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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact Name of Registrant as Specified in Its Charter)
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(State of Incorporation) |
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(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices)
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol |
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Name of exchange on which registered |
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The
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated filer |
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☐ |
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☒ |
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Non-accelerated filer |
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☐ |
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Smaller Reporting Company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Common stock, par value $0.01 per share:
STRATTEC SECURITY CORPORATION
FORM 10-Q
December 29, 2024
INDEX
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Page |
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Part I - FINANCIAL INFORMATION |
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Item 1 |
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Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) |
3 |
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Condensed Consolidated Balance Sheets (Unaudited) |
4 |
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Condensed Consolidated Statements of Cash Flows (Unaudited) |
5 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
6 - 13 |
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Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14 - 18 |
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Item 3 |
19 |
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Item 4 |
19 |
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Part II - OTHER INFORMATION |
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Item 1 |
20 |
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Item 1A |
20 |
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Item 2 |
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities |
20 |
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Item 3 |
20 |
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Item 4 |
20 |
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Item 5 |
20 |
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Item 6 |
21 |
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PROSPECTIVE INFORMATION
A number of the matters and subject areas discussed in this Form 10-Q 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,” or the negative of these terms or words of similar meaning. These statements include expected future financial results, product offerings, global expansion, liquidity needs, financing ability, planned capital expenditures, management’s or the Company’s expectations and beliefs, and similar matters discussed in this Form 10-Q. The discussion of such matters and subject areas contained herein is qualified by the inherent risks and uncertainties surrounding future expectations generally, and also may materially differ from the Company’s actual future experience.
The Company’s business, operations and financial performance are subject to certain risks and uncertainties, which could result in material differences in actual results from the Company’s current expectations, including:
and other matters described in the section titled “Risk Factors” in the Company’s Form 10-K report filed on September 5, 2024 with the Securities and Exchange Commission (“SEC”) for the year ended June 30, 2024 (the “Annual Report”).
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 Form 10-Q 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 Form 10-Q.
Part I. Financial Information
Item 1 Financial Statements
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement s of Income and Comprehensive Income
(In Thousands, Except Per Share Amounts)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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||||||||||
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December 29,
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December 31,
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December 29,
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December 31,
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Net sales |
$ |
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$ |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Engineering, selling and administrative expenses |
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Income from operations |
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Interest expense |
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(
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) |
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(
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) |
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(
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) |
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(
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) |
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Investment income |
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Other (expense) income, net |
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(
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) |
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(
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) |
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Income before provision for
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Provision for income taxes |
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Net income |
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Net income (loss) attributable to non-
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(
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) |
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Net income attributable to STRATTEC
|
$ |
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$ |
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$ |
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$ |
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Comprehensive income: |
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Net income |
$ |
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$ |
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$ |
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$ |
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Pension and postretirement plans, net of tax |
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Currency translation adjustments |
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(
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) |
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(
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) |
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Other comprehensive (loss) income, net of tax |
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(
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) |
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(
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) |
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Comprehensive income |
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Comprehensive (loss) income attributable to
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(
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) |
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(
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) |
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Comprehensive income attributable to
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$ |
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$ |
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$ |
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$ |
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Earnings per share attributable to
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Basic |
$ |
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$ |
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$ |
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$ |
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Diluted |
$ |
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$ |
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$ |
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$ |
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Weighted Average shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these Condensed Consolidated Statements of Income and Comprehensive Income.
3
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
Condensed Consoli dated Balance Sheets
(In Thousands, Except Share Amounts)
(Unaudited)
|
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December 29,
|
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June 30,
|
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||
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ |
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$ |
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Receivables, net |
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Inventories: |
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Finished products |
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Work in process |
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Purchased materials |
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Inventories, net |
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Pre-production costs |
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Value-added tax recoverable |
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Other current assets |
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Total current assets |
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Deferred income taxes |
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Other long-term assets |
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Net property, plant and equipment |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
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||
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Current Liabilities: |
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Accounts payable |
$ |
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$ |
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Accrued Liabilities: |
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Payroll and benefits |
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Value-added tax payable |
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Environmental |
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Warranty |
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Other current liabilities |
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Total current liabilities |
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Borrowings under credit facilities |
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Postemployment obligations |
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Other long-term liabilities |
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Shareholders’ Equity: |
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||
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Common stock, authorized
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Capital in excess of par value |
|
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Retained earnings |
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Accumulated other comprehensive loss |
|
(
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) |
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(
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) |
|
Less: treasury stock, at cost (
|
|
(
|
) |
|
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(
|
) |
|
Total STRATTEC SECURITY CORPORATION shareholders’ equity |
|
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Non-controlling interest |
|
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Total shareholders’ equity |
|
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|
|
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|
$ |
|
|
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$ |
|
|
The accompanying notes are an integral part of these Condensed Consolidated Balance Sheets.
4
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
|
|
Six Months Ended |
|
|||||
|
|
December 29,
|
|
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December 31,
|
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
||
|
Net income |
$ |
|
|
|
$ |
|
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
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||
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Depreciation |
|
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|
|
|
|
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Foreign currency transaction gain |
|
(
|
) |
|
|
(
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) |
|
Unrealized loss (gain) on peso forward contracts |
|
|
|
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|
(
|
) |
|
Stock-based compensation expense |
|
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Loss on settlement of postemployment obligation |
|
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Change in operating assets and liabilities: |
|
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||
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Receivables |
|
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Inventories |
|
|
|
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|
(
|
) |
|
Prepaid and other assets |
|
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|
(
|
) |
|
Accounts payable |
|
(
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) |
|
|
(
|
) |
|
Accrued liabilities |
|
(
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) |
|
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Other, net |
|
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Net cash provided by (used in) operating activities |
|
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(
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) |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
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Proceeds from sale of interest in joint ventures |
|
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|
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Purchase of property, plant and equipment |
|
(
|
) |
|
|
(
|
) |
|
Net cash used in investing activities |
|
(
|
) |
|
|
(
|
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
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||
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Borrowings under credit facilities |
|
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Repayment of borrowings under credit facilities |
|
(
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) |
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(
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) |
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Employee stock purchases |
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Net cash provided by financing activities |
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Foreign currency impact on cash |
|
(
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) |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
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(
|
) |
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CASH AND CASH EQUIVALENTS |
|
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||
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Beginning of period |
|
|
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End of period |
$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
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||
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Cash paid during the period for: |
|
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||
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Income taxes |
$ |
|
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|
$ |
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Interest |
$ |
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|
$ |
|
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Non-cash investing activities: |
|
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||
|
Change in capital expenditures in accounts payable |
$ |
(
|
) |
|
$ |
(
|
) |
The accompanying notes are an integral part of these Condensed Consolidated Statements of Cash Flows.
5
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
STRATTEC SECURITY CORPORATION (the "Company" or “STRATTEC”), headquartered in Milwaukee, Wisconsin, is a leading global provider of advanced automotive access, security, and select user interface solutions. Products include power access solutions such as automated lift gates and power doors, door handles, engineered latches, key fobs, advanced security systems, steering wheel controls, and electronic shifters. While the Company serves major automotive OEMs globally, the majority of sales are to the three largest automobile original equipment manufacturers (“OEMs”) in North America.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial reporting and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated balance sheet data as of June 30, 2024 was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes in the Annual Report.
In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three and six months ended December 29, 2024 are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 29, 2025. The condensed consolidated financial statements include the results of all wholly owned subsidiaries, as well as the results of a majority owned joint venture.
NOTE 2. RECENTLY ISSUED ACCOUNTING STANDARDS
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses including segment expenses that are regularly provided to the chief operating decision maker. For the Company, the annual disclosure requirements of this ASU are effective for fiscal years beginning after December 15, 2023 (fiscal 2025), while the interim reporting requirements are applicable in fiscal 2026. The amendments within this ASU are required to be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU is intended to enhance the transparency and decision usefulness of income tax disclosures to provide information to better assess how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. For the Company, this ASU is effective for annual periods beginning after December 15, 2024 (fiscal 2026). The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, intangible asset amortization and depletion) included in certain expense captions presented on the face of the income statement. The ASU is effective for fiscal years beginning after December 15, 2026 (fiscal 2028) and for interim periods beginning after December 15, 2027 (fiscal 2029). The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
NOTE 3. REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company generates revenue from the production of products sold to OEMs, or Tier 1 suppliers at the direction of the OEM, under long-term supply agreements supporting new vehicle production. Such agreements also require related production of service parts subsequent to the initial vehicle production periods. Additionally, the Company generates revenue from the production of products sold in aftermarket service channels.
6
Revenue by product category and by customer are as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
||||||||||
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|
December 29,
|
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December 31,
|
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|
December 29,
|
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|
December 31,
|
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|
||||
|
Door handles & exterior trim |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Power access solutions |
|
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Keys & locksets |
|
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Latches |
|
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User interface controls |
|
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Aftermarket & OE service |
|
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Other |
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
||||||||||
|
|
December 29,
|
|
|
December 31,
|
|
|
December 29,
|
|
|
December 31,
|
|
|
||||
|
General Motors Company |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Ford Motor Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stellantis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hyundai Motor Group (including Kia) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
NOTE 4. PRE-PRODUCTION COSTS
The Company incurs customer-owned tooling and engineering development pre-production costs. Pre-production costs for which reimbursement is contractually guaranteed by the customer are accumulated on the balance sheet and are then billed upon formal acceptance by the customer of products produced with the individual tools or upon customer approval of the completed engineering development. To the extent that the costs exceed expected reimbursement from the customer, expense is recognized. Costs for tooling that the Company owns are capitalized and depreciated over the estimated useful lives of the tools.
NOTE 5. VALUE-ADDED TAX
The Company's Mexican subsidiaries are subject to value-added tax (“VAT”). VAT is paid on goods and services and collected on sales. A VAT certification generally allows for relief from VAT tax for temporarily imported goods. A temporary suspension of our VAT tax certification during the second quarter of fiscal 2024 has resulted in an elevated value-added tax recoverable, as VAT was required to be paid on all components temporarily imported into Mexico for periods in which the certification was suspended. Such periods are now subject to an audit by the Mexican tax authority before VAT refunds will be received.
NOTE 6. DERIVATIVE INSTRUMENTS
The Company owns and operates manufacturing operations in Mexico. As a result, a portion of manufacturing costs are incurred in Mexican pesos, which causes earnings and cash flows to fluctuate due to changes in the U.S. dollar/Mexican peso exchange rate. During both fiscal 2025 and 2024, the Company entered into contracts with Bank of Montreal that provide for monthly Mexican peso currency forward contracts for a portion of peso denominated operating costs. The objective in entering into currency forward contracts is to minimize earnings volatility resulting from changes in foreign currency exchange rates. The Mexican peso forward contracts are not designated as hedges. As a result, all currency forward contracts are recognized in the accompanying condensed consolidated financial statements at fair value and changes in the fair value are reported in earnings as part of Other (Expense) Income, net.
The following table quantifies the outstanding forward contracts as of December 29, 2024 (in thousands, except with respect to the average forward contractual exchange rate):
|
|
|
Effective Dates |
|
Notional Amount |
|
|
Average Forward Contractual Exchange Rate |
|
|
Fair Market Value |
|
|||
|
Buy MXP/Sell USD |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
7
NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy. Level 1 inputs include unadjusted quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing an asset or liability.
The fair value of the Company’s cash and cash equivalents, accounts receivable, financial assets held in a Rabbi Trust, accounts payable and variable rate borrowings under the credit agreements approximated book value at both December 29, 2024 and June 30, 2024 due to their short-term nature and the fact that the interest rates approximated market rates . The fair value of all Mexican peso forward contracts were based on quoted inactive market prices and therefore classified as Level 2 within the valuation hierarchy.
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of December 29, 2024 and June 30, 2024 (in thousands):
|
|
December 29,
|
|
|
June 30,
|
|
||
|
Land and improvements |
$ |
|
|
|
$ |
|
|
|
Buildings and improvements |
|
|
|
|
|
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation |
|
(
|
) |
|
|
(
|
) |
|
|
$ |
|
|
|
$ |
|
|
NOTE 9. CREDIT FACILITIES
The Company has a $
Outstanding borrowings under the credit facilities were as follows (in thousands):
|
|
December 29,
|
|
|
June 30,
|
|
||
|
STRATTEC Credit Facility |
$ |
— |
|
|
$ |
— |
|
|
ADAC-STRATTEC Credit Facility |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
8
Average outstanding borrowings and the weighted average interest rate under each credit facility referenced above were as follows (in thousands):
|
|
Six Months Ended |
|
|||||||||||||
|
|
Average Outstanding Borrowings |
|
|
Weighted Average Interest Rate |
|
||||||||||
|
|
December 29,
|
|
|
December 31,
|
|
|
December 29,
|
|
|
December 31,
|
|
||||
|
STRATTEC Credit Facility |
$ |
— |
|
|
$ |
|
|
|
|
— |
% |
|
|
|
% |
|
ADAC-STRATTEC Credit Facility |
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
|
|
% |
NOTE 10. COMMITMENTS AND CONTINGENCIES
From time to time the Company is subject to various legal actions and claims incidental to our business, including those arising out of alleged defects, alleged breaches of contracts, product warranties, intellectual property matters and employment related matters. The Company believes that the outcome of such matters will not have a material adverse impact on the consolidated financial position, results of operations or cash flows.
NOTE 11. SHAREHOLDERS' EQUITY
A summary of activity impacting shareholders’ equity follows (in thousands):
|
|
Three and Six Months Ended December 29, 2024 |
|
|||||||||||||||||||||||||
|
|
Common Stock |
|
|
Capital in Excess of Par Value |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Loss |
|
|
Treasury Stock |
|
|
Non-Controlling Interest |
|
|
Total
|
|
|||||||
|
Balance, June 30,2024 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
Net income |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Stock based compensation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Pension and postretirement
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Employee stock purchases |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Balance, September 29, 2024 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
Net income |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Stock based compensation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Pension and postretirement
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Employee stock purchases |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Balance, December 29, 2024 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
|
Three and Six Months Ended December 31, 2023 |
|
|||||||||||||||||||||||||
|
|
Common Stock |
|
|
Capital in Excess of Par Value |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Loss |
|
|
Treasury Stock |
|
|
Non-Controlling Interest |
|
|
Total
|
|
|||||||
|
Balance, July 2,2023 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
Net income |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Purchase of SPA non-
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Stock based compensation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Pension and postretirement
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Employee stock purchases |
|
1 |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Balance, October 1, 2023 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
Net income |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
|
|
|
Translation adjustments |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Pension and postretirement
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Employee stock purchases |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
9
|
Balance, December 31, 2023 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
NOTE 12. OTHER (EXPENSE) INCOME, NET
Other (expense) income, net included in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income was as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
||||||||||
|
|
December 29,
|
|
|
December 31,
|
|
|
December 29,
|
|
|
December 31,
|
|
|
||||
|
Foreign currency transaction gain |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Realized and unrealized (loss) gain on peso
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
Pension and postretirement plans cost |
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
Rabbi trust (loss) gain on investments |
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
NOTE 13. WARRANTY
The Company has a warranty reserve related to known and potential exposure to warranty claims in the event products fail to perform as expected and in the event the Company may be required to participate in the repair costs incurred by customers for such products. The estimation of the warranty reserve involves judgment and estimates and is based on an analysis of historical warranty data as well as current trends and information.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
||||||||||
|
|
December 29,
|
|
|
December 31,
|
|
|
December 29,
|
|
|
December 31,
|
|
|
||||
|
Balance, beginning of period |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Provision charged to expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments |
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
Balance, end of period |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
NOTE 14. INCOME TAXES
The Company's income tax expense and effective tax rate for the three and six month periods ended December 29, 2024 and December 31, 2023 were as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
December 29,
|
|
|
December 31,
|
|
|
December 29,
|
|
|
December 31,
|
|
||||
|
Income before provision for income taxes and
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Provision for income taxes |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Effective tax rate |
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
The Company is subject to income taxes in the United States and foreign jurisdictions, primarily Mexico. The Company's income tax positions are based on interpretations of income tax laws and rulings in each of the jurisdictions that the Company operates. Interim income tax expense is determined based on an estimate of the overall annual effective income tax rate which can vary due to the relationship of foreign and domestic earnings, state taxes and available deductions, credits and discrete items.
10
NOTE 15. EARNINGS PER SHARE
A reconciliation of the components of the basic and diluted per-share computations follows (in thousands, except per share amount s):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
December 29,
|
|
|
December 31,
|
|
|
December 29,
|
|
|
December 31,
|
|
||||
|
Net income attributable to STRATTEC
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities - employee stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Diluted |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Shares of common stock related to share-based compensation that were excluded from the effect of dilutive securities because the effect would have been anti-dilutive include
NOTE 16. RELATED PARTY
The Company owns
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
December 29,
|
|
|
December 31,
|
|
|
December 29,
|
|
|
December 31,
|
|
||||
|
Management fee expense |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net sales to ADAC |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
December 29, 2024 |
|
|
June 30, 2024 |
|
||
|
Accounts receivable from ADAC |
|
$ |
|
|
|
$ |
|
|
|
Accounts payable to ADAC |
|
$ |
|
|
|
$ |
|
|
NOTE 17. STOCK-BASED COMPENSATION
The Company has granted service-based restricted stock awards (“RSAs”) and performance stock units (“PSUs”) to employees and non-employee directors under the STRATTEC SECURITY CORPORATION 2024 Equity Incentive Plan (“2024 Equity Incentive Plan”). Prior to October 2024, stock options and RSAs were granted under the Amended and Restated STRATTEC SECURITY CORPORATION Stock Incentive Plan (“Stock Incentive Plan”). Awards that expire or are canceled without delivery of shares become available for re-issuance under the 2024 Equity Incentive Plan. No additional grants will be made under the Stock Incentive Plan.
The number of shares of the Company's common stock authorized under the 2024 Equity Incentive Plan is
11
Restricted Stock Awards
Shares of restricted stock granted under approved plans have voting rights, earn dividends and vest over a pre-determined period of time, up to three years from the date of grant. The fair value of restricted stock awards are based on the closing stock price on the date of grant. A summary of RSA activity follows:
|
|
Shares |
|
|
|
Weighted
|
|
||
|
Nonvested balance, June 30, 2024 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Vested |
|
(
|
) |
|
|
|
|
|
|
Forfeited |
|
(
|
) |
|
|
|
|
|
|
Nonvested balance, December 29, 2024 |
|
|
|
|
|
$ |
|
|
As of December 29, 2024, the
re was $
Performance Stock Units
As of December 29, 2024,
NOTE 18. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables summarize the changes in accumulated other comprehensive loss (“AOCL”) (in thousands):
|
|
Three Months Ended December 29, 2024 |
|
|||||||||
|
|
Foreign
|
|
|
Retirement
|
|
|
Total |
|
|||
|
Balance, September 29, 2024 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other comprehensive loss before reclassifications |
|
|
|
|
|
— |
|
|
|
|
|
|
Income tax |
|
— |
|
|
|
— |
|
|
|
- |
|
|
Net other comprehensive loss before reclassifications |
|
|
|
|
|
— |
|
|
|
|
|
|
Reclassifications: |
|
|
|
|
|
|
|
|
|||
|
Unrecognized net loss |
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Income tax |
|
— |
|
|
|
|
|
|
|
|
|
|
Net reclassifications |
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Other comprehensive loss |
|
|
|
|
|
(
|
) |
|
|
|
|
|
Other comprehensive loss attributable to non-
|
|
|
|
|
|
— |
|
|
|
|
|
|
Balance, December 29, 2024 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
12
|
|
Three Months Ended December 31, 2023 |
|
|||||||||
|
|
Foreign
|
|
|
Retirement
|
|
|
Total |
|
|||
|
Balance, October 1, 2023 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other comprehensive income before reclassifications |
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Net other comprehensive income before reclassifications |
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Reclassifications: |
|
|
|
|
|
|
|
|
|||
|
Unrecognized net loss |
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Income tax |
|
— |
|
|
|
|
|
|
|
|
|
|
Net reclassifications |
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Other comprehensive income |
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Other comprehensive income attributable to non-
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Balance, December 31, 2023 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Six Months Ended December 29, 2024 |
|
|||||||||
|
|
Foreign
|
|
|
Retirement
|
|
|
Total |
|
|||
|
Balance, June 30, 2024 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other comprehensive loss before reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax |
|
— |
|
|
|
|
|
|
|
|
|
|
Net other comprehensive loss before reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications: |
|
|
|
|
|
|
|
|
|||
|
Unrecognized net loss |
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Income tax |
|
— |
|
|
|
|
|
|
|
|
|
|
Net reclassifications |
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Other comprehensive loss |
|
|
|
|
|
(
|
) |
|
|
|
|
|
Other comprehensive loss attributable to non-
|
|
|
|
|
|
— |
|
|
|
|
|
|
Balance, December 29, 2024 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Six Months Ended December 31, 2023 |
|
|||||||||
|
|
Foreign
|
|
|
Retirement
|
|
|
Total |
|
|||
|
Balance, July 2, 2023 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other comprehensive income before reclassifications |
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Net other comprehensive income before reclassifications |
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Reclassifications: |
|
|
|
|
|
|
|
|
|||
|
Unrecognized net loss |
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Income tax |
|
— |
|
|
|
|
|
|
|
|
|
|
Net reclassifications |
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Other comprehensive income |
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Other comprehensive income attributable to non-
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Balance, December 31, 2023 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
13
Item 2
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis should be read in conjunction with STRATTEC SECURITY CORPORATION’s accompanying Condensed Consolidated Financial Statements and Notes thereto and its Annual Report. Unless otherwise indicated, all references to quarters and years refer to fiscal quarters and fiscal years.
Business Overview
With a history spanning over 110 years, STRATTEC has consistently been at the forefront of innovation in vehicle security, transitioning from mechanical to integrated electro-mechanical systems. Our largest customers are three leading automotive OEMs in North America, but we also provide products to other OEMs around the world. Our offering is comprised of products primarily related to vehicle power access, security and authorization and select user interface controls. Vehicle and power access solutions include power sliding doors, tailgates and lift gate systems, as well as power deck lid systems. We also design and manufacture highly-engineered latches and door handles. Security and authorization products are comprised of mechanical and electronically enhanced locks and keys, fobs, passive entry passive start systems, steering column and instrument panel ignition lock housings and related solutions. We established our leading market position within North American automotive customers initially with our legacy mechanical locks and keys. We built upon that reputation with our engineering expertise in security and vehicle access, our flexible and responsive service and our deep relationships with our customers.
Current Business Update
In conjunction with a change in leadership in 2024, we are in the process of developing a strategy to strengthen the Company’s profitability and deliver sustainable sales growth. We expect to improve our business with upgraded systems and processes and a focus on productivity and efficiencies in our manufacturing operations. We are reviewing our product portfolio, focusing on improving our working capital velocity and standardizing/modernizing our support functions. We believe this optimized cost structure will allow us to capitalize on our technical engineering expertise, market leading positions and strong customer relationships to generate innovative solutions and predictable sales growth with new and existing customers.
Volatility in the North American automotive industry is driven by supply chain disruptions, global inflation, thinning labor availability, rising global commodity costs and a changing geopolitical climate. These macro conditions, coupled with changes in production volumes by OEMs in response to new vehicle consumer demand impact our sales levels. It is expected that the North American automotive industry will grow modestly over the next several years. Despite short term softening of North American light vehicle production, we have delivered 6% sales growth over the first six months of fiscal 2025 as a result of new program launches and increased volumes on the platforms we serve. Although supply chain conditions have steadily improved and certain inflationary pressures have moderated, in the current year we continue to see material cost increases for certain commodities and electronics and higher logistics costs. In addition, a majority of our operations are in Mexico and therefore our financial results are impacted by labor inflation (government mandated increase in minimum wages) and we have exposure to changes in foreign currency exchange rates. We strive to mitigate the impact of these cost increases through supply chain and manufacturing efficiencies, strategic pricing and peso forward contracts. During the balance of fiscal 2025, we are focused on executing various initiatives to improve our cost structure, driving cash flow through improved asset and working capital utilization and securing new platforms to solidify future sales growth.
14
Analysis of Results of Operations
Three months ended December 29, 2024 (second quarter fiscal 2025) compared with the three months ended December 31, 2023 (second quarter fiscal 2024)
Second quarter fiscal 2025 net sales were $129.9 million, an increase of $11.4 million (9.6%) compared to the prior year second quarter. Net sales growth was broad based across most of our product portfolio and was driven by net new program launches ($6.0 million) and favorable mix. In addition, net sales on existing platforms increased $7.3 million as a result of customers building inventory levels, the prior year second quarter reflecting increased customer plant shutdowns and slightly higher production volumes. These volume increases more than offset a year-over-year reduction in pricing. The reduction in pricing is a result of the prior year second quarter including $3.9 million of one-time retroactive pricing recoveries, which was partially offset by current quarter margin accretive pricing of $0.6 million. Net sales to our customers in the second quarter were as follows (in millions):
|
|
Three Months Ended |
|
|||||||||||||
|
|
December 29,
|
|
|
December 31,
|
|
|
$
|
|
|
%
|
|
||||
|
General Motors Company |
$ |
39.6 |
|
|
$ |
36.5 |
|
|
$ |
3.1 |
|
|
|
8.5 |
% |
|
Ford Motor Company |
|
29.0 |
|
|
|
24.6 |
|
|
|
4.4 |
|
|
|
17.9 |
|
|
Stellantis |
|
11.7 |
|
|
|
13.2 |
|
|
|
(1.5 |
) |
|
|
(11.4 |
) |
|
Hyundai Motor Group (including Kia) |
|
14.0 |
|
|
|
11.6 |
|
|
|
2.4 |
|
|
|
20.7 |
|
|
Tier 1 Customers |
|
18.6 |
|
|
|
18.1 |
|
|
|
0.5 |
|
|
|
2.8 |
|
|
All Other Customers |
|
17.0 |
|
|
|
14.5 |
|
|
|
2.5 |
|
|
|
17.2 |
|
|
|
$ |
129.9 |
|
|
$ |
118.5 |
|
|
$ |
11.4 |
|
|
|
9.6 |
% |
Meaningful drivers of the change in net sales for key customers are as follows:
Second quarter fiscal 2025 gross profit was $17.2 million, compared to $13.5 million in the comparable prior year period. Despite favorable one-time pricing recoveries, net of supplier pass through requirements in the prior year, gross profit margin improved year-over-year from 11.4% to 13.2% as a result of the strengthening of the US dollar and improved leverage of our fixed cost structure on higher sales volumes.
|
|
Three Months Ended |
|
|||||||||||||
|
|
December 29, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Millions of
|
|
|
Percent of
|
|
|
Millions of
|
|
|
Percent of
|
|
||||
|
Direct material costs |
$ |
72.5 |
|
|
|
55.8 |
% |
|
$ |
65.6 |
|
|
|
55.4 |
% |
|
Labor and overhead costs |
|
40.3 |
|
|
|
31.0 |
|
|
|
39.4 |
|
|
|
33.2 |
|
|
Cost of goods sold |
$ |
112.8 |
|
|
|
86.8 |
% |
|
$ |
105.0 |
|
|
|
88.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Gross Profit |
$ |
17.2 |
|
|
|
13.2 |
% |
|
$ |
13.5 |
|
|
|
11.4 |
% |
Material costs increased $6.9 million year-over-year on higher production levels and $0.7 million of additional costs associated with excess and obsolete inventory. Labor and overhead costs increased $0.9 million year-over-year, the net result of higher conversion costs, partially offset by a $3.5 million benefit from changes in foreign currency exchange rates associated with our Mexican operations. Incremental conversion costs were driven by higher sales volumes, a $1.4 million increase in government mandated Mexico labor costs and provisions for annual bonus expense of $0.6 million (no provision in the prior year), offset by an $0.8 million reduction in depreciation expense.
15
Engineering, selling and administrative expenses were $15.0 million in the second quarter of fiscal 2025, compared to $13.4 million in the prior year period. Increased expenses are associated with continued investments in the business, including business transformation costs of $0.2 million, $0.3 million of incremental equity compensation expense, an annual bonus provision of $0.8 million (no provision in the prior year) and a $0.3 million restructuring charge associated with the elimination of the third shift of our Milwaukee operations. These cost increases were partially offset by lower third party engineering spend of $0.8 million based on the timing of development projects. Both the current year and prior year second quarter include non-recurring executive transition costs of $1.2 million and $1.0 million, respectively.
Interest expense relates to outstanding borrowings under our joint venture credit facility and increased to $0.3 million in the second quarter from $0.2 million in the prior year due to increased interest rates.
Investment income increased to $0.4 million in the second quarter from $0.1 million in the prior year reflecting increased levels of cash and cash equivalents, which are invested in overnight money market funds.
Other expense, net was $0.5 million in the second quarter compared to other income, net of $1.1 million in the prior year. The change was primarily due to changes in foreign currency exchange rates and gains or losses on peso forward contracts.
The effective income tax rate was 22.5% and 25.3% for the second quarter of fiscal 2025 and 2024, respectively. The effective tax rate for both periods exceeds the U.S. federal statutory rate primarily because of the foreign rate differential, state income taxes, limitations on the utilization of foreign tax credits, non-deductible items and discrete items.
Six months ended December 29, 2024 compared with the six months ended December 31, 2023
Net sales in the first half of fiscal 2025 were $269.0 million, an increase of $15.1 million (5.9%) compared to the prior year period. Net sales growth was driven by $15.4 million of net new program launches as well as favorable mix. Additionally, higher production volumes on existing platforms and customer inventory builds increased sales by $6.1 million. Sales increases more than offset a year-over-year reduction in pricing. The reduction in pricing is a result of the prior year period including $9.5 million of one-time retroactive pricing recoveries, which was partially offset by current year margin accretive pricing. Net sales to our customers in the first half of fiscal 2025 were as follows (in millions):
|
|
Six Months Ended |
|
|||||||||||||
|
|
December 29,
|
|
|
December 31,
|
|
|
$
|
|
|
%
|
|
||||
|
General Motors Company |
$ |
81.7 |
|
|
$ |
77.0 |
|
|
$ |
4.7 |
|
|
|
6.1 |
% |
|
Ford Motor Company |
|
61.1 |
|
|
|
51.5 |
|
|
|
9.6 |
|
|
|
18.6 |
|
|
Stellantis |
|
24.5 |
|
|
|
40.5 |
|
|
|
(16.0 |
) |
|
|
(39.5 |
) |
|
Hyundai Motor Group (including Kia) |
|
28.9 |
|
|
|
20.1 |
|
|
|
8.8 |
|
|
|
43.8 |
|
|
Tier 1 Customers |
|
38.7 |
|
|
|
36.2 |
|
|
|
2.5 |
|
|
|
6.9 |
|
|
All Other Customers |
|
34.1 |
|
|
|
28.6 |
|
|
|
5.5 |
|
|
|
19.2 |
|
|
|
$ |
269.0 |
|
|
$ |
253.9 |
|
|
$ |
15.1 |
|
|
|
5.9 |
% |
Meaningful drivers of the change in net sales for key customers are as follows:
Gross profit was $36.1 million in the first half of fiscal 2025, compared to $32.2 million in the comparable prior year period. Despite favorable one-time pricing recoveries (net of supplier pass through requirements) in the prior year, gross profit margin improved year-over-year from 12.7% to 13.4% as a result of the strengthening of the US dollar and improved leverage of our fixed cost structure on higher sales volumes.
16
|
|
Six Months Ended |
|
|||||||||||||
|
|
December 29, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Millions of
|
|
|
Percent of
|
|
|
Millions of
|
|
|
Percent of
|
|
||||
|
Direct material costs |
$ |
150.6 |
|
|
|
56.0 |
% |
|
$ |
140.6 |
|
|
|
55.4 |
% |
|
Labor and overhead costs |
|
82.3 |
|
|
|
30.6 |
|
|
|
81.1 |
|
|
|
31.9 |
|
|
Cost of goods sold |
$ |
232.9 |
|
|
|
86.6 |
% |
|
$ |
221.7 |
|
|
|
87.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Gross Profit |
$ |
36.1 |
|
|
|
13.4 |
% |
|
$ |
32.2 |
|
|
|
12.7 |
% |
Material costs increased $10.0 million year-over-year on higher production levels. Labor and overhead costs increased $1.2 million year-over-year. Excluding the $6.2 million benefit from changes in foreign currency exchange rates, conversion costs increased $7.4 million due to higher sales volumes, a $2.8 million increase in Mexico labor costs and provisions for annual bonus expense of $1.3 million, offset by a $1.5 million reduction in depreciation expense.
Engineering, selling and administrative expenses were $28.9 million in the first half of fiscal 2025, compared to $26.1 million in the prior year period. Increased expenses are associated with continued investments in the business, including additional executive transition costs of $1.1 million, an annual bonus provision of $1.7 million (no provision in the prior year) and a $0.3 million restructuring charge. These cost increases were partially offset by lower third party engineering spend of $1.0 million.
Interest expense relates to outstanding borrowings under our joint venture credit facility and increased to $0.6 million in the current year period from $0.4 million in the prior year due to increased interest rates.
Investment income increased to $0.8 million in the first half of fiscal 2025 from $0.2 million in the prior year reflecting increased levels of cash and cash equivalents, which are invested in overnight money market funds.
Other expense, net was $0.4 million in the current year period compared to other income, net of $1.0 million in the prior year. The change was primarily due to changes in foreign currency exchange rates and gains or losses on peso forward contracts.
The effective income tax rate was 27.0% and 24.0% for the first half of fiscal 2025 and 2024, respectively. The effective tax rate for both periods exceeds the U.S. federal statutory rate primarily because of the foreign rate differential, state income taxes, limitations on the utilization of foreign tax credits, non-deductible items and discrete items.
Liquidity and Capital Resources
At December 29, 2024, we had $42.6 million of cash and cash equivalents, of which $2.5 million was held by our foreign subsidiaries and $40.1 million was held domestically. Excess cash is held in money market funds. The following table summarizes our cash flows provided by (used in) operating, investing and financing activities (in millions):
|
|
Six Months Ended |
|
|||||
|
|
December 29,
|
|
|
December 31,
|
|
||
|
Cash provided by operating activities |
$ |
20.8 |
|
|
$ |
(6.9 |
) |
|
Cash used in investing activities |
|
(3.0 |
) |
|
|
(2.4 |
) |
|
Cash provided by financing activities |
|
— |
|
|
|
— |
|
|
Effect of exchange rate changes on cash |
|
(0.6 |
) |
|
|
0.3 |
|
|
Net increase (decrease) in cash and cash equivalents |
$ |
17.2 |
|
|
$ |
(9.0 |
) |
Cash flow from operations was $20.8 million for the first half of fiscal 2025, compared to a use of cash from operations in the prior year period. The increase in cash provided by operating activities was due to reduced purchasing levels on higher sales, collection of accounts receivable and the recovery of pre-production costs.
Net cash used in investing activities was $3.0 million during the first half of fiscal 2025 compared to $2.4 million in the prior year period. Capital expenditures to support new product programs and the upgrade and replacement of existing equipment were $3.0 million in the current year period compared to $4.4 million in the prior year period. The prior year also included $2.0 million in proceeds received from the sale of our interest in a previous joint venture.
17
Net cash provided by financing activities resulted from purchases of common stock under our employee stock purchase plan. During the first half of fiscal 2025, we borrowed and repaid amounts under the joint venture revolving credit agreement for short term cash requirements.
At December 29, 2024, there were no borrowings outstanding under the $40 million STRATTEC revolving credit agreement and $13.0 million outstanding under the $20 million joint venture revolving credit agreement. The Company was in compliance with all covenants under its credit facilities at December 29, 2024. We believe that the revolving credit line, combined with our existing cash on hand and anticipated operating cash flows, will be adequate to meet operating, debt service and capital expenditure funding requirements for the foreseeable future.
Primary Working Capital Management
We use primary working capital as a percentage of sales (PWC %) as a key metric of working capital management. We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three months sales annualized. The following table shows a comparison of primary working capital (dollars in millions):
|
|
December 29,
|
|
|
PWC % |
|
|
June 30,
|
|
|
PWC % |
|
||||
|
Accounts Receivable, net |
$ |
92 |
|
|
|
18 |
% |
|
$ |
99 |
|
|
|
17 |
% |
|
Inventory, net |
|
82 |
|
|
|
16 |
% |
|
|
82 |
|
|
|
14 |
% |
|
Accounts payable |
|
(51 |
) |
|
|
(10 |
%) |
|
|
(55 |
) |
|
|
(10 |
%) |
|
Net primary working capital |
$ |
123 |
|
|
|
24 |
% |
|
$ |
126 |
|
|
|
22 |
% |
18
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4 Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act, are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures were effective at reaching a level of reasonable assurance. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. We have designed our disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives.
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
19
Part II
Other Information
Item 1. Legal Proceedings
In the normal course of business, we may be involved in various legal proceedings from time to time. We do not believe we are currently involved in any claim or action the ultimate disposition of which would have a material adverse effect on our financial statements.
Item 1A . Risk Factors
An investment in our Common Stock involves risks. Before making an investment decision, you should carefully consider all of the information in this Quarterly Report, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Condensed Consolidated Financial Statements and related notes. In addition, you should carefully consider the risks and uncertainties described in the section entitled “Risk Factors” in our Annual Report. If any of the identified risks are realized, our business, financial condition and operating results could be materially and adversely affected. In that case, the trading price of our Common Stock may decline. In addition, other risks of which we are currently unaware, or which we currently do not view as material, could have a material adverse effect on our business, financial condition and operating results. As of the date of this Quarterly Report, we are providing the following update to the “Business Risks – Cross-border or Tariffs” risk factor contained in our Annual Report.
Business Risks
Cross-border Trade Issues or Tariffs – Our business is impacted by international or cross-border trade, including the import and export of products and goods into and out of the United States and trade tensions among nations. The shipping of goods across national borders is often more expensive and complicated than domestic shipping. Customs and duty procedures and reviews, including duty-free thresholds in various key markets, the application of tariffs, and security related governmental processes at international borders, may increase costs, discourage cross-border purchases, delay transit and create shipping uncertainties.
We manufacture our products in Mexico and rely on a global supply chain to deliver raw materials and components that we need to manufacture our products. Our business benefits from certain free trade agreements, such as the United States-Mexico-Canada Agreement. Political and economic tensions between governments create uncertainty with respect to tariffs, taxes and trade policies. Changes in U.S. administrative policy may strain international trade relations and lead to the imposition of tariffs by the U.S. government on imports to the U.S., the imposition of non-tariff barriers or domestic preference procurement requirements, and/or the imposition of retaliatory tariffs and other reactionary measures by foreign countries involved in our business, including but not limited to Mexico, Canada, China, and European countries. These political and economic changes in policies could have a material effect on global economic conditions and significantly decrease global trade, which could adversely impact our production costs, purchased material costs, ability to compete, customer demand and short-term vehicle production levels and relationships with suppliers and customers. Any of these consequences could reduce profitability on certain of our products and have a material adverse effect on our results of operations, financial condition and cash flows.
Item 2. Un registered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Our Board of Directors authorized a stock repurchase program on October 16, 1996. The Board of Directors has periodically increased the number of shares authorized for repurchase under the program, most recently in August 2008. The program currently authorizes the repurchase of up to 3,839,395 shares of our common stock from time to time, directly or through brokers or agents, and has no expiration date. Over the life of the repurchase program through December 29, 2024, a total of 3,655,322 shares have been repurchased at a cost of approximately $136.4 million. No shares were repurchased during the six month period ended December 29, 2024.
Item 3. Defaults Upon Senior Securities—None
Item 4. Mine Safety Dis closures—None
Item 5. Other Info rmation—
(c) Trading Plans.
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During the fiscal quarter ended December 29, 2024, no director or officer of the Company
Item 6 Exhibits
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3.5 |
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10.6 |
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10.8 |
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10.9** |
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10.10** |
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Form of Restricted Stock Grant Agreement for non-employee directors |
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10.11** |
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31.1** |
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Rule 13a-14(a) Certification for Jennifer L. Slater, Chief Executive Officer |
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31.2** |
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Rule 13a-14(a) Certification for Matthew Pauli, Chief Financial Officer |
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32 (1) |
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101 |
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The following materials from STRATTEC SECURITY CORPORATION's Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2024 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Condensed Consolidated Statements of Income and Comprehensive Income; (ii) Condensed Consolidated Balance Sheets; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated Financial Statements. XBRL Instance Document – the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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104 |
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The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 29, 2024, formatted in Inline XBRL (included in Exhibit 101). |
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* Management contract or compensatory plan or arrangement.
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** Filed herewith
(1) This certification is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
SIGNATURE
Pursuant to the requirements 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.
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STRATTEC SECURITY CORPORATION (Registrant) |
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Date: February 7, 2025 |
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/s/ Matthew Pauli |
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Matthew Pauli |
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Senior Vice President, |
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Chief Financial Officer, |
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Treasurer and Secretary |
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(Principal Accounting and Financial Officer) |
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