STRATTEC SECURITY CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 11, 2016

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8-K - STRATTEC SECURITY CORPORATION 8-K 8-11-2016 - STRATTEC SECURITY CORPform8k.htm
Exhibit 99.1

FOR RELEASE AT 3:00 PM CDT

Contact:  Pat Hansen
Senior Vice President and
Chief Financial Officer
414-247-3435
www.strattec.com

STRATTEC SECURITY CORPORATION
REPORTS FISCAL 2016 FOURTH QUARTER AND FULL YEAR
 OPERATING RESULTS
 
Milwaukee, Wisconsin – August 11, 2016-- STRATTEC SECURITY CORPORATION (“STRATTEC” or the “Company”) (NASDAQ:STRT) today reported operating results for the fiscal fourth quarter and year ended July 3, 2016.

Fourth Quarter
 
Net sales for the fourth quarter ended July 3, 2016 were $108.3 million, compared to net sales of $98.4 million for the fourth quarter ended June 28, 2015. The 2016 fiscal fourth quarter was a 14 week period while fiscal 2015’s fourth quarter was the typical 13 week period. The impact of the additional week of customer shipments during the current year quarter increased sales by approximately $7.5 million. Net income was $584,000 in the current year quarter compared to $1.2 million in the prior year quarter. Diluted earnings per share for the 2016 fourth quarter were $0.16 compared to $0.33 in the prior year quarter.
 
Both the current and prior fiscal year fourth quarters had certain items that negatively impacted our operating results. The lower net income for the current year quarter was primarily attributed to STRATTEC’s one third share ($2 million pre-tax or $1.26 million after tax) of a $6 million non-cash impairment charge related to Vehicle Access Systems Technology LLC’s (“VAST LLC”) investment in Minda VAST Access Systems joint venture in India. STRATTEC owns a one third interest in VAST LLC.  STRATTEC’s one third share of the impairment charge reduced its earnings per share in the current quarter by $0.35.

In comparing the current year quarter net income to the prior year quarter, the net income for the prior year quarter was impacted by an $8.5 million provision we recorded during the prior year fourth quarter to increase our customer warranty reserves for expected warranty payments to be settled in future periods and a combination of operating losses and impairment write-downs related to STRATTEC Advanced Logic, LLC, our biometric joint venture, which totaled $1.4 million.  These two items were partially offset by the reversal of $3.7 million of incentive bonus plan provisions we recorded in previous quarters during fiscal year 2015. In total these items reduced the prior year quarter pre-tax income by $6.2 million and reduced our diluted earnings per share by $1.11.

Net sales to each of our customers in the current year quarter and prior year quarter were as follows (in thousands):
 
   
Three Months Ended
  
   
July 3, 2016
    
June 28, 2015
  
             
Fiat Chrysler Automobiles
  
$
28,331
    
$
25,980
  
General Motors Company
    
21,765
      
20,145
  
Ford Motor Company
    
15,745
      
13,451
  
Tier 1 Customers
    
19,711
      
18,674
  
Commercial and Other OEM Customers
    
14,426
      
10,894
  
Hyundai / Kia
    
8,369
      
9,282
  
TOTAL
  
$
108,347
    
$
98,426
  
 
Sales to Fiat Chrysler Automobiles in the current year quarter increased primarily due to higher Chrysler Pacifica minivan production.  During the prior year quarter, Fiat Chrysler implemented a temporary shutdown of its Windsor, Canada assembly plant to re-tool for production of the new Chrysler Pacifica minivan. The negative effect of that shutdown last year was partially offset by increased service sales during the prior year quarter in comparison to the current year quarter. These two items reflected a reduction in sales to Fiat Chrysler Automobiles in the prior year quarter by $5.4 million in comparison to the current year quarter. In addition, during the current year quarter, Fiat Chrysler Automobiles reduced production of the Chrysler 200 and Dodge Journey due to reduced sales demand for these vehicles. The lower production for these two vehicles reduced sales in the current year quarter in comparison to the prior year quarter by $2.9 million. Increased sales to General Motors Company in the current year quarter related to one additional week of sales in comparison to the prior year quarter. Increased sales to Ford Motor Company in the current year quarter were attributed primarily to higher vehicle production volumes and content on models for which we supply components, in particular for components we supply for F-150 pick-up trucks.  Sales to Tier 1 Customers increased in the current quarter due to the extra week of sales in comparison to the prior year quarter. Sales to Commercial and Other OEM Customers during the current year quarter increased in comparison to the prior year quarter. These customers primarily represent purchasers of vehicle access control products, such as latches and fobs, that have been developed in recent years to complement our historic core business of locks and keys.  The decreased sales to Hyundai / Kia in the current year quarter were principally due to lower vehicle production volumes on the Kia Sedona minivan for which we supply components.   During the prior year quarter, production of the Sedona was elevated to fill the retail pipeline of the new redesigned model of this vehicle.
 
Gross profit margins were 14.0 percent in the current year quarter compared to 10.6 percent in the prior year quarter.  The increase in gross profit margin in the current year quarter was primarily attributed to the $8.5 million pre-tax warranty provision as discussed previously that occurred in the prior year quarter, which was offset by the reversal of expense provisions under our incentive bonus plans during the prior year quarter as compared to the current year quarter. Items also impacting gross margin during the current year quarter were higher costs associated with diversifying our product portfolio and agreed upon customer price reductions that became effective at the start of the new calendar year. Our gross margin was favorably impacted during the current year quarter by a higher Mexican Peso to U.S. Dollar exchange rate affecting our operations in Mexico.

Operating expenses were $11.5 million in the current year quarter and $8.0 million in the prior year quarter.  As a percent of net sales in the current year quarter operating expenses increased to 10.6% from 8.1% in comparison to the prior year quarter.  Overall, operating expenses were higher in the current year quarter primarily due to new product development costs associated with utilizing third party vendors for a portion of the development work and one additional week of operating expenses. The major contributor to the lower operating expenses during the prior year quarter was the reversal of $1.6 million expense provisions under our incentive bonus programs, as described above.
 
Included in Other (Expense) Income, Net in the current year quarter compared to the prior year quarter were the following items (in thousands of dollars):
 
   
July 3, 
2016
    
June 28, 
2015
  
Equity (Loss) Earnings of VAST LLC Joint Venture
  
$
(1,328
)
  
$
432
  
Equity Loss of STRATTEC Advanced Logic, LLC
    
(421
)
    
(1,082
)
Net Foreign Currency Transaction Gain (Loss)
    
(18
)
    
71
  
Other
    
124
      
101
  
   
$
(1,643
)
  
$
(478
)
 
The current year quarter equity loss in VAST LLC joint venture relates to STRATTEC’s share of the Minda VAST Access Systems impairment charge of $2 million previously discussed.

Full Year
 
For the fiscal year ended July 3, 2016, STRATTEC net sales were $401.4 million compared to net sales of $411.5 million during fiscal 2015.  Net income for fiscal 2016 was $9.1 million compared to net income of $20.7 million in the prior year period.  Diluted earnings per share for the current year were $2.51 compared to diluted earnings per share of $5.66 in the prior year.

The lower net sales and net income for the current year were anticipated and were primarily attributed to a $34 million decrease in incremental service parts sales to General Motors that were shipped during the prior year to support a recall campaign. Those incremental sales did not continue during the current year ended July 3, 2016.

Frank Krejci, President and CEO commented: “Even though we recognized a non-cash impairment charge during the current quarter on last year’s investment in India, I still believe it strategically strengthens our VAST global footprint for maintaining existing and winning new business throughout the rest of the world.
 
The other important item of note in the quarter was that we broke ground on our new painting and assembly facility in Leon, Mexico as part of our ADAC STRATTEC de Mexico joint venture with ADAC Automotive.  With new automotive assembly plants being built in Mid Mexico, and additional passenger car production migrating to Mexico from the U.S. and Canada we see significant growth opportunities for our partnership. Production at our new facility is expected to begin in mid-calendar year 2017”.
 
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 each company's products to global customers under the “VAST” brand name.  STRATTEC’s history in the automotive business spans over 100 years.
 
Certain statements contained in this release contain “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 customers’ product recall policies, foreign currency fluctuations, 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.
 
STRATTEC SECURITY CORPORATION
Condensed Results of Operations
(In Thousands, except per share amounts)

   
Fourth Quarter Ended
    
Years Ended
  
   
July 3, 2016
    
June 28, 2015
    
July 3, 2016
    
June 28, 2015
  
   
(Unaudited)
    
(Unaudited)
          
                         
Net Sales
  
$
108,347
    
$
98,426
    
$
401,419
    
$
411,475
  
Cost of Goods Sold
    
93,152
      
88,026
      
336,594
      
338,815
  
Gross Profit
    
15,195
      
10,400
      
64,825
      
72,660
  
                                 
Engineering, Selling & Administrative Expenses
    
11,467
      
8,010
      
43,917
      
41,534
  
Income from Operations
    
3,728
      
2,390
      
20,908
      
31,126
  
                                 
Interest Income
    
6
      
59
      
25
      
185
  
Interest Expense
    
(81
)
    
(32
)
    
(176
)
    
(71
)
Other (Expense) Income, Net
    
(1,643
)
    
(478
)
    
(1,567
)
    
2,693
  
Income before Provision for Income Taxes and Non-Controlling Interest
    
2,010
      
1,939
      
19,190
      
33,933
  
                                 
Provision for Income Taxes
    
211
      
4
      
5,068
      
9,382
  
                                 
Net Income
  
$
1,799
    
$
1,935
    
$
14,122
    
$
24,551
  
                                 
Net Income Attributable to Non-Controlling Interest
    
1,215
      
735
      
4,973
      
3,897
  
                                 
Net Income Attributable to STRATTEC SECURITY CORPORATION
  
$
584
    
$
1,200
    
$
9,149
    
$
20,654
  
                                 
Earnings Per Share:
                                
Basic
  
$
0.16
    
$
0.33
    
$
2.55
    
$
5.80
  
Diluted
  
$
0.16
    
$
0.33
    
$
2.51
    
$
5.66
  
Average Basic
                                
Shares Outstanding
    
3,565
      
3,525
      
3,559
      
3,515
  
                                 
Average Diluted
                                
Shares Outstanding
    
3,622
      
3,609
      
3,621
      
3,604
  
                                 
Other
                                
Capital Expenditures
  
$
9,157
    
$
4,446
    
$
23,496
    
$
26,097
  
Depreciation & Amortization
  
$
2,518
    
$
2,348
    
$
10,121
    
$
8,815
  
 
STRATTEC SECURITY CORPORATION
Condensed Balance Sheet Data
(In Thousands)

   
July 3, 2016
    
June 28, 2015
  
   
(Unaudited)
        
ASSETS
            
Current Assets:
            
Cash and cash equivalents
  
$
15,477
    
$
25,695
  
Receivables, net
    
63,726
      
58,807
  
Inventories, net
    
38,683
      
34,786
  
Other current assets
    
16,565
      
9,318
  
Total Current Assets
    
134,451
      
128,606
  
Investment in Joint Ventures
    
14,168
      
15,326
  
Other Long Term Assets
    
8,408
      
15,776
  
Property, Plant and Equipment, Net
    
85,149
      
71,126
  
   
$
242,176
    
$
230,834
  
                 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Current Liabilities:
                
Accounts Payable
  
$
32,416
    
$
27,838
  
Other
    
31,799
      
36,897
  
Total Current Liabilities
    
64,215
      
64,735
  
Accrued Pension and Post Retirement Obligations
    
2,728
      
2,988
  
Borrowings Under Credit Facility
    
20,000
      
10,000
  
Other Long-term Liabilities
    
721
      
710
  
Shareholders’ Equity
    
312,876
      
303,073
  
Accumulated Other Comprehensive Loss
    
(37,673
)
    
(26,859
)
Less:  Treasury Stock
    
(135,871
)
    
(135,902
)
Total STRATTEC SECURITY
                
CORPORATION Shareholders’ Equity
    
139,332
      
140,312
  
Non-Controlling Interest
    
15,180
      
12,089
  
Total Shareholders’ Equity
    
154,512
      
152,401
  
   
$
242,176
    
$
230,834
  
 
STRATTEC SECURITY CORPORATION
Condensed Cash Flow Statement Data
(In Thousands)

   
Fourth Quarter Ended
    Years Ended  
   
July 3, 2016
    
June 28, 2015
    
July 3, 2016
    
June 28, 2015
  
   
(Unaudited)
    
(Unaudited)
          
                         
Cash Flows from Operating Activities:
                        
Net Income
  
$
1,799
    
$
1,935
    
$
14,122
    
$
24,551
  
Adjustment to Reconcile Net Income to Cash (Used in) Provided by Operating Activities:
                                
Equity Loss in Joint Ventures
    
1,749
      
650
      
2,235
      
788
  
Depreciation and Amortization
    
2,518
      
2,348
      
10,121
      
8,815
  
Foreign Currency Transaction Gain
    
(764
)
    
(71
)
    
(2,559
)
    
(3,075
)
Unrealized Loss on Peso Contracts
    
289
      
-
      
889
      
-
  
Deferred Income Taxes
    
3,027
      
(3,330
)
    
3,027
      
(3,330
)
Stock Based Compensation Expense
    
378
      
310
      
1,625
      
1,323
  
Change in Operating Assets/Liabilities
    
(9,508
)
    
5,733
      
(21,510
)
    
1,926
  
Other, net
    
311
      
289
      
268
      
461
  
                                 
Net Cash (Used in) Provided by Operating Activities
    
(201
)
    
7,864
      
8,218
      
31,459
  
                                 
Cash Flows from Investing Activities:
                                
Investment in Joint Ventures
    
-
      
(4,000
)
    
(1,720
)
    
(4,384
)
Additions to Property, Plant and Equipment
    
(9,157
)
    
(4,446
)
    
(23,496
)
    
(26,097
)
Other
    
25
      
(99
)
    
(49
)
    
(314
)
Net Cash Used in Investing Activities
    
(9,132
)
    
(8,545
)
    
(25,265
)
    
(30,795
)
                                 
Cash Flows from Financing Activities:
                                
Borrowings Under Credit Facility
    
6,000
      
-
      
26,500
      
9,000
  
Repayments Under Credit Facility
    
(4,000
)
    
(1,000
)
    
(16,500
)
    
(1,500
)
Dividends Paid
    
(467
)
    
(429
)
    
(1,865
)
    
(1,711
)
Dividends Paid to Non-Controlling Interest Of Subsidiaries
    
-
      
-
      
(1,568
)
    
(882
)
Exercise of Stock Options and Employee Stock Purchases, Including Excess Tax Benefits From Stock Based Compensation
    
34
      
186
      
643
      
920
  
                                 
Net Cash Provided by (Used in) Financing Activities
    
1,567
      
(1,243
)
    
7,210
      
5,827
  
                                 
Foreign Currency Impact on Cash
    
85
      
(416
)
    
(381
)
    
(552
)
                                 
Net (Decrease) Increase in Cash & Cash Equivalents
    
(7,681
)
    
(2,340
)
    
(10,218
)
    
5,939
  
                                 
Cash and Cash Equivalents:
                                
Beginning of Period
    
23,158
      
28,035
      
25,695
      
19,756
  
End of Period
  
$
15,477
    
$
25,695
    
$
15,477
    
$
25,695
  
 
 

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