income Before
(Benefit) Provision for Income Taxes and Non-Controlling
Interest |
|
(29,358) |
|
3,826 |
|
(24,949) |
|
8,161 |
|
|
|
|
|
|
|
|
|
|
|
(Benefit) Provision for
Income Taxes |
|
(7,760) |
|
(9) |
|
(7,780) |
|
1,057 |
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income |
|
(21,598) |
|
3,835 |
|
(17,169) |
|
7,104 |
|
|
|
|
|
|
|
|
|
|
|
Net
Income Attributable to Non-Controlling Interest |
|
(566) |
|
(953) |
|
(1,528) |
|
(1,766) |
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Income Attributable to STRATTEC SECURITY CORPORATION |
$ |
(22,164) |
$ |
2,882 |
$ |
(18,697) |
$ |
5,338 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings Per
Share: |
|
|
|
|
|
|
|
|
|
Basic |
$ |
(6.03) |
$ |
0.79 |
$ |
(5.10) |
$ |
1.47 |
|
Diluted |
$ |
(5.96) |
$ |
0.78 |
$ |
(5.03) |
$ |
1.44 |
|
|
|
|
|
|
|
|
|
|
|
Average Basic Shares
Outstanding |
|
3,675 |
|
3,631 |
|
3,663 |
|
3,621 |
|
|
|
|
|
|
|
|
|
|
|
Average Diluted Shares
Outstanding |
|
3,718 |
|
3,715 |
|
3,715 |
|
3,698 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Capital
Expenditures |
$ |
5,433 |
$ |
6,778 |
$ |
9,402 |
$ |
14,349 |
|
Depreciation & Amortization |
$ |
4,076 |
$ |
3,572 |
$ |
8,123 |
$ |
6,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STRATTEC SECURITY
CORPORATION |
Condensed Balance Sheet
Data |
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018 |
|
|
July 1, 2018 |
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current
Assets: |
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
$ |
11,373 |
|
$ |
8,090 |
|
|
|
Receivables, net |
|
|
67,256 |
|
|
73,832 |
|
|
|
Inventories, net |
|
|
47,988 |
|
|
46,654 |
|
|
|
Other
current assets |
|
|
19,707 |
|
|
22,527 |
|
|
|
Total
Current Assets |
|
|
146,324 |
|
|
151,103 |
|
|
|
Investment in Joint
Ventures |
|
|
22,989 |
|
|
22,192 |
|
|
|
Other Long Term Assets
|
|
|
11,732 |
|
|
17,338 |
|
|
|
Property, Plant and
Equipment, Net |
|
|
117,793 |
|
|
116,542 |
|
|
|
|
|
$ |
298,838 |
|
$ |
307,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current
Liabilities: |
|
|
|
|
|
|
|
|
|
Accounts
Payable |
|
$ |
35,652 |
|
$ |
38,439 |
|
|
|
Other
|
|
|
30,272 |
|
|
30,354 |
|
|
|
Total
Current Liabilities |
|
|
65,924 |
|
|
68,793 |
|
|
|
Accrued
Pension and Post Retirement Obligations |
|
|
2,338 |
|
|
2,379 |
|
|
|
Borrowings Under Credit Facility |
|
|
46,000 |
|
|
51,000 |
|
|
|
Other
Long-term Liabilities |
|
|
819 |
|
|
1,757 |
|
|
|
Shareholders’ Equity |
|
|
316,374 |
|
|
331,375 |
|
|
|
Accumulated Other Comprehensive Loss |
|
|
(18,648) |
|
|
(33,439) |
|
|
|
Less: Treasury Stock |
|
|
(135,758) |
|
|
(135,778) |
|
|
|
Total
STRATTEC SECURITY |
|
|
|
|
|
|
|
|
|
CORPORATION Shareholders’ Equity |
|
|
161,968 |
|
|
162,158 |
|
|
|
Non-Controlling Interest |
|
|
21,789 |
|
|
21,088 |
|
|
|
Total Shareholders’
Equity |
|
|
183,757 |
|
|
183,246 |
|
|
|
|
|
$ |
298,838 |
|
$ |
307,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
STRATTEC SECURITY CORPORATION |
Condensed Cash Flow Statement
Data |
(In Thousands) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended |
|
Six Months Ended |
|
|
|
December 30, 2018 |
|
December 31, 2017 |
|
December 30, 2018 |
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from
Operating Activities: |
|
|
|
|
|
|
|
|
|
Net (Loss) Income |
|
$ |
(21,598) |
$ |
3,835 |
$ |
(17,169) |
$ |
7,104 |
Adjustments to
Reconcile Net (Loss) Income to Cash Provided by Operating
Activities: |
|
|
|
|
|
|
|
|
|
Pension
Settlement Charge |
|
|
32,434 |
|
- |
|
32,434 |
|
- |
Equity
Earnings in Joint Ventures |
|
|
(1,476) |
|
(1,473) |
|
(2,385) |
|
(2,499) |
Depreciation and Amortization |
|
|
4,076 |
|
3,572 |
|
8,123 |
|
6,667 |
Foreign
Currency Transaction (Gain) Loss |
|
|
(359) |
|
(556) |
|
69 |
|
(419) |
Unrealized Loss (Gain) on Peso Forward Contracts |
|
|
(419) |
|
821 |
|
(93) |
|
1,079 |
Deferred
Income Taxes |
|
|
(7,759) |
|
(1,710) |
|
(8,131) |
|
(1,710) |
Stock
Based Compensation Expense |
|
|
241 |
|
250 |
|
626 |
|
621 |
Change in
Operating Assets/Liabilities |
|
|
6,518 |
|
(4,027) |
|
6,532 |
|
(9,772) |
Other,
net |
|
|
(284) |
|
(28) |
|
(284) |
|
(33) |
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities |
|
|
11,925 |
|
684 |
|
19,722 |
|
1,038 |
|
|
|
|
|
|
|
|
|
|
Cash Flows from
Investing Activities: |
|
|
|
|
|
|
|
|
|
Repayment
of Loan to Joint Venture |
|
|
- |
|
150 |
|
- |
|
150 |
Additions
to Property, Plant and Equipment |
|
|
(5,433) |
|
(6,778) |
|
(9,402) |
|
(14,349) |
Proceeds
Received on Sale of Property, Plant and Equipment |
|
|
12 |
|
2 |
|
12 |
|
2 |
Net Cash Used in
Investing Activities |
|
|
(5,421) |
|
(6,626) |
|
(9,390) |
|
(14,197) |
|
|
|
|
|
|
|
|
|
|
Cash Flow from
Financing Activities: |
|
|
|
|
|
|
|
|
|
Borrowings on Line of Credit Facility |
|
|
- |
|
6,000 |
|
2,000 |
|
18,000 |
Payments
on Line of Credit Facility |
|
|
(5,000) |
|
- |
|
(7,000) |
|
(2,000) |
Dividends
Paid to Non-Controlling Interest of Subsidiary |
|
|
(200) |
|
- |
|
(984) |
|
(2,017) |
Dividends
Paid |
|
|
(515) |
|
(509) |
|
(1,029) |
|
(1,017) |
Exercise
of Stock Options and Employee Stock Purchases |
|
|
49 |
|
165 |
|
72 |
|
190 |
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in)
Provided by Financing Activities |
|
|
(5,666) |
|
5,656 |
|
(6,941) |
|
13,156 |
|
|
|
|
|
|
|
|
|
|
Effect of Foreign
Currency Fluctuations on Cash |
|
|
190 |
|
173 |
|
(108) |
|
27 |
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease)
in Cash & Cash Equivalents |
|
|
1,028 |
|
(113) |
|
3,283 |
|
24 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents: |
|
|
|
|
|
|
|
|
|
Beginning
of Period |
|
|
10,345 |
|
8,498 |
|
8,090 |
|
8,361 |
End of
Period |
|
$ |
11,373 |
$ |
8,385 |
$ |
11,373 |
$ |
8,385 |
|
|
|
|
|
|
|
|
|
|
Contact: Pat HansenSenior Vice President
andChief Financial Officer414-247-3435www.strattec.com
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