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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended July 2, 2000.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-25150
STRATTEC SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1804239
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(State of Incorporation) (I.R.S. Employer Identification No.)
3333 WEST GOOD HOPE ROAD, MILWAUKEE, WI 53209
---------------------------------------------
(Address of principal executive offices)
(414) 247-3333
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
- ------------------- ------------------------------------
N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [ ]
The aggregate market value of the voting Common Stock held by non-affiliates of
the registrant as of August 18, 2000 was approximately $149,340,000 (based upon
the last reported sale price of the Common Stock at August 18, 2000 on the
NASDAQ National Market). On August 18, 2000, there were outstanding 4,458,043
shares of $.01 par value Common Stock.
Documents Incorporated by Reference
Part of the Form 10-K
Document into which incorporated
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Portions of the Annual Report to Shareholders for the
fiscal year ended July 2, 2000. I, II, IV
Portions of the Proxy Statement dated September 15, 2000, for the
Annual Meeting of Shareholders to be held on October 24, 2000. III
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PART I
ITEM 1. BUSINESS
The information set forth under "Company Description" which appears on
pages 4 through 8 of the Company's 2000 Annual Report to Shareholders is
incorporated herein by reference. For information as to export sales, see the
information set forth under "Export Sales" included on page 21 of the Company's
2000 Annual Report to Shareholders, which is incorporated herein by reference.
EMERGING TECHNOLOGIES
Automotive vehicle access systems, which are both theft deterrent and
end user friendly, are being developed as mechanical-electrical devices.
Electronic companies are developing user identification systems such as
bio-systems, card holder (transmitter) systems, etc., while locks and door
latches are metamorphosing to accommodate the electronics. This will result in
more secure vehicles and eventually passive entry.
Innovations in coatings, which could potentially eliminate the need for
grease and innovative product redesign, offer potential cost reductions for
manufacturing and original equipment manufacturers.
These technologies benefit the Company by increasing the potential
customer base as a tier 2 supplier while attaining tier 1 status on some product
lines and adding additional product line availability.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The primary raw materials used by the Company are high-grade zinc and
brass. These materials are generally available from a number of suppliers, but
the Company has chosen to concentrate its sourcing with one primary vendor for
each commodity. The Company believes its sources for raw materials are very
reliable and adequate for its needs. The Company has not experienced any
significant long term supply problems in its operations and does not anticipate
any significant supply problems in the foreseeable future.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The Company believes that the success of its business will not only
result from the technical competence, creativity and marketing abilities of its
employees but also from the protection of its intellectual property through
patents, trademarks and copyrights. As part of its ongoing research, development
and manufacturing activities, the Company has a policy of seeking patents on new
products, processes and improvements when appropriate. The Company owns 25
issued United States patents, with expirations occurring between 2010 and 2018.
Although, in the aggregate, the patents discussed above are of
considerable importance to the manufacturing and marketing of many of its
products, the Company does not consider any single patent or trademark or group
of patents or trademarks to be material to its business as a whole, except for
the STRATTEC and STRATTEC with logo trademarks.
The Company also relies upon trade secret protection for its
confidential and proprietary information. The Company maintains confidentiality
agreements with its key executives. In addition, the Company enters into
confidentiality agreements with selected suppliers, consultants and associates
as appropriate to evaluate new products or business relationships pertinent to
the success of the Company. However, there can be no assurance that others will
not independently obtain similar information and techniques or otherwise gain
access to the Company's trade secrets or that the Company can effectively
protect its trade secrets.
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
A very significant portion of the Company's annual sales are to General
Motors Corporation, Delphi Automotive Corporation, Ford Motor Company, and
DaimlerChrysler Corporation. These four customers accounted for approximately
85% of the Company's total net sales in each fiscal year 1998 through 2000.
Further information regarding sales to the Company's largest customers is set
forth under "Sales to Largest Customers" included on page 21 of the Company's
2000 Annual Report to Shareholders, which is incorporated herein by reference.
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The products sold to these customers are model specific, fitting only certain
defined applications. Consequently, the Company is highly dependent on its major
customers for their business, and on these customers' ability to produce and
sell vehicles which utilize the Company's products. The Company has enjoyed
relationships with General Motors Corporation, DaimlerChrysler Corporation, Ford
Motor Company, and Delphi Automotive Corporation in the past, and expects to do
so in the future. However, a significant change in the purchasing practices of,
or a significant loss of volume from, one or more of these customers could have
a detrimental effect on the Company's financial performance.
SALES AND MARKETING
The Company provides its customers with engineered locksets, which are
unique to specific vehicles. Any given vehicle will typically take 1 to 3 years
of development and engineering design time prior to being offered to the public.
The locksets are designed concurrently with the vehicle. Therefore, commitment
to the Company as the production source occurs 1 to 3 years prior to the start
of production.
The typical process used by automotive manufacturers in selecting a
lock supplier is to offer the business opportunity to the Company and various of
the Company's competitors. Each competitor will pursue the opportunity, doing
its best to provide the customer with the most attractive proposal. Price
pressure is strong during this process but once an agreement is reached, the
price is fixed for each year of the product program. Typically, price reductions
resulting from productivity improvement by the Company are included in the
contract and are estimated in evaluating each of these opportunities by the
Company. A blanket purchase order, a contract indicating a specified part will
be supplied at a specified price during a defined time period, is issued by
customers for each model year and releases, quantity commitments, are made to
that purchase order for weekly deliveries to the customer. As a consequence and
because the Company is a "Just-in-Time" supplier to the automotive industry, it
does not maintain a backlog of orders in the classic sense for future production
and shipment.
COMPETITION
The Company competes with domestic and foreign-based competitors on the
basis of custom product design, engineering support, quality, delivery and
price. While the number of direct competitors is currently relatively small, the
auto manufacturers actively encourage competition between potential suppliers.
Although the Company may not be the lowest cost producer, it has a dominant
share of the North American market because of its ability to provide a
beneficial combination of price, quality and technical support. In order to
reduce lockset production costs while still offering a wide range of technical
support, the Company utilizes assembly operations in Mexico, which results in
lower assembly labor costs as compared to the United States.
As locks become more sophisticated and involve additional electronics,
competitors with specific electronic expertise may emerge to challenge the
Company.
RESEARCH AND DEVELOPMENT
The Company engages in research and development activities pertinent to
automotive access control. A major area of focus for research is the expanding
role of vehicle access via electronic interlocks and modes of communicating
authorization data between consumers and vehicles. Development activities
include new products, applications and product performance improvement. In
addition, specialized data collection equipment is developed to facilitate
increased product development efficiency and continuous quality improvements.
For fiscal years 2000, 1999, and 1998, the Company spent $2,800,000, $2,383,000,
and $2,469,000, respectively, on research and development. The Company believes
that, historically, it has committed sufficient resources to research and
development and anticipates increasing such expenditures in the future as
required to support additional product programs associated with both existing
and new customers. Patents are pursued and will continue to be pursued as
appropriate to protect the Company's interests resulting from these activities.
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CUSTOMER TOOLING
An important aspect of the Company's production processes is customer
program specific assembly lines and production tooling. In general, capital
equipment acquired by the Company for customer product programs is recognized as
a long-term asset and depreciated. Ownership of tooling for these same programs
is determined through negotiations with the customer. For products in which the
customer maintains ownership of the tooling, costs are accumulated as a current
asset on the Company's balance sheet and rebilled to the customer upon formal
product approval from the customer. Recovery of tooling costs for which the
Company retains ownership occurs over the life of the program through the piece
price. See Notes to Consolidated Financial Statements included in the Company's
2000 Annual Report to Shareholders, which is incorporated herein by reference.
ENVIRONMENTAL COMPLIANCE
As is the case with other manufacturers, the Company is subject to
federal, state, local and foreign laws and other legal requirements relating to
the generation, storage, transport, treatment and disposal of materials as a
result of its lock and key manufacturing and assembly operations. These laws
include the Resource Conservation and Recovery Act (as amended), the Clean Air
Act (as amended), the Clean Water Act of 1990 (as amended) and the Comprehensive
Environmental Response, Compensation and Liability Act (as amended). The Company
believes that its existing environmental management policies and procedures are
adequate and it has no current plans for substantial capital expenditures in the
environmental area.
Contamination existing at the Company's Milwaukee site from an
underground waste coolant storage tank and a former above-ground solvent storage
tank, located on the east side of the facility, will be remediated in accordance
with federal, state and local requirements.
The Company does not currently anticipate any materially adverse impact
on its results of operations, financial condition or competitive position as a
result of compliance with federal, state, local and foreign environmental laws
or other legal requirements. However, risk of environmental liability and
charges associated with maintaining compliance with environmental laws is
inherent in the nature of the Company's business and there is no assurance that
material liabilities or charges could not arise.
EMPLOYEES
At July 2, 2000, the Company had approximately 2,940 full-time
employees, of which approximately 485 or 16 percent, were represented by a labor
union.
ITEM 2. PROPERTIES
The Company has two manufacturing plants, one warehouse, and a sales
office. These facilities are described as follows:
LOCATION TYPE SQ. FT. OWNED OR LEASED
-------- ---- ------- ---------------
Milwaukee, Wisconsin Headquarters and General Offices; Component
Manufacturing, Assembly and Service Parts Distribution... 352,000 Owned
Juarez, Chihuahua Mexico Subsidiary Offices and Assembly.......................... 97,000 Owned
El Paso, Texas Finished Goods Warehouse................................. 22,800 Leased**
Troy, Michigan Sales and Engineering Office for Detroit Area........... 3,000 Leased**
- -------------------
** Leased unit within a complex.
The Company believes that both of its production facilities are adequate for the
foreseeable future as they relate to the Company's current products. As the
Company evaluates and expands into other products, consideration of further
production facilities will be necessary.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business the Company may be involved in various
legal proceedings from time to time. The Company does not believe it is
currently involved in any claim or action the ultimate disposition of which
would have a material adverse effect on the Company or its financial condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the
fourth quarter of fiscal 2000.
EXECUTIVE OFFICERS OF REGISTRANT
The names, ages and positions of all executive officers of the Company as of the
date of this filing are listed below, together with their business experience
during the past five years. Executive officers are appointed annually by the
Board of Directors at the meeting of directors immediately following the annual
meeting of shareholders. There are no family relationships among any of the
executive officers of the Company, nor any arrangements or understanding between
any such officer and another person pursuant to which he was appointed as an
executive officer.
NAME AND AGE POSITION AND BUSINESS EXPERIENCE
- ------------ --------------------------------
Harold M. Stratton II, 52 Chairman and Chief Executive Officer of the Company since 1999. President and
Chief Executive Officer of the Company 1994 to 1999. Vice President of Briggs &
Stratton Corporation and General Manager of the Technologies Division of Briggs
& Stratton Corporation since 1989.
John G. Cahill, 43 President and Chief Operating Officer of the Company since 1999. Executive Vice
President, Chief Financial Officer, Treasurer and Secretary of the Company 1994
to 1999. Vice President, Chief Financial Officer, Secretary and Treasurer,
Johnson Worldwide Associates, Inc. (manufacturer and marketer of recreational
and marking systems products) 1992 to 1994 and Corporate Controller from 1989 to
1992.
Michael R. Elliott, 44 Vice President - Global Market Development since 1999. Vice President - Sales
and Marketing of the Company 1994 to 1999. Vice President - Marketing and Sales
of the Technologies Division since 1993. Vice President - Corporate Development
of Iverness Casting Group (a producer of castings and injection molded products)
from 1991 to 1992. Vice President - Sales and Marketing of Iverness Casting
Group from 1990 to 1991. Sales, Marketing and Planning Manager of the AC
Rochester Division of General Motors Corporation (an automotive manufacturer)
from 1988 to 1990.
Patrick J. Hansen, 41 Vice President, Chief Financial Officer, Secretary and Treasurer of the Company
since 1999. Corporate Controller of the Company 1995 to 1999. Controller,
Schwarz Pharma (manufacturer and distributor of pharmaceutical drugs) 1993 to
1995. Corporate Controller, ASAA Inc. (manufacturer of automotive parts) 1989 to
1993.
Donald J. Harrod, 56 Vice President - Engineering of the Company since 1998. Product Engineering
Manager, Mertior/Rockwell (manufacturer of automotive parts) 1997 to 1998. Vice
President - Engineering, Coltec Farnem Holley (manufacturer of automotive parts)
1986 to 1997.
Donald P. Klick, 48 Vice President - Business Operations of the Company since 1999. Vice President -
Engineering, Erie Controls (manufacturer of HVAC control components) 1998 to
1999. Engineering Program Director, Tower Automotive/A.O. Smith (manufacturer of
automotive parts) 1994 to 1998.
Gerald L. Peebles, 57 Vice President and General Manager of STRATTEC de Mexico - since 1997. Vice
President - Operations of the Company 1995 - 1997. Vice President - Operations
of the Technologies Division since 1994. Operations Manager - Juarez Plant of
the Technologies Division from 1990 to 1994. Plant Manager - Juarez Plant of the
Technologies Division from 1988 to 1990.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth in the "Quarterly Financial Data" section
appearing on page 23 of the Company's 2000 Annual Report to Shareholders is
incorporated herein by reference.
The Company does not intend to pay cash dividends on the Company Common
Stock in the foreseeable future; rather, it is currently anticipated that
Company earnings will be retained for use in its business. The future payment of
dividends will depend on business decisions that will be made by the Board of
Directors from time to time based on the results of operations and financial
condition of the Company and such other business considerations as the Board of
Directors considers relevant. The Company's revolving credit agreement contains
restrictions on the payment of dividends. See Notes to Consolidated Financial
Statements included in the Company's 2000 Annual Report to Shareholders, which
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under "Five Year Financial Summary" which
appears on page 23 of the Company's 2000 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information set forth under "Management's Discussion and Analysis"
which appears on pages 10 through 12 of the Company's 2000 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company did not hold any market risk sensitive instruments during
the period covered by this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon of Arthur
Andersen LLP dated August 2, 2000, which appear on pages 13 through 23 of the
Company's 2000 Annual Report to Shareholders, are incorporated herein by
reference.
The Quarterly Financial Data (unaudited) which appears on page 23 of
the Company's 2000 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information on pages 2 through 6 of the Company's Proxy Statement,
dated September 15, 2000, under "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information on pages 7 through 14 of the Company's Proxy Statement,
dated September 15, 2000, under "Executive Compensation" and "Compensation of
Directors" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information on pages 3 through 6 of the Company's Proxy Statement,
dated September 15, 2000, under "Security Ownership" is incorporated herein by
reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on pages 7 through 14 of the Company's Proxy Statement,
dated September 15, 2000, under "Executive Compensation" is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as part of this Report
(1) Financial Statements - The following financial statements
of the Company, included on pages 13 through 22 of the
Company's 2000 Annual Report to Shareholders, are
incorporated by reference in Item 8.
Report of Independent Public Accountants
Balance Sheets - as of July 2, 2000 and June 27, 1999
Statements of Income - years ended July 2, 2000, June 27,
1999 and June 28, 1998
Statements of Changes in Equity - years ended July 2, 2000,
June 27, 1999 and June 28, 1998
Statements of Cash Flows - years ended July 2, 2000, June
27, 1999 and June 28, 1998
Notes to Financial Statements
(2) Financial Statement Schedules
Page in this
Form 10-K Report
----------------
Report of Independent Public Accountants 8
Schedule II - Valuation and Qualifying Accounts 9
All other schedules have been omitted because they are not
applicable or are not required, or because the required
information has been included in the Financial Statements or Notes
thereto.
(3) Exhibits. See "Exhibit Index" beginning on page 11.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter of fiscal 2000.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards the
consolidated financial statements included in the STRATTEC SECURITY CORPORATION
Annual Report to Shareholders incorporated by reference in this Form 10-K and
have issued our report thereon dated August 2, 2000. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in the accompanying index is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
August 2, 2000.
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SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
Balance, Provision Payments Balance,
Beginning Charged to and Accounts End of
of Year Profit & Loss Written Off Year
------- ------------- ----------- ----
Year ended July 2, 2000
Allowance for doubtful accounts $250 $43 $43 $250
==== === === ====
Year ended June 27, 1999
Allowance for doubtful accounts $250 $33 $33 $250
==== === === ====
Year ended June 28, 1998
Allowance for doubtful accounts $250 $0 $0 $250
==== == == ====
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
STRATTEC SECURITY CORPORATION
By: /s/ Harold M. Stratton II
-----------------------------
Harold M. Stratton II, Chairman and
Chief Executive Officer
Date: August 29, 2000
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Harold M. Stratton II Chairman, Chief Executive
- -------------------------------- Officer, and Director August 29, 2000
Harold M. Stratton II
/s/ John G. Cahill President, Chief Operating August 29, 2000
- ------------------------------- Officer and Director
John G. Cahill
/s/ Frank J. Krejci Director August 29, 2000
- -------------------------------
Frank J. Krejci
/s/ Michael J. Koss Director August 29, 2000
- -------------------------------
Michael J. Koss
/s/ Robert Feitler Director August 29, 2000
- -------------------------------
Robert Feitler
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EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
Page Number in
Sequential Numbering
of all Form 10-K and
Exhibit Exhibit Pages
- ------- -------------
3.1 (2) Amended and Restated Articles of Incorporation of the Company *
3.2 (2) By-laws of the Company *
4.1 (2) Rights Agreement between the Company and Firstar Trust Company, as Rights Agent *
4.2 (3) Revolving Credit Agreement dated as of February 27, 1995 by and between the Company *
and M&I Bank, together with Revolving Credit Note
10.1 (5) STRATTEC SECURITY CORPORATION Stock Incentive Plan *
10.2 (6) Employment Agreements between the Company and the identified executive officers *
10.3 (1) (6) Change In Control Agreement between the Company and the identified executive officers *
10.15 (4) STRATTEC SECURITY CORPORATION Economic Value Added Plan for Executive *
Officers and Senior Managers
13.1 Annual Report to Shareholders for the year ended July 2, 2000 12
21 (1) Subsidiaries of the Company *
23 Consent of Independent Public Accountants dated September 18, 2000 46
27 Financial Data Schedule 47
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(1) Incorporated by reference from Amendment No. 1 to the Form 10 filed on
January 20, 1995.
(2) Incorporated by reference from Amendment No. 2 to the Form 10 filed on
February 6, 1995.
(3) Incorporated by reference form the April 2, 1995 Form 10-Q filed on May
17, 1995.
(4) Incorporated by reference from the July 2, 1995 Form 10-K filed on
September 14, 1995.
(5) Incorporated by reference from the Proxy Statement for the 1997 Annual
Meeting of Shareholders filed on September 10, 1997.
(6) Incorporated by reference from the June 27, 1999 Form 10-K filed on
September 17, 1999.
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